Russia Economy Thread

[NiuBiDaRen]

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With the 25th St. Petersburg International Economic Forum (SPIEF), hailed as the "Russian Davos", beginning on Wednesday, Russia-China cooperation under the theme "New opportunities in a new world" came under the spotlight, as the Kremlin's interests appeared to shift toward the East in the face of mounting Western sanctions and pressure.

As a partner of Kremlin with no limits, Beijing could see its investment "filling the vacancy" when Western businesses withdrew from the Russian market due to political tensions, and more pragmatic talks on boosting trade, facilitating logistics and advancing settlement in local currencies are expected at the forum, also the upcoming BRICS summit.

A business dialogue between Russia and China was scheduled to take place on Thursday as the sideline event of the forum where speakers were expected to detail steps to improve trade and economic cooperation between the two countries, according to Russian media reports. The talk will also focus on the role of central authorities to regional administrations and companies as well as industry associations to achieving the goal of $200 billion in trade by 2024.

 

[gelgoog]

In case you guys haven't been catching up, Russia has by this time removed most of the capital controls they put into place.
The key rate was lowered back to 9.5% which was the rate before the war started. And Russian citizens have no limitations on money transfers anymore including in foreign currency. Russian export companies also no longer need to convert their foreign currency earnings into rubles.

However limitations on monetary transactions for foreign companies and citizens still exist. Russia is supposedly also relaxing money transfer with regards to payment of salaries and/or remuneration for services for foreign individuals.

Payment of debts in foreign currency to countries in the list of unfriendly countries is still being made to special local Russian currency accounts in rubles.

 

[xypher]

In case you guys haven't been catching up, Russia has by this time removed most of the capital controls they put into place.
The key rate was lowered back to 9.5% which was the rate before the war started. And Russian citizens have no limitations on money transfers anymore including in foreign currency. Russian export companies also no longer need to convert their foreign currency earnings into rubles.

However limitations on monetary transactions for foreign companies and citizens still exist. Russia is supposedly also relaxing money transfer with regards to payment of salaries and/or remuneration for services for foreign individuals.

Payment of debts in foreign currency to countries in the list of unfriendly countries is still being made to special local Russian currency accounts in rubles.

During the recent economic forum, Igor Shuvalov (previous first deputy prime minister of Russia, now chairman of VEB.RF) said that the Russian economy needs "70 RUB per USD and 7.5% rate". However, judging by the fact that the ruble did not even react to the removal of capital controls and rate cuts, it might essentially mean that CB cannot really shape the ruble's path under market conditions anymore since the massive appreciation is primarily caused by the factors outside of CB's control - high energy prices coupled with heavy import restrictions, which lead to record trade surpluses. Under normal circumstances, these record surpluses would be beneficial to the economy but in addition to import restrictions (cannot buy a lot of stuff with those USDs), Russia is also facing a financial blockade (cannot invest those USDs) which effectively leads to the fact that all those surplus USDs are practically useless and companies are just converting them to rubles, driving the currency even higher. To make things worse, Russia cannot "import" hard currency, meaning that those surpluses are digital - which, again, would be totally OK during normal circumstances (I mean, no one is sending ships full of cash every time a transaction happens) but, considering that the West already stole Russian USD reserves, those digital surplus USDs might as well be some kind of in-game currency, lol.

So, all in all, Russia right now is essentially exporting energy and resources for some virtual currency that it cannot spend on anything of value. I think the government is realizing this, which is why we are seeing Gazprom limiting gas exports through one pipeline, other export limitations might follow soon methinks. It would be a logical thing to do - use those resources to tame down some of the inflation at home, deal economic damage to the adversaries (through even higher energy prices plus power outages and damage to the European industry), and reduce the currency inflows to drive ruble to the desirable corridor of 70-80 RUB per USD as imports are out of Russia's control.

 

[gelgoog]

The Russians just need to continue doing bilateral trade deals and currency swaps. And once enough of a critical mass is reached, if it comes to it that they need to devalue the currency, they can just print more money and spend it on stuff. While they have no need for dollars themselves, all the other currencies conduct trade with dollars, so indirectly the value will still change eventually.

As for where to recycle all the useless Euros and Dollars they have, the answer is pretty simple. They can do investments in countries not covered with sanctions and deposit in places where the money is immune from sanctions. The Russian government already announced they are going to make investments into Indian companies for example. And they might do the same thing to Turkish ones, or companies in the EAEU.

The money might also be moved to accounts in the Middle East. After all the crap the Western financial sector pulled off I expect the Middle East's banking sector to significantly rise in importance.

 

[xypher]

The Russians just need to continue doing bilateral trade deals. And once enough of a critical mass is reached, if it comes to it that they need to devalue the currency, they can just print more money and spend it on stuff. While they have no need for dollars themselves, all the other currencies trade with dollars, so indirectly the value will still change eventually.

As for where to recycle all the useless Euros and Dollars they have the answer is pretty simple. They can do investments in countries not covered with sanctions and deposit in places where the money is immune from sanctions. The Russian government already announced they are going to make investments into Indian companies for example. And they might do the same thing to Turkish ones, or companies in the EAEU.

The money might also be moved to accounts in the Middle East.

Well, correct me if I am wrong but a lot of Russian banks are cut off from SWIFT so those literally cannot move USD\EUR at all, the others seem to be trying to lower their currency exposure as multiple Russian banks have started implementing commissions for holding USD\EUR over a certain limit (e.g. above 5000 for Raiffeseinbank, 10000 for Tinkoff, etc.). Even if the blocks are out of the way, the transactions have to get cleared by American or European banks to pass, meaning the flow of those virtual currencies can be controlled by the sanctioning countries. So, the question is - can they do those investments or even move USD\EUR en masse to accounts outside of Russia?

 

[gelgoog]

The banks they are making the payments to, like Gazprombank, are not sanctioned. They can still move money around via SWIFT.

And if they do not pay, they do not get energy. It is as simple as that. Do you think Russia cannot survive without exporting to the West?
Every single country needs oil.

And global oil supply is not going to increase any time soon. The world economy is getting out of COVID-19 lockdowns. So oil demand will increase. As will for all other energy. So what you think will happen?

 

[xypher]

The banks they are making the payments to, like Gazprombank, aren't sanctioned. They can still move money around.

They can use SWIFT transactions but that does not mean they can freely move the money around. For example, non-American banks have correspondent accounts in US banks that actually hold those dollars, meaning that the transaction can be blocked there. In addition to that, clearing operations in respective currencies are also performed by American\European banks.

And if they do not pay, they do not get energy. It is as simple as that. Do you think Russia cannot survive without exporting to the West?
Every single country needs oil.

And global oil supply is not going to increase any time soon. The world economy is getting out of COVID-19 lockdowns. So oil demand will increase. As will for all other energy. So what you think will happen?

They are paying but those payments are not as useful as they were, because Russia is limited in terms of how they can spend those currencies. So far, Russia kept exporting despite more and more restrictions on how they can spend the surplus money. As I've said, with Gazprom's recent moves, we might be seeing the reversal as the Russian government realizes that the money they are getting is becoming more and more useless.

 

[gelgoog]

Why do you think the Russians made the gas for rubles change?

You have to open up two accounts at Gazprombank. One in dollars or euros and another in rubles. The payment only clears out after the money is converted into rubles. Do not pay in rubles and your gas is cut. What this likely means is those dollars or euros will be moved around to a non-Russian financial institution (or several) before the transaction clears. And if the move is not confirmed, the rubles are not granted.

No money, no energy or whatever.

 

[xypher]

Why do you think the Russians made the gas for rubles change?
You have to open up two accounts at Gazprombank. One in dollars or euros and another in rubles. The payment only clears out after the money is converted into rubles. Otherwise your gas is cut. What this likely means it those dollars or euros can be moved around to a non-Russian financial institution before the transaction clears.

Yes, and this only pushes the ruble up as Gazprombank essentially sells those dollars\euros on the market, then buys ruble. In normal circumstances, Russia would only exchange some part of the currency inflows and spend the other on imports\investments. Now, the spending part is severely limited which leads to this appreciation cycle. Therefore, one way out is to limit the currency inflows.

 

[gelgoog]

Not just push the ruble up. It pushes the other currencies down.

Why do you think the euro is losing value and the fall sped up after gas for rubles scheme?
Most gas payments are likely being made in euros.

If the Russians did the same with oil payments in dollars, i.e. make them pay in rubles, then dollar would likely collapse.

And yes the Russians can reduce the amount of exports to these sanctioning countries to curb the appreciation of the ruble vs euro and dollar. Of course, the thing is, the Russians do not want to be the ones to break the contracts and pay penalties. So, of course, they won't unilaterally break contracts. But you will see them continue figuring out ways to stop incoming unreliable money flows from these countries.

And in the short term, you can't just change all your customers and move all the logistics around just like that, this will take time.