Exchange wide set of goods and services of one

Exchange rate and trade in Russia

Introduction

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The
exchange rate has essential value for open economies to which number also the
economy of Russia belongs. Change of an exchange rate, as a rule, immediately
influences the level of the internal prices because of the changes in price of
the imported goods in national currency in two ways:

First, it
influences the prices of the imported final goods and services;

Secondly, affect
the prices of goods and services which production exported within the country,
and include costs of imported components. At the same time change of an
exchange rate affects export volumes that can also affect the level of the
internal prices: in case of increase in export with other things being equal
the prices of export goods within the country will increase and vice versa.
Moreover, the key macroeconomic indicators of the country, such as gross
domestic product, rates of economic growth, inflation and interest rates depend
on an exchange rate. For this reason, a main objective of a currency policy of
the state is support stability of national currency rate and equalize of the
balance of payments.

As
indications of an exchange rate, several variables are used. The nominal exchange
rate  is the cost of unit of one currency
expressed in terms of another. It is used for carrying out the current
transactions and calculations, but is not effective for assessment of state of
the economy and economic development of the country in the long-term period as
does not consider impact of inflation on foreign and national currencies. More
informative indicator is a real exchange rate in which calculation change of
price level in national economy and country’s national currency. It generalizes
ratios of the prices of a wide set of goods and services of one country and a
similar set in other country. Besides, the real exchange rate is a basis for
the analysis of macroeconomic conditions of supply and demand in open economy
and helps to reflect most adequately the economic indicators allowing to
compare expenses in the internal and external markets. The real exchange rate
also characterizes competitiveness of goods of the country in the world market.
Weakening of a real exchange rate is the evidence of reduction of prices of
domestic goods in comparison with world, and, therefore, growth of their
competitive advantages.

Literature review

The Bank of
Russia is calculating a real effective exchange rate as well; it represents a
ratio between national currency and currencies of other countries, evaluated
according to the specific rate of currency transactions of this country in a
foreign trade turnover adjusted for price level. Thus, it reflects average
dynamics of the movement of rate of national currency on the relation to
several currencies. It is the most important for trade operations of this state
in the world market. The Bank of Russia at creation of the index of an
effective course counts an average geometrical bilateral course with the scales
equal to shares of the main countries – trade partners of the Russian
Federation – in a foreign trade turnover of Russia. For deflating of nominal rates,
the consumer price index is used.

 

 

 

 

 

 

 

Table 1.1: is representing
distribution of the countries on groups according to their share in a foreign
trade turnover of Russia.

Group of the countries
– the foreign trade partners of the Russian Federation.

 

Index of actual Ruble exchange
rate within partners

Total

Less than 1%

1-2%

2-4%

More than 4%

Numbers of countries

12

9

7

8

36

Source: Statistics of the Bank of Russia of
February 6, 2015

 

        The most of the countries which
currencies are considered when calculating a real effective rate in foreign
trade with Russia have a share less than 4%. The eight of the countries which
specific weight in the index of actual effective ruble exchange rate more than
4% there are China, Netherland, Germany, Italy, Ukraine, Belarus, Japan and
Turkey, and their general share in a foreign trade turnover of Russia has made
58,52% in 2015.

      Thus, the index of a real effective
exchange rate is the main indicator that characterizing dynamics of the
currencies and change of competitiveness of the countries in the world market –
increase in actual effective rate of national currency leads to decreasing in
competitive situation: export becomes more expensive, and import is cheaper.

        

         Analysis reveals that the mean of
exchange rate volatility and mean of export or import growth series in Russia.
In other words, there is an obvious association between periods of high
exchange rate volatility and the periods of low growth in trade.

Tables 1.2 and 1.3; During the period of the Russian
currency crush, extremely high volatility period is observed in Russian
exchange rate having the mean values of 0.2217.

After
Russian financial default, from the mean values, one can see roughly that these
economies have achieved to stabilize the exchange rates considerably in comparison
with previous periods. On the other hand, the mean values of export and import
growth series increased.

Russia
adopted: horizontal bands in 1995; crawling bands during 1996- 1997; managed
floating in 1998; independent floating in 1999; after the Russian crisis
managed floating until the end of 2006.

 

Table 1.3: Fluctuation of Rubble

 As it has been noted above, in economic
literature there is a set of the domestic and foreign works devoted to
identification of interrelations between an exchange rate and trade of Russian national
economy. Different researchers, using various theoretical models and being
based on various data that give sometimes to opposite conclusions. Therefore, influence
of devaluation of dynamics of production and real GDP still remains open.

One of the
researches devoted to impact assessment of an exchange rate on cumulative
release in Russia was conducted by Evdokimova, 
Zubarev and  Trunin (2013).
Authors constructed model which estimates the nature of influence of an
exchange rate on dynamics of production in general in the Russian economy and
also in the separate industries at the period between crises of 1998 and 2008.
Within the research they established that significant statistical influence of
change of a real exchange rate on the total volume of production of the
industries of the Russian industry in 2001-2008 is absent contrary to rather
widespread opinion on a negative impact to the loudspeaker of the Russian GDP
of strengthening of ruble. Therefore, in the Russian conditions to speak about
unambiguous domination of positive or negative effects from strengthening of an
exchange rate it is impossible. Nevertheless, industry clusters, winning
(metallurgy, light industry and automotive industry) and losing (fuel and
energy complex, the chemical and petrochemical industry) from strengthening of
a real course and also not depending on this factor were revealed. Authors note
that the results received by them testify in favor of a hypothesis of change of
nature of influence of a real course on economic activity after crisis 2008,
however the small period of observation doesn’t allow to obtain qualitative
statistical data yet and to completely confirm or disprove it.

A few other
results are received by  Smirnov,
Balashova, and Posvyanskaya (2010). They investigated degree of the involvement
of different types of economic activity into foreign trade, having calculated
the relation of their value of export and import to the value of industrial
release converted into dollars at an average annual course and, having
allocated the largest branches, have sorted them on focused on export, import
and mixed as they can strongly depend on fluctuations of an exchange rate. The
ratio of size of export and import became criterion of definition like the
foreign trade orientation of branch. At excess of export over import more than
five times the branch has been classified as export-oriented; at their return
ratio — import-oriented. If the ratio of indicators didn’t exceed two-three
times, then the branch was classified as branch of the mixed type. At the same
time, among the branches focused on export (13 industrial and 2 nonindustrial)
subsectors of energy industry, ferrous and nonferrous metallurgy, primary
processing of wood, production of mineral fertilizers are presented; from
agriculture — production of grain. First of all, the pharmaceutics, the food
industry and a machine-building complex in which are especially allocated the
equipment for metallurgy, mining and construction belong to the branches
dependent on import production.

By results
of a research about 45% of industrial production fall to the share of the
branches specializing in export which more depend on a condition of the
international markets and the prices of their production than on an exchange
rate. However at deterioration in a world environment they start decline of
ruble. 25% of industrial production are the share of a share of the branches
focused on import. These branches have important foreign trade communications
and respectively rather strongly depend on fluctuations of currency. The
remained 30% of industrial production are branches which activity is almost not
accompanied by foreign markets therefore on their functioning change of course
doesn’t make destructive or positive impact. Therefore, in the conditions of a
favorable environment in the world markets of raw materials only 25% of the
Russian industrial production can be susceptible to change in the exchange rate
of ruble, however in case of deterioration in the external economic climate
already 70% of branches will be dependent on dynamics of currency. Such
situation was observed during sharp aggravation of crisis of 2008, and the
devaluation of ruble which is carried out then has improved matters of
exporters a little, but it would be absolutely inefficient in case of long
deterioration in a world environment.

 

Article
of  Berezinskaya(2017) in which the
dependence of the Russian economy on import, and, as a result, sharp
fluctuations of an exchange rate is considered is of special interest. The
author gives statistics according to which in recent years import much more
defines both quality of growth of economy, and its rates, i.e. the dependence
on import of intermediate and investment goods increases. At the same time,
delay of growth of import of investment goods or his falling didn’t become the
reason of preference of domestic analogs instead of import production of
investment demand. The Russian enterprises seeking to modernize the production
during weakening of rate of national currency generally postponed purchase of
the import equipment, but didn’t replace him domestic. The smallest sensitivity
to rate fluctuation of ruble is observed at import of consumer goods. He was
partially replaced by production of the Russian productions: this conclusion
can be drawn proceeding from the fact that import of consumer goods in relative
expression was reduced. During the pre-crisis period (nine months 2008) the
cost of import of consumer goods was close to 60% of a turnover of the Russian
enterprises which are turning out products of consumer demand while in 2013 —
September, 2014 this ratio was reduced to 48%. However the steady demand for
import production which is almost not reacting to dynamics of ruble exchange
rate still remains.

 

 

 

 

Conclusion

Based on
the studied material it is possible to draw the following conclusions:

1) Most export-oriented
companies of the Russian economy, first of all companies which mining natural
resources show bigger growth in other hand companies which  focused on domestic market show lower growth.
It creates risks for economy in general because of low diversification and raw
orientation of development in the short-term. However, on production of this
sector more impact is made not by dynamics of an exchange rate, but change of a
world environment.

2) As for
import substitution of goods and services, in the conditions of short-term
unpredictable devaluation of Ruble it is possible only for a small amount of
goods. For achievement of import substitution of goods and services in the
long-term period it is necessary to introduce new technologies, to bring the
level of the made goods to necessary competitive level. 

3) The
following conclusion belongs to an import substitution in the technological
impact without which the full solution is impossible, according to the second
point. We will note that modern economic realities are that  the impact of high technologies in Russia is
developed poorly therefore production of this investment in most cases can’t
compete with import analogs. Thus, process of reduction of dependence of the Russian
economy on investment goods is needed of implementation of the large scientific
and technical projects taking long time and introductions of their results in
production. But at the moment weakening of ruble exchange rate leads to
essential increase in cost of investment projects that promotes delay of
process of modernization of the Russian economy due to introduction of import
technologies.