Monday, 22 December 2014

Putin's administration doesn't know how the defend the ruble

The fundamental element behind money value is taxation. Fiat money is tax-driven money. Thus, once you levy a tax upon something (goods, labor, property etc) and demand payment only in a specific currency - you create permanent demand for that specific currency.

So when you have trade partners who are dependent on one or more of your exports - it is unsound (geopolitically and economically) to demand payment of your exports in foreign currency, especially when there's weak demand for your own currency (the ruble) to the outside (non-domestic) market. By changing accepted payment from foreign currency to rubles, you increase the demand for your currency. By lowering the supply of rubles for the outside market, you again, make your currency more valuable. Thus, you force your trade partners to increase their exports to you - in order that they may obtain the necessary rubles to pay for the seminal goods and resources that they can only buy from you.

Thus, Russia would be able to secure its adequate supply of imports and keep the value of the ruble from depreciating too much too rapidly (have healthy inflation).

No comments:

Post a Comment