Monday, November 10, 2008 0 comments

Russia Likely to de-value the Ruble

It looks like Russia may let its currency depreciate. The Russian government has been expending huge sums trying to prop up its currency but it looks like a complete waste of money. I agree with the analysts in the story who say that Russia should just let its currency fall. I think it's better to let the currency be set by the market. If investment flees the counry, so be it. No point wasting billions on a futile task.

The amazing thing to me is how badly the commodity exporters are doing even though prices are only back to what they were one or two years ago (at least for some commodities like oil.) The affected businesses were built on hope or involved very poor project management. If you are struggling with oil prices at $60, I wonder what would happen if oil hit $45 or $50 (not that I'm predicting that)?

I'm not sure if this is going to set off a round of huge de-valuations everywhere else. Currency de-valuations against the US$ will hurt American exporters and worsen the trade deficit picture; while de-valuations against the Euro will hurt EU members. (Of course, do note that if the currency appreciates, owners of assets in that currency will benefit.)

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