Depreciation In Russia

774 Words4 Pages
A foreign exchange rate is the rate at which one currency changes into another. The rate depends on the foreign and domestic demand and supply, country’s trade balance and the strength of the economy. Russia is currently going through a depreciation of their currency, which is a decrease in the value of a currency against another foreign currency, in this case being US dollar. The article states that ruble has depreciated by 2.1% and dropped to 64.1810. This is mainly caused by oil prices decreasing (to $49.21 per barrel), as oil and gas contribute to about 50% of Russia’s budget revenue. This situation is illustrated on the diagram below.

Diagram 1 shows both supply and demand of the Ruble (in blue). Diagram on the left shows a decrease in demand for Russian ruble in the US due to a fall in the world price of Russia’s major export, which is oil. Simultaneously the supply of the Ruble has decreased, represented on the right. As demand falls (from RUB to
…show more content…
Devaluation has a similar definition as depreciation, however it the government officials who are lowering the value of the currency. A possible reason could be making the Chinese exports look cheaper at the world market. This will have a positive effect on Russia’s economy, as most of the Russia’s imports are Chinese exports. Having lower prices will potentially increase imports and in the long run Russian ruble will increase in its value, as assumed in the article, and this is because more people will demand the currency.
However, there are also other strategies that can increase ruble in value. One of the possible strategies is increasing interest rates in Russia. This will increase the demand for the domestic currency; because saving in Russia will seem to have a better return in addition there will be an increase in the incentive for foreign investors to move more funds into Russia. The diagram below illustrates this

More about Depreciation In Russia

Open Document