Drawing by Konstantin Maler. Click to enlarge
The currency war in Russia has occupied the headlines for days. It seems that ordinary Russians are doing nothing but following the ruble’s dramatic rise and fall against world currencies. In many countries, 10 percent and even 20 percent currency fluctuations in a single day would spell catastrophe, even in the best-case scenario. And that volatility would be followed by the government’s resignation and even riots.
From the outside, it may seem that something similar is going to happen in Russia – the impoverished people (already doubly impoverished in dollar terms) will take to the streets, and the president will be forced to sacrifice Prime Minister Dmitry Medvedev’s cabinet. And although it may seem as I write this that something dramatic is going to happen to the government during Vladimir Putin’s lengthy press conference the following day, it is worth noting that he has not once in his entire tenure made a show of such political changes during periods of public solemnity. That’s not his style.
Moreover, in Russia, the word “catastrophe” should be divided by at least ten if it is to reflect reality, even if the word is mentioned in news reports. The country is huge, but the inertia in all its processes is even bigger.
Suffice it to recall the past few decades, which witnessed several devaluations of the ruble - and on even greater scales. Take, for instance, 1998 (and by the way, today’s situation is much better than 1998). The last devaluation happened a mere six years ago in 2008. Not once did it cause any significant social – not to mention political – protests. And that was a time when the opposition was much stronger and more organized than it is now, and when opportunities to organize protests were much greater.
Foreign currency a foreign concept
There are several reasons that the Russian public is resisting reacting to this round of devaluation. The key reason is that the vast majority of the country’s population lives entirely in the ruble zone and has nothing to do with foreign currency, not even as a means of savings. The dollar is something unfamiliar, detached, and abstract.
At present, Russian banks hold approximately 16.8 trillion rubles in private deposits, or $270.7 million at the current exchange rate. That amount has shrunk in this past dramatic year (the largest outflow of deposits was observed in March, when the confrontation with the West was just beginning and the situation in Ukraine was highly explosive and unpredictable).
However, the overall decline ended up not even representing 1 percent of the total amount of savings as measured at the beginning of the year. Money started flowing back in during the summer, almost completely compensating for the first shock. Meanwhile, foreign currency (forex) deposits now account for roughly 22 percent of private deposits – a 5 percent increase for the year (over the past four years, the share of forex deposits has fluctuated between 17 and 19 percent of total deposits). In other words, there has been no mass flight to forex over the course of this year. Russian law guarantees deposits worth up to 700,000 rubles, which is $11,500 at the current exchange rate (citizens can distribute large amounts of money across various banks). There have as yet been no failures to reimburse citizens for their deposits at banks that have gone bust.
It is important to note that a massive number of these deposits belong to a relatively small number of citizens. The great majority of Russians (according to the Russian Public Opinion Research Center as of the beginning of the year; the number could not have increased during economic stagnation) – 71 percent to be exact – have absolutely no savings. Only 10 percent of the population makes bank deposits of various amounts (not just a current account for direct deposits, which can be removed via ATM card).
Limited impact on savings and international travel
For the average Russian, the concept of “savings” starts with a modest figure of 250,000 rubles, or $4,200 at the current exchange rate. Many Russians hoard their cash at home in preparation for a large purchase. According to various polls, between 4 and 7 percent of Russians keep at least some of their savings in forex. The rest of the population trusts the ruble, in which they earn their salaries (up to 2 percent of Russians earn foreign currency-denominated salaries) and make payments. Therefore, the seemingly thoughtless statement that, for example, “I have never had that currency and I don’t care about the dollar” is quite a widespread everyday opinion.
Of course, people are still interested in the exchange rate itself – more than half of Russians are keeping abreast of events as they unfold. But still, people are watching it as if from afar, as if it were something that primarily affects “spoiled Muscovites” or simply rich people, who have never been much loved in Russia.
Even from the perspective of international travel, the devaluation has a limited direct impact. Some 15 percent of Russians have a foreign passport, the overwhelming majority of whom are people who go to Turkey or Egypt once a year. Between 3 and 5 percent of Russians regularly travel to the West, and those people are already sufficiently well versed in finance to minimize their currency risks and to refrain from succumbing to panic. Prior to the devaluation, bank defaults and the sad experience of all sorts of financial pyramids taught valuable lessons.
With respect to the devaluation’s impact on prices, there is indeed an effect, and it will be even stronger in the coming months. However, the ruble’s 10 percent decline against the dollar adds approximately 1 percent to inflation. The rest of the inflationary rise is rooted in the Russian economy itself, with its insufficient diversification, excessive monopolization, and lack of competition. However, even a 20-30 percent price increase won’t bring people out onto the streets, because this phenomenon is nothing surprising or new for Russia.
Russians put their faith in the government
What makes the current situation unique is that the president and the government are taking advantage of the unprecedented level of public trust in them. The government has never enjoyed this much trust in the entire post-Soviet period. Most Russians believe that Russia has been in the right in its confrontation with the West from the very start, and that attitudes toward Russia are unfair and hypocritical. To put it shortly, quoting a phrase that has become one of the most popular linguistic memes of 2014 in Russia, “Crimea is ours!”
Right now, at least 80 percent of Russians (according to a Levada Center poll at the end of November) trust the president, which is a 150 percent increase for the year. The percentage of Russians who think Putin does not deserve to be trusted has fallen from 12 percent to 4 percent. In contrast with previous years, rising trust in the president is being accompanied by rising trust in other institutions of authority. This year, 46 percent of Russians started to trust the government, compared to 30 percent last year. Russians are also inclined to trust the church, the army, and the security services.
Political parties, the police, and the local authorities enjoy the least trust, but none of them have any real relation to the events going on in the Russian economy in general and on the forex market in particular. In light of the war in Ukraine, Russians are so trustful of the authorities that the ruble’s dramatic battle against the dollar is not yet considered worthy of serious mass unrest.
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