For Russians, rewards and risks of soaring ruble

Not long ago, Russians held their currency in such low esteem that some plumbers in Moscow preferred to be paid in bottles of vodka rather than rubles.

Now, lifted by a rising tide of high prices for oil, Russia’s most lucrative export, and a wave of foreign investment, the once humble ruble has made a mighty recovery.
In the process, it is fueling a consumer boom – and, as Russians abandon the U.S. dollar as their currency of choice for savings – a bit of economic chest-pounding, too.

In one example, a pro-Kremlin youth group recently staged a mock panhandling to benefit the dollar. They held out hats for passers-by to make donations: “Raising money for the dollar’s ticket back home,” their signs read.

The strong ruble, which has risen 20 percent in value against the dollar in the past few years, is more than just a source of pride, though. It is also allowing average Russians to buy luxuries they could only dream of a generation ago, from imported cars to flat-screen televisions and beach vacations.

More than that, it is inspiring hope that, just as the rise of the yen and the Deutsche mark to respectability presaged greater economic and global power for Japan and Germany, the roaring ruble could pave the way for a Russian comeback.

After nearly two decades of economic turmoil, that the Russians want to celebrate their rising currency is not surprising.

But the party could be short-lived. Russia takes in about $530 million a day from oil exports. And if the price of oil declines, so will the ruble, and with it the rising expectations of millions of Russians edging toward the middle class.

And even if it does not, the current oil windfall brings dangers of its own. An over-reliance on petro-dollars often leads to underinvestment in industries outside oil and natural gas, and the withering of other domestic businesses. In other words, Russia could become a one-note economy: Saudi Arabia with snow.

So far, though, the ruble’s climb is mostly upside. One measure is foreign currency reserves. Thanks to oil exports, usually paid for in U.S. dollars, Russia has amassed the largest per capita foreign currency reserves of any major economy, including China.

In an oil downturn, the authorities could spend those reserves to protect the ruble. In the meantime, the reserves add an aura of stability to the economy for investors.

International Herald Tribune