Forum:
Economic and Financial council
Issue: Preventing the rapid decline of the Russian ruble and the rising of the American
dollar from triggering a global financial crisis.
Student Officer: Guus Belder
Position:Deputy-chair
Introduction
The currency of a country reflects, in a way, the economic situation of the
country. When a currency rises in value, investors are more willing to get that
currency, because it's a safe investment or they invest in shares from companies
that are based in the country, so those companies get more money in cash and
the supply shrinks, so it gets more expensive to buy.
The Russian federation
The decline of the Russian ruble is mainly due to the falling price of oil and the
economic sanctions from The European Union and The United States against
Russia. Because the main export and source of income for Russia is oil, the
falling price of oil has a big influence on the exchange rate between the ruble
and the dollar. The sanctions of The EU and The US on Russia have also limited
the export of products and goods from Russia to the EU and the US. This also
had a damaging effect on the economy. Because investors see investments in the
ruble as a tricky investment, they have to get more rubles for a dollar. This is
because the higher the risks, the higher the potential profit must be, other wise
no one would park their money in rubles.
The United States of America
The rise of the dollar is also due to the falling price of oil. Since oil is traded in
dollars and the price is falling, more people want dollars to be able to buy oil.
Also, the employment rates are higher than in the past decades. The economy is
recovering from the 2008 ‘the real estate bubble’ and the collapse of Wall Street.
People and companies gain more trust in the economy of The United States, so
they want to park their money in a safe currency, like dollars. People are also
more willing to invest in US companies, because they are less likely to collapse.
The influence of the price of oil
As stated before, the price of oil plays a very big part in all this. Oil is traded in
barrels and internationally it is custom to pay for oil in US dollars. So in the
United States it is a good thing when the price drops, because more people will
buy oil and therefore they will use dollars. The Russian economy doesn’t benefit
from this drop, because they export it and they get less money for their oil and
they need to buy expensive dollars, compared to the ruble.
Key moments:
- February – March 2014: Annexation of Crimea by the Russian-Federation
- March 2014: The first travel bans and freezing of assets by the EU.
- 2014 – present: There are still different sanctions being imposed on Russia and
pro Russian Ukrainian.
- July – December 2014: Rapide decline of oil prices, from $100 to $60 per
barrel
List of current efforts:
- The Central Bank of Russia spent almost $2 billion to slow the decline down
- The Central Bank of Russia lowered the interest rate multiple times in 2015,
from 17% in January to 11% on 31st of July
The international community will most likely not send any form of aid to The
Russian Federation. The western world doesn’t want to help Russia after
different incidents between the East and the West. Such as The annexation of
Crimea and the other interventions in The Ukraine.
There has also been little to no effort to stabilise the oil prices.
Graphs
The ruble compared to the dollar:
Source: http://www.xe.com/currencycharts/?from=RUB&to=USD&view=1Y
The price of oil:
Source: http://www.bloomberg.com/quote/CL1:COM
Dark green: EU countries that have imposed sanctions on Russia and Russian
individuals.
Light green: Non-EU countries that have imposed sanctions on Russia and Russian
individuals.
Blue: The Russian Federation.
Other text sources:
https://en.wikipedia.org/wiki/Russian_financial_crisis_(2014%E2%80%93prese
nt)
http://www.bloomberg.com/news/articles/2014-12-16/no-caviar-is-not-gettingcheaper-everything-you-need-to-know-about-the-russian-ruble-collapse
http://timesofindia.indiatimes.com/world/europe/Russias-Putin-scraps-NewYears-holidays-for-ministers/articleshow/45641027.cms
https://en.wikipedia.org/wiki/International_sanctions_during_the_Ukrainian_crisis