The west launched a financial Armageddon on Russia in the wake of Ukraine special ops, with a stated purpose of making Russia pay for the sin. A plethora of sanctions, prohibitions and restrictions were imposed so that Putin and Russia are suffocated to death. At the periphery it appeared a reality. But….
Putin pressed the calm button and contemplated over a bouquet of counter measures, some of whom he borrowed from the playbook of the west amended suitably, that have the potential to make all adversarial acts to backfire on the initiators themselves. Understanding business strategy at the back of his hand, he sprung out a clear pathway where strategic and tactical moves that fit well into a unique architecture with spontaneous momentum were quickly announced and adopted.
Expectedly, these reactions, which I list below, brought forward two results: one Putin survived grabbing success from the jaws of defeat in the financial war. Secondly the western hegemon ended up scoring its own goal as food and energy security were blown into smithereens.
1. Gold convertibility of rouble was announced and implemented so that Ruble is backed by gold rather than influenced by sentiments prevailing in financial markets. Pegging of gold to Ruble is fixed at one gram of gold at 5,000 Rubles and an ounce of gold at 160,000 Rubles. Central Bank of Russia is authorised to sell Ruble only on the disposition of gold by the buyers. The market based valuation of Ruble was jettisoned and in its place centrally fixed value was promulgated, eliminating demand–supply mechanism that impacts re-valuation or de-valuation at the pegged price. Anyone can hold Rubles but nobody can sell these as the sole buyer is Russia’s Central Bank.
2. As an interim measure, exporters were goaded to lodge proceeds from exports after converting into Rubles to their bank accounts. This was initially placed at 80% of the incoming remittance and was progressively reduced as position stabilizes. A number of channels were announced where routing take place, mainly selected from banks and financial intermediaries that are not subjected to sanctions imposed by the west. Exports of wheat, gas, petroleum products were priced in Ruble even though the contract specified currencies other than Rubles.
3. Yet another interim measure was raising interest rate to 20% promptly to smoothen out-flow of Rubles to the west but being retained in the vaults of domestic commercial banks. Later this rate was reduced to 17% but still much attractive for domestic investors and any willing investors from foreign sources.
4. No exports of sensitive material or dual-purpose items were allowed. Russia possesses one of the largest reserves of minerals including but not limited to iron-ore, coal, gold, diamond, nickel, uranium, platinum, and palladium. The latter along with neon are vital for chip manufacturing. The fact of the matter is west cannot do without Russian raw materials.
5. Cumulatively, these measures built up a solid bulwark of defence as Putin rightly pointed out in his latest statement: “I am referring to the growth of inflation and unemployment in the United States and European countries, the decline in the standard of living of Europeans, the devaluation of their savings. Whereas Russia has withstood this unprecedented pressure. The situation is stabilizing.”
Cheers!
Muthu
Ashraff Rajulu
Business Strategist
Mobile: + 94 777 265677
E-mail: cosmicgems@gmail.com
Blog: Business Strategist
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