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FOREIGN EXCHANGE POLICY OF THE RUSSIAN FEDERATION AS AN IMPORTANT ELEMENT OF ITS ECONOMIC DEVELOPMENT
Shcherbakov D.S.
Financial University under the Government of Russian Federation, Graduate Student
Pavlova I. V.
Financial University under the Government of Russian Federation, Assistant Professor Moscow
ABSTRACT
This article presents the current state of Russian monetary policy and analysis of its usage in order to overcome current economic downturn. Today, Russia is in the process of deep economic reforms on the way to the formation of a full-scale foreign exchange market, the liberalization of currency and financial relations and integration into the world economic system, these reforms are mostly caused by the current economic downturn that is happening in our national economy. That is why the problem of regulating the monetary sphere of the national economy occupies a key position in the stabilization programs. Making decisions on exchange rate policy and controlling the degree of convertibility of the national currency of a strategic nature and have special significance for the prospects of overcoming the consequences for today's economic downturn in the Russian Federation and the determination of its place and role in the world economic community. Exchange rate policies, which an important goal is to achieve financial stability, are increasingly becoming one of the fundamental elements of the today's economic policy.
Keywords: monetary policy, exchange rate policy, economic analysis, national currency.
Introduction
Between the currency relations and the economy there is a direct relationship is their mutual influence. Therefore, the regulation of currency relations should be viewed in the economic management system. And since the decisive role in managing the economy as a single integrated system owned by the state, then in the sphere of currency relations the regulatory functions also carried out by the state.
At the present stage of development of international economic relations, in terms of active development of internationalization and globalization processes of the formation of the state monetary policy is closely related to the deep processes taking place not
only in the financial sphere of the national economy, but also in the global economy as a whole. Under the influence of these processes, monetary policy and other elements, such as the exchange rate policy of the state, are increasingly being transformed into one of the main instruments of state regulation of the economy due to the strengthening of its cooperation with the ongoing domestic economic policy. Because of it this work topic is very relevant today.
The main sources of the information for this work were the reports and the guidelines about the national monetary policy performed by the Bank of Russia, researches in the field of foreign exchange regulations made by the specialists from World Bank, IMF and
OECD.
Role of foreign exchange policy in the state economy
At the present stage of development of the world economy in the systems of regulation of the economy (mainly in systems dominated by market conditions) an increasingly important place began to take the monetary policy. Formation of monetary policy of the state is closely linked with the deep processes taking place not only in the credit and financial sphere, but also in the economy of the modern world community as a whole. Among these processes it must be highlighted that the internationalization of production and globalization of capital on a new level, the rapid development of information technology and related structural adjustments, embraced all industrialized and developed countries, increased state regulation of economic processes to avoid or mitigate the most devastating effects of market forces.
Under the influence of these processes, the method of monetary policy, based mainly on the use of foreign trade, is increasingly becoming one of the most important methods of state economic policy as a result of strengthening of its cooperation with almost all varieties of domestic economic policy.
The Russian economic literature on the regulation of currency relations, monetary policy of the state is defined as a set of measures in the sphere of international economic relations, and its specific direction and shape depends largely on the country's position in the world economy and the challenges before the national economy.
Directions and forms of monetary policy are determined by the monetary and economic situation, the evolution of the global monetary system, the balance of power in the international arena. Legally, monetary policy is made by the currency legislation - a set of legal rules governing the fulfillment of residents and nonresidents operations with currency values in the country and residents abroad, which include international and legal standards enshrined in international bilateral or multilateral exchange agreements.
As international experience shows, in a market economy at the same time carried out a market and state regulation of international monetary relations. In the currency market formed a supply and demand of different currencies and their exchange ratios. Market regulation is subject to the law of supply and demand. The effect of these laws under the conditions of competition in the foreign exchange markets provides the relative equivalence of currency exchange, compliance with international financial flows of the world economy and its needs related to the movement of goods, services and capital. In addition, through the price mechanism and dynamics of exchange rates currency market acts as an operational source of information on the state of foreign exchange transactions.
Legally, monetary policy is made by the currency legislation, which is defined a set of legal rules governing the procedure for transactions with currency values in the country and abroad as well as foreign exchange agreements (bilateral and multilateral) between states on currency issues.
The main objectives of monetary policy are directly determined by the objectives of the economic policy of the state and may include achieving and maintaining sustainable economic growth, containment of unemployment and inflation, maintaining the balance of payments equilibrium. The objectives of monetary policy are specified at each stage of development of the country and depend on the current situation and the problems faced by the state.
Foreign exchange regulation in the Russian Federation can be represented as a set of measures implemented by public authorities in order to:
• Establishment and functioning of currency regulation bodies and currency control agents;
• Establishment and implementation of a specific order of operations with currency assets in the domestic foreign exchange market, the order of movement of currency values outside the state or into its territory from abroad and the regime of the foreign investment;
• Security and protection of property rights on currency assets;
• Regulation of international payments;
• Maintain a stable rate of the national currency and the national balance of payments;
• Provide the desired interaction of the country with the world currency market.
Monetary policy can cause a strong macroeco-nomic growth in the country and become its major limitation. The content of monetary policy is multifaceted and covers the key areas of mining development and use of foreign exchange funds, the development of activities aimed at the efficient use of these funds.
The principal objectives of monetary policy in Russia are to control inflation and to stabilize the price level, to stabilize the exchange rate, to achieve equilibrium in the balance of payments and to promote economic development.
As part of the State's general monetary policy objectives and specific tasks at different stages of historical development are determined by the monetary and economic situation of the country, the processes occurring in the world economy, the balance of power on the world stage. Depending on these factors, each country determines the direction and form of its monetary policy. For example, at one stage we should focus on overcoming the effects of the currency crisis, on the other -to direct its efforts on stabilizing and strengthening the national currency. And at some point it becomes possible for the liberalization of currency relations of the country. But in the context of globalization taking place in the world economy and different integration processes, any monetary policy cannot be absolutely independent monetary policy in a single country. In establishing the principles of relations between countries it is inevitable the situation of the discrimination against weaker states. And this factor also affects the regulation of currency relations between the two countries.
Monetary policy is a set of legal, organizational and other measures in the field of monetary relations, implemented by the State within the country and in international monetary relations in accordance with the current and strategic objectives of the country.
Market and state regulation of currency relations carried out in parallel, complementing each other. Market regulation is based on the action of the law of supply and demand in the foreign exchange currency market. Depending on the set of their market relationship. However, significant fluctuations in exchange rates negatively affected both the national and the global economy, leading to serious social consequences. State regulation is intended to eliminate these negative effects.
Monetary policy is an integral part of the general economic policy of the country and serves as a tool for expanding foreign trade and global economic relations. Depending on the purpose we can distinguish current and long-term (structural) policies.
The task of the current monetary policy is to ensure the proper functioning of national and international monetary arrangements, the operational regulation of the exchange rate, foreign currency transactions and the foreign exchange market.
The long-term (structural) monetary policy covers quite a long period of time and represents a set of measures aimed at implementing the successive changes of the key elements of the monetary system as the procedure for international settlement, the regime of exchange rates and parity, the use of gold and reserve currencies, international means of payment.
Objective factors of long-term monetary policy are increasing economic interdependence of national economies and their changing role in the world economy. The main methods of its implementation are intergovernmental negotiations and agreements, currency reform.
Currency relations - a necessary element of the global economy. This relationship, which are carried out by all payment, credit and cash transactions between different countries. The subjects of international monetary relations are the State Governments, enterprises, individuals engaged in foreign economic activity. Currency relations are developed and coordinated by special intergovernmental bodies, properly documented and take binding
on all participants in international economic transactions.
• Achieve Price Stability:
Monetary policy is an important instrument for achieving price stability brings a proper adjustment between the demand for and supply of money. An imbalance between the two will be reflected in the price level. A shortage of money supply will retard growth while an excess of it will lead to inflation. As the economy develops, the demand for money increases due to the gradual monetization of the non-monetized sector, and the increase in agricultural and industrial production. These will lead to increase in the demand for transactions and speculative motives. So the monetary authority will have to raise the money supply more than proportionate to the demand for money in order to avoid inflation.
• Bridge BOP Deficit:
Monetary policy in the form of interest rate policy plays an important role in bridging the balance of payments deficit. Developed countries, like Russian Federation, develop serious balance of payments difficulties
to fulfill the planned policies. To establish infrastructure like power, irrigation, transport, etc. and directly productive activities like iron and steel, chemicals, electrical, fertilizers, etc., underdeveloped countries have to import capital equipment, machinery, raw materials, spares and components thereby raising their imports. But exports are almost stagnant. They are high-price due to inflation. As a result, an imbalance is created between imports and exports which lead to disequilibrium in the balance in payments. Monetary policy can help in narrowing the balance of payments deficit through high rate of interest. A high interest rate attracts the inflow of foreign investments and helps in bridging the balance of payments gap.
• Interest Rate Policy:
A policy to high interest rate in an underdeveloped country also acts as an incentive to higher savings, develops banking habits and speeds up the monetization of the economy which are essential for capital formation and economic growth. A high interest rate policy is also anti-inflationary in nature, for it discourages borrowing and investment for speculative purposes, and in foreign currencies.
Further, it promotes the allocation of scarce capital resources in more productive channels. Certain economists favor a low interest rate policy in such countries because high interest rates discourage investment. But empirical evidence suggests that investment in business and industry is interest-inelastic in underdeveloped countries because interest forms a very low proportion of the total cost of investment. Despite these opposite views, it is advisable for the monetary authority to follow a policy of discriminatory interest rate-charging high interest rates for non-essential and unproductive uses and low interest rates for productive uses.
• Debt Management:
Debt management is one of the important functions of monetary policy in an developed country. It aims at proper timing and issuing of government bonds, stabilizing their prices and minimizing the cost of servicing the public debt. The primary aim of debt management is to create conditions in which public borrowing can increase from year to year. Public borrowing is essential in such countries in order to finance development programs and to control the money supply. But public borrowing must be at cheap rates. Low interest rates raise the price of government bonds and make them more attractive to the public. They also keep the burden of the debt low.
Thus an appropriate monetary policy, as outlined above, helps in controlling inflation, bridging balance of payments gap, encouraging capital formation and promoting economic growth.
Conclusion
At the present stage of development of the global economic community, the state's economic policy is becoming increasingly important for the successful functioning of national economies. This phenomenon is caused by certain changes in the social and economic life.
Economic functions of a modern government are complex and diverse. State regulation implementing socio-economic processes, uses a system of methods
and tools, which vary depending on the economic problems, the country's resources and accumulated experience of regulation systems. One of the methods of state regulation is foreign exchange policy.
Stability and positive influence of the international system in the development of the world economy is caused by the stability of national currency systems. The currency system in each country is a reflection of its real economic processes inside this country. The speed and efficiency of economic growth, aggregate demand, national income, the state budget balance and other economic indicators have a direct impact on the monetary system of the country: the balance of payments, exchange rate, convertibility of the national currency.
Thus, the more economically developed the country is, the higher the degree of its participation in the international division of labor, the greater the benefits derived from international economic cooperation, the stability of its monetary system and its positive effect on the national economy.
Practice has shown the inconsistency of Russian foreign exchange policy:
- a strong dependence on external factors (the world prices for raw materials and the effects of economies of the other countries),
- the changing imperatives between the policy actually pursued by the Central Bank of the Russian Federation, and officially declared targets,
The estimated trade deficit in the coming years will lead to a fundamental change in the exchange rate dynamics. Operations on the issue of money by purchasing foreign currency earnings in the foreign exchange market, allowing to increase the foreign exchange reserves of the Central Bank of the Russian Federation, this operations are spontaneous, a detailed analysis of the sufficiency of the provision of the economy with money were not carried out. The estimated trade deficit in the coming years will lead to a fundamental change in the conditions of the exchange rate perspectives.
However, should be noted the positive trends in the formation of the monetary system in recent years. Among them are:
- the free floating exchange rate allows to mitigate the impact of external economic environment on the state of the Russian economy,
- the use of the currency basket allows to carefully respond to the mutual exchange rate fluctuations of major currencies and, accordingly, to carry out smoothing fluctuations of the nominal effective exchange rate.
The existence of the set of preconditions that allow the improvement of the national foreign exchange policy, ultimately, should lead to its optimization and efficiency.
In this work, in accordance with the tasks, were considered the main directions of foreign exchange policy and types of monetary systems, analysis of different monetary regimes, current issues of national foreign exchange policy were identified and were mentioned the ways to improve the monetary policy at the present stage of development.
In general, with more consistent behavior of the Bank of Russia, and with diversification of foreign exchange portfolio and the overall improvement in the
methods of regulation of the exchange rate regime, foreign exchange policy perspectives at this stage of economic development are significant. The strengthening of the ruble has all prerequisites and all conditions. It is necessary to survive the crisis with minimal losses, and take up the improvement of the existing system of the national economy.
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