People who are far from the economy, financial relations and the banking sector do not even know that since February 1, 2005, the Central Bank of Russia uses the value of the dual-currency basket to regulate the ruble exchange rate. Why use this method, how it is good and what are its negative aspects, we will analyze in this article.
Calculation formula
A dual-currency basket in simple words is the exchange rate of the ruble against the US dollar and the euro. The dollar is given greater preference, and in BC its share is 55%, and the euro, respectively, 45%. That is, in order to calculate the value of a dual-currency basket, it is necessary to use the following formula:
0.55 * current US dollar rate according to the Central Bank data + 0.45 * current euro rate according to the Central Bank data.
Using this formula, the rate is calculated starting from 2007.
That is, a dual-currency basket in simple words is a way to find out the demand for the Russian ruble in relation to a certain proportion of the dollar and the euro.
Dual currency basket corridor
There is such a thing as a floating dual-currency corridor. The Central Bank establishes acceptable boundary values for the rate at which it can fluctuate in the direction of decrease or increase. When values go beyond the limits of the dual-currency basket, the Central Bank regulates measures to stabilize the exchange rate. This practice helps to keep the value of the Russian ruble at the required level to maintain manufacturers-exporters to foreign countries.
We can say that the dual-currency basket in simple words is a way to stabilize the Russian ruble, which is used by the Central Bank. This method determines the real exchange rate of the ruble against the two most common currencies, which makes it possible to understand the value of the domestic currency in the international market.
Appearance story
The idea of introducing an effective exchange rate for the Russian ruble arose back in 2003. The nominal rate needed to be adjusted according to inflation indicators, both internal and external, and also to be compared with the shares of various foreign currencies that participate in the trading operations of the Russian Federation.
Initially, the Central Bank focused only on US dollars when pursuing its policy, but over time, this approach has lost its relevance and there is a need to compare the ruble with another stable currency - the euro. This happened against the backdrop of a weakening dollar and the strengthening of the position of the European common currency during international settlements.
Due to the fact that US dollars and euros were mainly used in trade, the calculation of this indicator was reduced to comparing the ruble with these two currencies.
Get Away From Dollar Dependence
The Central Bank wanted to reduce the impact of the US dollar on the ruble so that it depended less on fluctuations in this foreign currency. For this purpose, a dual-currency basket was created, which became the benchmark of the monetary policy of the Central Bank of the Russian Federation.
When the dual-currency basket first appeared, 90% was given to dollars, and 10% - to the euro. And gradually, the share of influence on the exchange rate of the dollar was decreasing, while that of the euro was increasing, and by February 8, 2007 it had settled on the amount that is still valid today.
Wanted to increase volatility
The increase in the share of the euro in the calculation of the dual-currency basket was carried out in order to reduce the volatility of the ruble, that is, to make the Russian currency easily convertible. The currency basket in simple words is the so-called benchmark by which the Central Bank builds its monetary policy.
In fact, two dual-currency baskets are calculated. The first is the one mentioned above, the calculation of which is to find out the value of the ruble in relation to the US dollar and the euro. The second bi-currency basket of the Russian Federation is used to calculate the real ruble exchange rate based on the exchange rates of those countries with which Russia has any trade relations.
The increase in the share of the euro did not reduce volatility
Time shows that a decline in the dollar share in favor of the European currency helped reduce volatility in the short term. Against the background of the Central Bank's attempt to fill up reserves as much as possible, in June 2015 the Russian ruble was recognized as the most volatile currency.
You need to understand that the more the Central Bank buys foreign currency, the more it issues rubles to the market, which helps to increase supply while maintaining demand at the same level. They say that a sharp fall in the ruble, that is, a significant excess of the upper border of the dual-currency basket corridor, can make the Central Bank's policy review.
The central bank must constantly monitor changes in the value of the US currency and the Eurozone. Experts say that the share of influence of foreign currencies should be dynamic and vary depending on changes in the volume of trade operations that are conducted with these countries.
Oil prices hit ruble
The sharp decline in oil prices dealt a significant blow to the ruble against other currencies. But to resolve the situation without serious losses allows the policy of flexible dual-currency corridor. This means that when necessary, the Central Bank of the Russian Federation simply lowers the lower threshold or increases the upper one. A large gold and foreign exchange reserve, which is used in the most critical moments, allows you to safely carry out such operations.
The value of a dual-currency basket is not more than a simple guideline. Real exchange rates are determined by trading on the Moscow Interbank Currency Exchange. The course for today is determined by the results of yesterday's trading. Compared with other bidders, the Central Bank is the undisputed leader, and it is precisely from its actions that the currency fluctuation depends.
Trading exchange sets course
It would seem that the rate is set as a result of bidding, that is, by market methods, but because of the large-scale amount of resources of such a participant as the Central Bank, he independently sets an acceptable rate for him. Due to the fact that the Russian Federation ranks third in terms of gold and foreign exchange reserves in the world, the Central Bank is able to protect the ruble from almost any speculation.
Such a situation when the rate of the dual-currency basket is reduced is not an absolutely negative factor. Any economist understands that the more expensive the ruble becomes, the more expensive Russian goods will be abroad, and as a result, sellers will face more and more competition. Therefore, it is sometimes beneficial to weaken the currency a bit in order to more successfully sell goods abroad.
And, it would seem, for the population the opposite is true: it is more profitable when the ruble is strong, that is, purchasing power increases, but in any situation, if industry loses its markets abroad, this will lead to a reduction in production, jobs, increased unemployment and other unpleasant the consequences. And this is an undesirable result of the Central Bank’s policy, so the government will always avoid such consequences.
Moreover, the state will always try to find a compromise between exporters and ordinary people who want to buy something abroad. And in this Central Bank will always help dual-currency basket, with which you can always see the real price of the national currency.