The Ruble, Russia, and the History of Twelve Devaluations

Bloomberg made the ruble’s collapse look like the end of the world yesterday. It’s not the first collapse of this kind, so let’s put some history together.


The last time the ruble collapsed in 1998, when the Russian government defaulted on its ruble-denominated debt. Economic recovery came immediately. That situation is only tangentially reminds what’s happening now. Right now, it’s the the private sector who is heavily indebted, not the Russian government. Secondly, Russia had several years of recession before 1998, and much physical capital dropped out of production to be available later. As for 2014, physical capital is fully employed and investments are now a huge concern.


In its best years, Russia accumulated forex reserves by running a trade surplus:


The reserves remain in the range from $200 bn. (informal estimates adjusted for “availability”) to $360 bn. (official). The Central Bank provides this liquidity to banks that have to pay their foreign credits and avoids dumping dollars directly into the market. Huge reserves leave an opportunity to wipe out speculators playing against the ruble, but it’d eradicate reserves, which may be needed later to save the Russian financial sector from bankruptcies and their consequences for the economy at large.

That is, the Central Bank ensures forex liquidity for the economy and allows the exchange rates to go up and down. Also, contrary to some media stories, Monday’s interest rate hike addresses inflation, not exchange rates. That’s according to the Head of the Bank.

Other Countries

Twelve countries that had episodes of rapid (and not so rapid) devaluation. The interesting part is (a) what’s happening to output after devaluation, (b) under what conditions the local suggency recovers (hint: low inflation).

Exchange Rate vs GDP

South-East Asia, 1997


Latin America


Exchange Rate vs Inflation

South-East Asia, 1997


Latin America