Meanwhile the sanctions are having a transformative effect on Russia’s financial system.
Certain much needed technical steps have been taken.
An alternative interbank payment to SWIFT has been created. A Russian credit agency is being set up. MasterCard and Visa have been obliged to locate transfer hubs in Russia and an alternative Russian card system is being created.
Even more important, the sanctions are changing the financial situation inside Russia.
The sharp fall in indebtedness means that money is increasingly staying within Russia.
The Central Bank says that total capital outflow will be only $70 billion this year (half the level of last year).
The bulk of capital outflow - around $50 billion - took place in the first two quarters. It seems in the third quarter there was even a small capital inflow.
The fall in capital outflow is a result of the fall in the level of foreign debt.
What is called “capital outflow” in Russia’s case is mostly debt payment.
The popular image of rich Russians dashing for the exits with suitcases full of money is a myth. That did happen in Russia during the 1990s. However what was different about the crises of 2008 and 2014 is that such capital flight - which should not be confused with normal capital outflow - did not happen to any great degree.
A lot of people converted their roubles into dollars. However they kept their money in Russia in dollar and euro accounts.
There will be more capital outflow in the last quarter as companies have to pay more foreign debts during the traditional debt payment period at the end of the year. However the fact the rate of capital outflow is declining is a further sign that the period of the economy’s deleveraging on its foreign debt is drawing to a close.
What that means is that the Russian economy’s long period of dependence on foreign capital is finally drawing to a close.…And much more about the Russian financial system. Important.
Russia Insider
How Sanctions Are Strengthening Russia's Financial System
Alexander Mercouris
2 comments:
I don't get the definition of a capital outflow?
They say if the conversion is roubles to dollars in a Russian located bank with Russian account holders ... There is no capital transfer. (I don't agree)
It's obvious that if roubles in a Russian located bank with Russian account holders are converted to dollars in an American bank with Russian account holders. It's a capital transfer.
What if roubles in an American located bank are converted to dollars in an American located bank?
What if roubles in a Russian bank with Russian account holders are transferred to an Americans account in a Russian bank?
The only thing that makes sense to me is this.....if roubles change to dollars it's a capital outflow.
I thought Capital Outflow was just a measure of roubles sold against roubles bought on the currency exchanges. I always thought it was slightly bogus and open to manipulation by highly leveraged speculators, like Soros.
Anyone help me here?
Means that Russian firms buy foreign currency with domestic currency to pay debts. The so-called flow is accounting flow on balance sheets and balance of payments accounts.
Outflow is when domestic currency is used to purchase foreign currency for use abroad and inflow is when foreign currency is used to purchase domestic currency for use domestically.
The flow would be neutral if the Russian firm was billing in foreign currency (oil sales in USD) and then using the USD (foreign exchange) abroad. That would be a wash.
Capital is said to flow in when foreign currency is used to buy domestic currency to use domestically, and to flow out when domestic currency is sold to purchase foreign currency for use abroad.
These flow are factors affecting the exchange rate of the domestic currency, demand for it tending to increase its relative value and vice versa.
As the foreign debt of domestic firms is paid down, there is less selling pressure on the domestic currency to obtain foreign currency.
So the paying down of foreign debt strengthens the Russian consolidated balance sheet and takes pressure off the domestic currency.
The US had been aiming at pressuring Russian firms holding a lot of foreign debt, which would have resulted in a balance of payments issue for Russia. But that has not happened and doesn't look like it will. Russian finances seem to be secure against foreign attack.
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