Hello this is my rant in figuring out how things work. Most of this is my opinion although I do link to historical things for background.
About 2-3 years ago there was an interesting occurrence. Remember the whole 700 billion dollar bailout and all that, well this is not about it per se.
This is about Russia devaluing the ruble (from about 25 to 35 to $1)
Ruble Hits 11-year Low As Russia Accelerates Devaluation - Money Morning more or less and then the ripple effect hitting Ukraine which went from around ~5.5 to $1 dollar to 8-9 then stabilized around 8 it has now with IMF backing. Poland went from around 3 to $1 dollar to 3.80 more or less. A lot of it was due to oil prices being at ~40 bucks a barrel and trepidations about repeat of the 90s.
Foreign Currency Market | Bank of Russia
Notice the ripple through was about 20-33% devaluation through the countries. The timeline is a bit disjointed though because first Russia devalued then months passed for it to effect Ukraine and eventually Poland.
Ukrainian hryvnia slump. Devaluation of Belarusian ruble unavoidable - Charter'97 :: News from Belarus - Belarusian News - Republic of Belarus - Minsk
UPDATE 1-Ukraine fails to clinch IMF deal as mission leaves | Reuters
During the past several years Russia has been moving to free-float the ruble. If they actually do it and let go, long term it would be a good thing. The volatility short term particularly in light of their WTO entry (right now) is what my thoughts revolve around.
Belarus ruble sinks 34% in full free float - FRANCE 24
Belarus went full-free-float it seems, granted it was under duress but the fact remains.Rouble hits two-year low - Roubles.com - Russian Rouble News
Are we going for a repeat with slightly different outcomes?
The reason why Ukraine was saved in the prior event was due to exposure by Austrian and Hungarian banks which bought into the boom boom years and paid exorbitant prices for Ukrainian banks. In essence the IMF bailout for Ukraine was to save Austria to a large degree.
Trade flow questions are even more odd. If the Ruble falls and the Russian gov't decides to simply let it free-float because sustaining it would be more damaging and assume we get a 10-20% devaluation that must ripple through Ukraine (which is using what remains of its unencumbered reserve to hold the hryvnia upright) and then Poland and to some degree Baltics (which were effected the last time around as well).
Idea behind this ripple effect has on competitiveness in these countries price wise (for their goods that are not dollar tied [energy]) goes up significantly. Wages fall since their currencies fall and prices for their goods fall on world market. Another factor this time around would be the Russian wto entry, while in reality it gives Europe more entry into the market if the devaluation occurs as the marginally increased deployment into the market happens on the margin a lot of good prices would be less competitive since their prices would increase and continue to increase short term. So imagine your a German company that has 5% of its tea pots exported to Russia and with WTO entry the tariffs and prices you can charge Russian consumers go down so you can export 10% tea pots but as you ramp up production and ship those goods the devaluation happens making those teapots 25% more expensive in relation to the price they were prior WTO joining. Same thing would happen with Ukranian and Polish markets and due to trade gravity it would happen faster there for Germany at least. Now ripple this across the Eurozone on the margin it would dent growth prospects even further.
Absurd thoughts are as follows every country that is not Euro bound would shift their position during this event by the amount of exposure it has to the Eastern markets to cope. Sweden, Danes, Baltics, UK, in essence all of them would ramp up pressure on Eurozone to devalue as well to remain competitive.
Would someone actually be prompted to prop up a free floating ruble? zloty? hryvna? Also due to WTO entry Russia can funnel Kazakh/Belarussian and even Ukranian items (yes Ukraine entered WTO but gave up concessions on all issues more or less), now they slap a made in Russia sticker on it and it goes somewhere in Europe provided standards are more or less up to par. Most large Ukranian companies have manufacturing presence in Russia btw so it's isn't far fetched to pretend to make more stuff in a different area your company is present in since the territory is contiguous... Please keep in mind that all this is marginal pressure. There won't be a flood or anything just a little stream that undermines gains projected from WTO entry calculus.
I'll add more as it gets thought up.
Catalysts thus far that create interesting things... (keep in mind its not the overall but marginal impact that counts)
*Devaluation of the Eastern European countries due to trade
*Default of Belarus
*Default of Ukraine
*Russia's WTO entry (still don't know how this plays out)
About 2-3 years ago there was an interesting occurrence. Remember the whole 700 billion dollar bailout and all that, well this is not about it per se.
This is about Russia devaluing the ruble (from about 25 to 35 to $1)
Ruble Hits 11-year Low As Russia Accelerates Devaluation - Money Morning more or less and then the ripple effect hitting Ukraine which went from around ~5.5 to $1 dollar to 8-9 then stabilized around 8 it has now with IMF backing. Poland went from around 3 to $1 dollar to 3.80 more or less. A lot of it was due to oil prices being at ~40 bucks a barrel and trepidations about repeat of the 90s.
Foreign Currency Market | Bank of Russia
Notice the ripple through was about 20-33% devaluation through the countries. The timeline is a bit disjointed though because first Russia devalued then months passed for it to effect Ukraine and eventually Poland.
Ukrainian hryvnia slump. Devaluation of Belarusian ruble unavoidable - Charter'97 :: News from Belarus - Belarusian News - Republic of Belarus - Minsk
UPDATE 1-Ukraine fails to clinch IMF deal as mission leaves | Reuters
Fri Nov 4, 2011 10:35am GMT
Analysts say the absence of IMF financing, which was supposed to boost central bank reserves by about $1.5 billion per quarter, is likely to increase the depreciation pressure on the hryvnia .
The central bank spent over $2 billion in September to keep the currency pegged at about 8.0 hryvnias per dollar while the euro and the rouble devalued.
Analysts say the absence of IMF financing, which was supposed to boost central bank reserves by about $1.5 billion per quarter, is likely to increase the depreciation pressure on the hryvnia .
The central bank spent over $2 billion in September to keep the currency pegged at about 8.0 hryvnias per dollar while the euro and the rouble devalued.
Belarus ruble sinks 34% in full free float - FRANCE 24
Belarus went full-free-float it seems, granted it was under duress but the fact remains.Rouble hits two-year low - Roubles.com - Russian Rouble News
Are we going for a repeat with slightly different outcomes?
The reason why Ukraine was saved in the prior event was due to exposure by Austrian and Hungarian banks which bought into the boom boom years and paid exorbitant prices for Ukrainian banks. In essence the IMF bailout for Ukraine was to save Austria to a large degree.
Trade flow questions are even more odd. If the Ruble falls and the Russian gov't decides to simply let it free-float because sustaining it would be more damaging and assume we get a 10-20% devaluation that must ripple through Ukraine (which is using what remains of its unencumbered reserve to hold the hryvnia upright) and then Poland and to some degree Baltics (which were effected the last time around as well).
Idea behind this ripple effect has on competitiveness in these countries price wise (for their goods that are not dollar tied [energy]) goes up significantly. Wages fall since their currencies fall and prices for their goods fall on world market. Another factor this time around would be the Russian wto entry, while in reality it gives Europe more entry into the market if the devaluation occurs as the marginally increased deployment into the market happens on the margin a lot of good prices would be less competitive since their prices would increase and continue to increase short term. So imagine your a German company that has 5% of its tea pots exported to Russia and with WTO entry the tariffs and prices you can charge Russian consumers go down so you can export 10% tea pots but as you ramp up production and ship those goods the devaluation happens making those teapots 25% more expensive in relation to the price they were prior WTO joining. Same thing would happen with Ukranian and Polish markets and due to trade gravity it would happen faster there for Germany at least. Now ripple this across the Eurozone on the margin it would dent growth prospects even further.
Absurd thoughts are as follows every country that is not Euro bound would shift their position during this event by the amount of exposure it has to the Eastern markets to cope. Sweden, Danes, Baltics, UK, in essence all of them would ramp up pressure on Eurozone to devalue as well to remain competitive.
Would someone actually be prompted to prop up a free floating ruble? zloty? hryvna? Also due to WTO entry Russia can funnel Kazakh/Belarussian and even Ukranian items (yes Ukraine entered WTO but gave up concessions on all issues more or less), now they slap a made in Russia sticker on it and it goes somewhere in Europe provided standards are more or less up to par. Most large Ukranian companies have manufacturing presence in Russia btw so it's isn't far fetched to pretend to make more stuff in a different area your company is present in since the territory is contiguous... Please keep in mind that all this is marginal pressure. There won't be a flood or anything just a little stream that undermines gains projected from WTO entry calculus.
I'll add more as it gets thought up.
Catalysts thus far that create interesting things... (keep in mind its not the overall but marginal impact that counts)
*Devaluation of the Eastern European countries due to trade
*Default of Belarus
*Default of Ukraine
*Russia's WTO entry (still don't know how this plays out)
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