What is devaluation in simple terms and how does it affect the Russian economy?
Devaluation is the process of reducing the value of the national currency in relation to foreign currencies. Simply put, this means that the ruble, which yesterday could buy a certain amount of dollars or euros, is worth less today. For example, if earlier one dollar was worth 60 rubles, and now it is 80, then the ruble has become cheaper, and this is called devaluation. Devaluation greatly affects the purchasing power of citizens and the country's economy.
Why does devaluation happen?
Devaluation can occur for various reasons. Here are the main ones:
Economic instability: When a country experiences economic difficulties, such as high inflation, political or geopolitical crises, the state's foreign exchange reserves can decrease, and the demand for the ruble falls.
Low prices for export goods: Russia, as an exporter of oil and gas, is faced with the fact that when prices for these resources fall, the inflow of currency into the country decreases. As a result, the ruble exchange rate falls.
Central Bank Policy: Sometimes the Central Bank may deliberately devalue the ruble to make domestic goods more competitive on the international market.
How does devaluation affect the Russian economy?
Rising import prices: When the ruble loses its value, imported goods become more expensive. This means that Russians spend more on foreign-made goods, such as cars, electronics, medicines, and even some food products.
Higher cost of living for citizens: Devaluation leads to higher prices for goods and services, which increases inflation. As a result, the purchasing power of Russians decreases, and life becomes more expensive.
Benefits for exporters: Companies that sell their goods and services abroad receive income in foreign currency. When the ruble weakens, they can exchange their revenue for more rubles, which brings in additional profits and stimulates the export sector.
Increased debt burden: For companies and the government that have debts in foreign currency, devaluation can be a problem. They have to pay more rubles to cover debts in dollars or euros.
Current situation with devaluation in Russia
In 2024, Russia faced a number of factors that contributed to the weakening of the ruble. These factors included sanctions that limited access to international markets, high inflation, and a budget deficit. In response, the Central Bank raised the key rate to stabilize the ruble and reduce inflationary pressure.
Difficulties for the population: The devaluation of the ruble affects the cost of living and makes imported goods, including medicines and equipment, significantly more expensive. This is especially sensitive for citizens whose income is not indexed to the inflation rate.
Impact on business: For exporters, devaluation creates favorable conditions, but for companies that depend on imported equipment or goods, this becomes a serious problem, as the cost of production increases.
How to protect your funds during devaluation?
Invest in foreign currency: One way to protect your savings from losing purchasing power is to keep part of your funds in dollars, euros, or another stable currency.
Buying assets: Investing in real estate, stocks or gold can also protect funds, as these assets have the potential to grow in value even if the national currency weakens.
Diversification: Dividing assets between the ruble and other assets reduces the risks associated with sharp changes in the exchange rate.
The impact of devaluation on the economy and business: a view from the founder of Open Oil Market
Devaluation is a serious test for both businesses and ordinary citizens. As an entrepreneur, I understand that a weak ruble creates both new opportunities and risks. On the one hand, export companies can increase profits due to a weaker exchange rate, but at the same time, expenses on imports, equipment and materials grow, which complicates work and increases the cost of production.
For ordinary citizens, devaluation means that even basic expenses become higher, especially when it comes to goods and services with a high share of imports. In the context of devaluation, it is important to approach savings management wisely, look for opportunities to invest in stable assets and not rely on just one currency or one type of investment.
Financial stability is not only the stability of the national currency, but also the ability to adapt to changes in the market. At Open Oil Market, we also take measures to reduce currency risks and diversify. Ultimately, those who know how to properly manage risks and adapt to market conditions will be able to preserve and increase capital even in unstable conditions.
