DOI: 10.32609/j.ruje.8.98242

Authors: Evgeny Y. Vinokurov, Marina V. Grichik, Taras V. Tsukarev

Abstract: The ongoing international reserve paradigm based on trust will experience a major transformation despite being convenient, flexible and low-cost. The underlying issue is a loss of trust. Due to the massive financial sanctions imposed on Russia and other states, traditional reserve currencies have lost their footing, compromising confidence in international reserves. Consequently, countries will need a comprehensive revision of their reserve asset management options. This paper overviews these options, which range from trade-offs to non-orthodox solutions. In total, we list twelve options, which can be categorized into three groups according to their novelty and “degree of orthodoxy­.” The first group implies countries can expand the use of available instruments, i.e., investments in gold, renminbi, and currencies of friendly countries, and enlarge the network of swap lines and the toolbox of sovereign wealth funds. In the second group, options call for the introduction of new mechanisms for international reserves functions, such as accumulating physical resources and private cryptocurrencies­, issuing stablecoins by central banks, and building up assets of regional financing arrangements. The third group includes options to shift the energy standard (currency) paradigm and establish a synthetic international currency or form a macroeconomic paradigm with no international reserves. Furthermore, applying our analysis, we move beyond Russia and look at the issue from the perspective of the Shanghai Cooperation Organization members and observers, as it is a leading platform where countries openly discuss this matter.

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DOI: 10.32609/j.ruje.5.49417

Authors: Marek Dabrowski

Abstract: In the decade of the 2010s, the pace of economic growth in Russia slowed down to an annual rate of below 2% and most forecasts suggest that this is will be the new “normal” for the Russian economy at least in the medium-term. While politically and socially disappointing, such a growth slowdown is unavoidable due to adverse demographic trends. A combination of a shrinking working-age population and population aging must lead to a lower growth pace as compared to the period when the working-age population was still increasing and the effects of population aging were limited (the decade of the 2000s). Compensatory measures such as a gradual increase in the retirement age and an open labor migration policy, although economically positive, can only partly mitigate the negative effects of a shrinking domestic labor force. In this respect, Russia does not differ from other European countries and some Asian countries. However, demography and shrinking labor supply cannot fully explain low potential growth. Stagnation in total factor productivity is another reason. It results from a poor business and investment climate, difficulty in diversifying away from the dominant role of the hydrocarbon sector, and deteriorating political and economic relations with the US and EU which limit trade, investment and innovation opportunities. To increase its potential growth, Russia needs comprehensive economic and institutional reforms that, in turn, will be conditioned by political reforms and by improved economic and political relationships with the US, the EU and Russia’s neighbors.

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DOI: 10.1016/j.ruje.2016.02.003

Authors: Natalya Ketenci

Abstract: This paper investigates the level of capital mobility in Russia, testing the Feldstein–Horioka (1980) puzzle (FHP). The study examines relations between saving and investment flows in Russia in the presence of structural breaks. It employs the quarterly data for the period 1995–2013, in which all estimations are made for two periods: the full period 1995–2013 and 2000–2013, the post-Russian crisis period. The empirical analysis includes the Kejriwal and Perron (2008, 2010) structural break test to determine the presence of structural breaks in series and estimate the savings retention coefficient under the consideration of structural shifts. To facilitate comparison, the parameters of the model were estimated employing the OLS and FMOLS procedures. To test the cointegration relationships between investment and saving flows in Russia, two different cointegration tests were applied to the data. The first applied was the Maki (2012) cointegration test, which allows for an unknown number of breaks; then, in a case where only one break was detected, the Carrion-i-Silvestre and Sanso (2006) cointegration test was employed. The results of this study provide evidence of high capital mobility and reject the existence of the FHP in the post-Russian crisis period. Evidence of the cointegration presence indicates the solvency of a current account in Russia.

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DOI: 10.1016/j.ruje.2016.02.002

Authors: Evsey Gurvich, Ilya Prilepskiy

Abstract: This paper examines the impact of the current Western financial sanctions on the Russian economy. Modeling the capital flow components (accounting for the influence of other factors, including falling oil prices) reveals that sanctions have directly affected sanctioned state-controlled banks, oil, gas and arms companies by severely constraining foreign funding and have indirectly affected non-sanctioned companies by reducing inflows of foreign direct investment and causing funding conditions to deteriorate. The overall negative effect on gross capital inflow over 2014–2017 is estimated at approximately $280bn. However, the effect on net capital inflow is significantly lower ($160–170bn) due to Russian companies’ self-adjustment, which is evidenced by their utilization of foreign assets accumulated earlier for debt repayment and an overall decrease in gross capital outflow. The sanctions’ estimated effect on GDP is significant (–2.4 p.p. by 2017, compared with a hypothetical scenario with no sanctions) but 3.3 times lower than the estimated effects of the oil price shock.

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