Why Can't Russia Print Rubles Like the U.S. Prints Dollars
Many people who are not familiar with economics have a question in their minds: why can the U.S. solve its financial problems by simply printing money without triggering economic disasters such as hyperinflation? Why can't Russia do the same and print rubles? Below is a detailed explanation of the reasons behind this.
Why the U.S. Can Print Money
Due to the fact that many countries conduct trade settlements in dollars (meaning that the dollar is the global reserve currency), the U.S. economy directly affects other countries around the world. The share of the dollar in global reserve currencies is approximately 60%. For example, in 2020, Europe planned to invest 1 trillion euros to deal with the impact of the pandemic, while the U.S. invested as much as 4 trillion dollars. These funds were originally intended to help developed countries stabilize their economies during the pandemic lockdowns.
For a more direct comparison: 4 trillion dollars is almost three times the size of Russia's annual GDP, equivalent to the total government expenditure of the Russian Federation over 15 years, and on average about 2.2 million Russian rubles per person.
Meanwhile, over the past decade, the U.S. national debt has surged from 8 trillion to 24 trillion dollars, tripling in size. The U.S. economy mainly operates through borrowing, but only 25% of this debt is held by foreign investors, with the rest being domestic debt, most of which is not backed by any actual assets.
The current U.S. fiscal deficit is as high as 1.5 trillion dollars. However, whenever the U.S. Treasury needs funds, it issues treasury bonds. But the demand for these bonds is not high, so the Federal Reserve System (the Fed) preprints dollars and directly buys about half of these bonds.
This is essentially one department of the country lending money to another department. Does this sound like a "perfect loop"?
The U.S. successfully used this method during the 2007-2008 financial crisis. At that time, the subprime mortgage crisis nearly caused the U.S. economy to collapse, so the U.S. government intervened by buying large amounts of corporate bonds and treasury bonds issued by banks on the brink of bankruptcy. Ultimately, the U.S. managed to avoid a hyperinflation disaster.
By 2019-2021, the U.S. took this approach even further. The Fed started purchasing securities from large corporations, effectively making the U.S. government a shareholder and creditor of private companies. At the same time, the U.S. directly distributed cash to citizens — $1,200 per person.
However, experts have pointed out that this kind of "money-spreading" approach could lead to unforeseen consequences in the near future, potentially dragging down the entire global economy. Central bankers around the world are injecting massive amounts of money into the market, and these funds are almost entirely unsupported by real assets.
Nevertheless, so far, the U.S. has been able to easily solve its economic problems by printing money. The core reason is that the dollar is the global reserve currency, in simple terms, it means that the whole world is paying for the U.S. economic problems.
Why Russia Can't Print Money
Russia and other Soviet republics experienced an extremely severe financial crisis in 1992, when inflation rates soared to 2,500%. The root cause of this crisis was an excessive supply of money in the market without corresponding commodity production as support. The fundamental reason behind all of this is that these countries are not the United States.
Here is a key difference you need to understand: if your currency is a global reserve currency, no matter how much you print, the domestic inflation rate can be maintained at a normal level, everything seems to run smoothly. But if your national currency only circulates within one or two countries, the consequence of blindly printing money will be an inflation tsunami sweeping across the country — these unbacked bills will quickly lose value and eventually become worthless paper.
Unlike the dollar, which is a global currency, the circulation of the Russian ruble is limited to within Russia. In addition, the U.S. capital market is a place where countries around the world participate in trading, which determines that the U.S. can almost unlimitedly print money, filling budget deficits by increasing the money supply.
The situation in the EU is similar: the euro is in demand in many countries, although its circulation and recognition are not as extensive as the dollar.
You should remember the recent news about the U.S. national debt reaching the "debt ceiling" and nearly defaulting on its debt, right? This kind of crisis has repeatedly threatened the U.S., but each time the solution has been the same: the president directly raises the debt ceiling (essentially allowing the government to print money on its own), and then restarts the printing press.
It is precisely because of this that Russia and most developing countries cannot arbitrarily print large amounts of their own currency. The ruble has almost no market demand globally, and once large-scale currency issuance occurs, it will inevitably lead to soaring prices and a sharp depreciation of the ruble.
Therefore, even though the Russian Central Bank occasionally increases the money supply, it does so with extreme caution, maintaining a strict balance between the amount of money issued and market demand.
Russia has been trying to reduce the proportion of dollars in its gold and foreign exchange reserves, but like many other countries, Russia continues to invest in dollar assets. If Russia's entire fiscal reserves were held in rubles, the country's economic situation would be extremely risky.
An abrupt increase in the money supply will inevitably lead to currency depreciation, meaning a decline in the purchasing power of the currency. This means that people need to pay higher prices for the same goods, leading to inflation.
If inflation becomes too high, both goods and credit will become unaffordable, which can quickly lead to an economic recession.
Therefore, if you want to stimulate the economy through large-scale money printing, you must also rapidly expand the scale of commodity production simultaneously, which requires sufficient production resources and labor force as a prerequisite.
For the ruble to truly become a strong currency, the only way is for Russia to achieve complete self-sufficiency. Historically, there was such a period: during the reign of Tsar Alexander III, the demand for the dollar was low, and the Russian ruble, supported by gold, was highly favored globally.
As we can see, it is not impossible for the ruble to become a strong currency.
Original article: toutiao.com/article/7590584577194721819/
Disclaimer: This article represents the views of the author.