The flip side of the strong Russian ruble

Combination of strong ruble and high oil prices will temporarily curb inflation but could also accelerate consumer prices in the future, Russian business daily RBC quoted Dr.

The Russian economic expert warned that the dominance of energy revenue together with the strong Russian ruble could lead to the so-called “Dutch disease”.

In economics, “Dutch disease” is the causal relationship between economic growth in a particular sector and decline in other sectors.

This situation can form as negative consequences arising from a sudden spike in the value of a country’s currency due to the growth rate of exports of a dominant industry, usually fossil fuels. .

At first, the inflow of foreign currency reduces domestic inflation, but at the same time it also slows down the development of other industries, hinders economic growth, and leads to price increases.

The term “Dutch disease” was first used by The Economist in 1977 to describe the decline of the manufacturing sector in the Netherlands following the discovery of the large gas field Groningen in 1959.

According to Dr. Domashchenko, the currency of Russia The recent strengthening of Russian energy products and the increase in sales of Russian energy products are risks to the development of the country’s economy in the long term.

Russian economist warns that “Dutch disease” or Groningen effect could manifest itself clearly in Russian economy, high exchange rate could cause backlog in high-tech sector and lead to slow price increases.

Establishing a fixed ruble exchange rate instead of the floating exchange rate that has been operating in Russia since 2014 will help strike a balance between inflation moderation and economic growth, according to the economist. Domashenko. He also said that a similar mechanism had previously helped stabilize the economic situation in China.

On May 23, the Russian ruble gained more than 6% against the euro to 58.75, reaching its strongest level since June 2015. Against the dollar, Russian currency rose 4.6% to trade at 57.47, close to a 4-year record high hit on May 20.