Studying the question "what is a bi-currency basket?", Let's start with the fact that the concept is a kind of reference point for the CBR. The main purpose of the basket is to prioritize world currencies. Based on statistical indicators, the actual exchange rate of the ruble is formed. The bi-currency basket provides a benchmark in setting the value of the ruble or any other monetary unit based on the value of the two major world currencies: the dollar and the euro.
Specificity of the dual currency basket
Considering what a bi-currency basket is, let us analyze the concept of its course. It can change within one day. The basket indicators directly influence the formation of the currency corridor. The bi-currency basket of the Central Bank of Russia was not formed immediately. For a long period of time, Russia's national currency was tied exclusively to the dollar. The situation took place until the moment when the active stage of development of the European Union began, which automatically led to a weakening of the dollar. Since 2005, the Russian government has adopted a bi-currency basket as a currency benchmark. The main goal pursued by this decision was to limit the impact of jumps in the US dollar on the ruble.
Changing the structure of the basket
The structure of the bi-currency basket as the world economic situation changed changed systematically. At the first stages of the existence of the basket, the ratio was 0.1 euros and 0.9 dollars for one ruble. The dollar had the status of a priority currency. The demand for it was much more than the European currency. After two years, the structure of the basket has undergone drastic changes. The exchange rate was 0.45 euros and 0.55 dollars for one ruble. Employees of the Central Bank of the Russian Federation have specifically set this course to limit the growth of the European currency and prevent the dollar from falling. In 2007, financial instability prevailed in the international economic market. For the country there were big risks of increasing inflation. To avoid problems, the Russian government decided to grant full freedom to its national currency by setting local highs and lows, which automatically formed the corridor.
Dynamic basket and corridor
The change in the bi-currency basket and the corridor is a phenomenon characteristic of Russia. In case of an unfavorable situation in the country, their indicators can vary significantly. We can say about the existence of a certain pattern. If the national currency sharply becomes cheaper, the upper limits of the corridor are shifted. If the situation is reversed, the lower bounds change. Significant impact on the exchange rate of the bi-currency basket was provided by Russia's gold and foreign exchange reserves. The basket plays a big role in shaping the ruble exchange rate not only during periods of stability, it is responsible for containing the overall balance of the national currency. This approach allows you to regulate the level of inflation, does not allow the ruble to grow sharply. If the growth of the ruble does begin, its impact on the economy is noticeable through the appreciation of export products, which can lead to a sharp decline in exports. It is possible that the inflow of funds to the budget has decreased. At the moment, the dollar's share in the bi-currency basket significantly exceeds the share of the euro, but experts do not stop insisting that the situation can change significantly in the near future.
The statistical size of the bi-currency basket speaks of the stability of the ruble. Today we can observe the opposite situation. The cost of the basket is calculated by the following formula:
Percent of euro in the basket x rate of the euro CB + percentage of the dollar in the basket x dollar rate CB = basket value.
For quite a long period of time, the value of the currency basket was varied in the range from 30 rubles to 33. It cost the government a significant amount of gold reserves. Had systematically pour into the market to artificially support the exchange rate. When the situation became critical and the government has been unable to adjust the rate of the national currency, the decision was made to implement a soft devaluation, which led to the appreciation of the basket.
The bi-currency basket of the Russian Federation today
According to trades on March 6, 2015, the bi-currency basket of the CBR stopped at a price of 63 rubles. The technical extension of the corridor is carried out systematically, beginning with the moment of cheapening of oil in the world oil market and with an active military conflict in the territory of Ukraine. The limits are so modified in comparison with the indicators of past years that you can safely say that the ruble was sent to free navigation. The weakening of the currency opened up certain prospects for the state. This is primarily a saving of reserve funds.
Double policy of the Central Bank of Russia
Despite the fact that the bi-currency basket was originally intended to stabilize the exchange rate of the national currency and the economy as a whole, the government of the Russian Federation was not keen to tie the ruble to the bi-currency basket. Since 2005, systematically, the dollar-euro ratio in the basket has changed. With a primary proportion of 0.1 euros and 0.9 dollars, the ratio has changed to 0.45 euros and 0.55 dollars. The government has created a certain range in which the ruble's exchange rate remains acceptable for the economy of the state. The corridor allowed the control over the ruble exchange rate by buying and selling currency. In the foreign exchange market, the support of the ruble within the established corridor was effected as a result of interventions.
Basket in the Russian Economy
What is a bi-currency basket in the conditions of the Russian economy, to understand quite easily, if you take into account the notion of the corridor. The ruble rate is not fixed, but is kept within the limits of average values. Based on the world experience, it is worth saying that the currency corridor is practiced in the event that the state has a significant budget deficit, a sufficiently large internal and external debt. Given the introduction of the currency corridor in Russia's financial policy in 2008, during the global crisis, it can be said that starting from this point in time, the state is experiencing certain difficulties. The active growth of the bi-currency basket over the past 8 months has become a clear indicator that the domestic economy is on the decline, and the state is not able to maintain a strong exchange rate of the national currency.
Floating rate and bi-currency basket
Recently, the bi-currency basket, whose dynamics has intensified significantly over the past six months, has had less and less effect on the Russian economy. The government's transition to a floating exchange rate had not the effect expected by economists. Strong volatility in the market largely destabilized the situation. Given that oil prices have fallen significantly, and the ruble follows precisely them, the situation can not be called promising. The influence of the Central Bank on the course was reduced due to restrictions in the aspect of conducting interventions that are allowed in the current situation at a frequency of not more than 3 times within 6 months. While the government needed to keep the bi-currency basket at its lowest possible, it completely surrendered the reins and stepped aside. Increasing the flexibility of the national currency did not lead to the expected result: the effectiveness of interest rate policy has not increased, and price stability has not been achieved.
The financial policy of the Central Bank of Russia in times of crisis
Once considered a currency basket, almost everyone can safely say that it does not correspond to its initial values at the level of 30-33 rubles for quite a long period of time. This situation is explainable by the fact that for the last 6 months the government almost every day carried out the extension of BC. This phenomenon has exacerbated the possibility of understanding the financial policy pursued by the Central Bank. According to some international experts, such behavior by the government only reveals the attempts of the state to hide the phenomenon of devaluation of the national currency. In fact, it should be noted that during the consideration of the question of what a currency basket and how it is calculated, it is important to know about the formation of the ruble as a result of trading on the foreign exchange market of MICEX. A major player, despite the detachment remains to the Central Bank. Possessing large capital, it has the ability, in spite of the standards and legislative norms, shaping the pricing policy of the national currency. If desired, retention of the ruble could easily take place. In fact there is a neutrality that most to explain very problematic.
Rejection of the bi-currency basket: myth or reality
Based on the current situation, taking into account the sanctions imposed on Russia by the West, the following forecasts can be made. Most likely, the Central Bank of the Russian Federation will have to give up entirely not only from the bi-currency basket and corridor, but also from the intervention itself. Increase in intervention is possible only in the situation, if the country will be affected by aggressive external factors. The Central Bank of the Russian Federation has certain plans for a transition to the inflation targeting regime, which is characterized by the existence of a goal for the growth of consumer prices, which the bank itself will influence. Monetary policy in this situation will be realized exclusively by changing interest rates. Target benchmarks for the exchange rate itself will be eliminated. The formation of the course will take place solely on the basis of supply and demand.