International relations are based on the use of national currencies. These include various means of circulation: coins, banknotes, payment documents, securities, precious metals, etc. Depending on the level of integration of the country into the world economy, the currency can turn around in different ways. The exchange of a national unit is a prerequisite for international trade.
Exchange rate - the value of a monetary unit of the country, expressed in the payment signs of another state. It connects the economy with the outside world, allows for international transactions.
Possibility of citizens of the country and non-residents to freely buy and sell banknotes calls convertibility. Any restrictions on such transactions on the part of the Central Bank or the state turn the currency into partially convertible. Free conversion is possible only in an economically stable country. The legislative resolution alone is not enough, there is still need for confidence in the monetary unit and a high assessment of the level of development of the state.
At the heart of the conversion is the currency parity. But in practice, the exchange rates of monetary units never coincide with it, since supply and demand are not equal. In the active balance of payments, the foreign exchange rate falls on the domestic market, while the national one is growing. The reverse situation occurs with a passive balance. Therefore, in most countries there is both an official and a free exchange rate. On the first, the Central Bank calculates with international organizations, and on the second - between private individuals.
Quotation - fixing the national currency in foreign. They are of two types: direct (price, for example, the dollar in the domestic market) and the reverse. If the value of one currency is expressed through the other two, then this is a cross-rate. Necessity arises if the exchange of direct quotes between two monetary units is very small.
The demand for foreign currency is determined by the interest of other countries in domestic goods. To pay for the purchase, foreign states must conduct currency exchange.
1) the demand of a given country for foreign goods;
2) interests in the financial assets of other states.
How to calculate the value of a monetary unit
The price changes every day under the influence of different macroeconomic factors. The CBR publishes daily courses in special bulletins. The basis for these calculations are:
1. Quotations of the last exchange working day on transactions "US dollar - Russian ruble".
2. The official exchange rate established by the IMF on the previous business day.
3. Prices for other currencies are calculated by the Bank of Russia on the basis of their quotations to the dollar at the international, stock market segments of the domestic market, as well as the levels set by the Central Bank of the respective states.
Factors affecting the exchange rate
At the time of the golden standard, the parity of purchasing power was determined by the content of the precious metal in monetary units, and the price fluctuated within 1%, i.e., the cost of transporting coins. In the conditions of paper circulation, it changes daily, so it became necessary to study the laws of its fluctuation. The price is formed under the influence of supply and demand.
The change in the exchange rate affects the state of foreign trade, affects the result of the activities of organizations, employment levels, etc. Therefore, government intervention in such relations is necessary. But its intensity depends on the goals and set of economic levers. Actions can be aimed both at reducing (devaluing) the value of the national monetary unit, and at raising it (revaluation).
The exchange rate can change under the influence of the balance of payments of the country - the ratio of the amounts received and paid. The active balance indicates an increase in demand for a monetary unit from foreign borrowers, thus strengthening it. Passive - this is an increase in interest in foreign exchange, a decrease in the national rate.
Changing the tastes of customers. Increasing demand for imported services will lead to a reduction in the price of the national currency. And an increase in interest in domestic services will contribute to the growth of its value.
State policy in foreign trade. The exchange rate will increase if the import is limited to the state. But wide application of such measures can have negative consequences, as the volume of international trade will be greatly reduced.
Change in the amount of income buyers. With the increase in the number of temporarily free funds, the consumption of goods (import and domestic) increases, and the demand for foreign currency. In the market this will be reflected in the depreciation rate.
Inflation. Other things being equal, this process is inversely proportional to the course. If prices in one country grow faster than in another, then imported goods will cost cheaper than domestic ones. Accordingly, the value of the national currency will decrease. The desire of people to keep real profits by buying foreign currency will only aggravate the situation. But, as the supply of a monetary unit remains unchanged, inflation will lead to a depreciation. Therefore, it is customary to calculate purchasing power parity (PPP). This is the real price of the ruble, expressed in the monetary unit of another state. The calculation is carried out for similar goods. Example: the consumer basket in Russia is 7000 rubles. and in the US - $ 100. The ratio of the courses will look like: 1 dollar = 70 rubles. or 1 rub. = 0,01 dollars.
The value of real interest rates: the higher they are, the more attractive this country is for investment. But, on the other hand, their growth causes a rise in the cost of credit. If entrepreneurs do not have enough money to finance their business, the borrowed capital with high interest rates will lead to an increase in production costs, an increase in the price of products and a decrease in the attractiveness of the national currency. That is, this factor can have a double impact on the exchange rate of the dollar.
State regulation of the economy: use of foreign exchange reserves, trade, financial and monetary policy.
Other factors affecting the exchange rate:
1. Publication in the media of important economic data: inflation rates, balance of payments deficit, unemployment rate, discount rates, stock indices, stock prices, bonds, GNP, pre-election race, etc.
2. Large transactions of commercial financial organizations.
3. Exchange rate factors, the influence of which can not be predicted (we are talking about wars, revolutions and other cataclysms).
4. The Central Bank may have a direct impact on the exchange rate, buying or supplying the currency in large lots. This causes a sharp fluctuation in the ratio. Regulation of interest rates and the volume of money supply does not affect the value of the ruble so much.
5. Insurance, hedge, pension and other funds invest money in currencies, trying to avoid the risks of devaluation. Such operations - especially with large amounts - significantly affect the exchange rate of the country.
6. The cost of gold and oil.
Exchange rate regulation
Currency interventions are operations of the Central Bank for the purchase and sale of a monetary unit of the country. To increase the rate, the central bank should sell foreign currencies, thereby reducing the demand for them. And to lower - perform the opposite operation.
Discount policy is a change in the discount rate, which affects the price of credit on the domestic market. With a passive balance of payments, its growth can serve as an incentive for capital inflows. By lowering the rate, the Central Bank expects an outflow of cash that will reduce the surplus and lower the rate.
- The blockade is a sanction in the form of unilateral restrictions by one state or group of countries of another power that will not allow the use of its monetary symbols;
- a ban on the free circulation of foreign currency;
- regulation of international transactions;
- movement of capital, gold, CB;
- the concentration of foreign currency in the hands of the state.
Types of exchange rates
There are several classifications. By time:
1) spot - exchange rate, which is kept no more than 2 working days after the quotation;
2) forward - the future value of the national monetary unit, expressed in foreign.
Types of exchange rates, which are used to identify real trends in traffic:
1) nominal - current quotation;
2) real - this is the recalculated value of a monetary unit with inflation;
3) nominal effective - the ratio of the national currency and the currencies of partner countries;
4) the real effective rate is nominal, calculated with an adjustment for the price dynamics.
By the degree of rigidity:
1) fixed - a clear price ratio;
2) Limitedly flexible - can vary within certain limits;
3) floating - established on the basis of supply and demand.
There are also hybrid types: controlled navigation, creeping fixation and currency corridor are the limits of price fluctuation set by the Central Bank. Its main feature is that the limiting ratios are strictly limited and fixed legislatively. The currency corridor is introduced in the absence of free capital, due to a large deficit, internal and external debt.
Exchange Rate Regimes
"Currency" in translation means "value". Let us give an example. Another 100 years ago, the value of money was determined by the amount of gold reserves that the state had. But after the Second World War, most of the precious metal was concentrated in the United States. Then there was a transition to the gold-currency (Bratton-Wood) system, according to which:
- the reserve currency is the US dollar;
- the treasury will, if necessary, exchange it for gold (35: 1);
- all the national currencies in a certain ratio were "tied" to the dollar, and through it - to the most expensive metal.
Then the monetary unit of the richest country in the world (USA) replaced gold in international settlements. But after the growth of production in Japan surpassed the American ones, the European Economic Community (1954) was formed, which included France, Germany, Italy, Belgium, the Netherlands and Luxembourg. The competitiveness of goods from the USA has sharply decreased. Countries in which dollars were in large quantities, began to present them to the Treasury for the purpose of exchange for gold. And after the stocks of precious metal ended, the US devalued the currency. 19.03.1973 a new system was introduced.
The fixed rate is established and supported by intervention of the Central Bank at a certain level. Consider this for the example of the ratio of pounds sterling to the dollar. If the demand for a UK currency unit increases, its rate rises. The task of the Central Bank is to clearly fix it at a certain level. To do this, the bank must buy foreign currency. As a result of the increase in demand for imported goods, the value of the pound in dollars declines. The Central Bank should reduce the availability of the national currency by exchanging dollars for it.
With the growth of the exchange rate, foreign exchange reserves decrease. Demand for goods leads to an increase in exports, that is, the inflow of foreign currency. This causes a surplus of the balance of payments. In this situation, the Central Bank should increase the supply of national currency, buying up foreign currency. This will lead to the replenishment of the country's monetary reserves.
Due to the growth in imports, the exchange rate decreases, there is an outflow of capital from the country, the balance becomes negative, there is a deficit. In order to finance it, it is necessary to reduce the offer of the national currency by buying it.
With a fixed rate, the balance of payments has the form:
Current operations (Xn) + Capital movement (CF) = Dynamics of reserve changes (R).
A fixed exchange rate, which is accompanied by a chronic surplus or a deficit in the balance of payments, can cause a lot of problems. In the first case, there is the possibility of excessive accumulation of reserves, which can lead to inflation. In the second - there is a threat of depletion of foreign exchange reserves. In any of these situations, the Central Bank will be forced to officially change the price of the monetary unit, that is, cause revaluation or devaluation.
A floating exchange rate is regulated by a market mechanism: supply and demand on the market, without government intervention. The balance of payments has the form:
In such a situation, the deficit, that is, the low demand for domestic goods, is financed by the inflow of funds. A depreciation is called depreciation. This makes domestic goods cheaper, contributes to the development of exports. The surplus is financed by outflow of funds. If domestic goods are in high demand, the interest of foreign investors grows along with the exchange rate of the national currency. This situation is called a rise in price. Foreigners buy the banknotes of the country. This reduces exports, encouraging imports and reducing the national exchange rate.
The modern system can not be called completely flexible. The US Federal Reserve and the European Central Bank does not allow the dollar to fluctuate freely to prevent a sharp fall (as in 1985). Therefore, they buy it, artificially increasing demand and maintaining a higher rate.
The situation on the domestic market
In the Russian Federation, the currency corridor first arose on June 8, 1995. Since 1996, a sliding peg of the ruble to the dollar has appeared. Such a system is called an inclined currency corridor. The price change depended on the projected inflation rates with small deviations. Since 2008, the bi-currency corridor, which adhered to the reserves of the Central Bank, began to operate.
The value of the ruble in the national currencies of other countries largely depends on the volume of exports.
Correlation of the exchange rate of the Russian currency with USD and EUR
In April 2014, the ruble reached a historic mark in relation to the dollar (1:50), and then fell sharply (to 36). Although in countries with a floating price, fluctuations are a common occurrence, but the changes that occurred last year were difficult to predict.
The Central Bank for a long time did not dare raise the key rate, on the basis of which the banking system is refinancing. In recent months, the Bank of Russia "sponsored" KB a sum of 5 trillion rubles. The main source of such investments is loans secured by the Central Bank and non-market assets. With the depreciation of the ruble, the free monetary resources of the CB were directed to the foreign exchange market. Today it is more profitable to conduct speculative operations than to invest in the economy. To avoid such situations, the European Central Bank has raised interest rates since last year. The Bank of Russia, on the one hand, limited the arrival of capital to 5.5%, and on the other hand, restrained the devaluation of the ruble at the expense of the gold and currency reserve. And only in March 2014 increased the discount rate to 7%. This decision was caused by the need to raise metallurgy and the mining industry. They became practically unprofitable. The only way to correct the situation is to weaken the ruble against the dollar.
The exchange rate displays the value of a national currency unit through a foreign currency. It should be regulated by the state and the Central Bank. If a clear ratio is established, then this is a fixed rate. If the price fluctuates depending on supply and demand - floating. These exchange rate regimes maintain a certain price ratio.