Russia Exchange Rate System

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Russia Exchange rate system

Russia used to pledge its nominal exchange rate with some main currencies such as US dollar. However, the Russian crisis has forced Russia to develop managed floating exchange rate system, where the exchange rate driven by market forces of the Ruble’s demand and supply with the help of government intervention. With this exchange rate, the government can ensure stability and predictability of ruble exchange rate and prevent abrupt fluctuation of the Ruble rate. Moreover, this system could achieve the target set of money supply growth, and further ensure that the economic agents comply with the Russian legislation regulating foreign exchange operation.

The emerging markets financial crises of the 1990s had
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Since the government has reduced the refinancing rate which make the country has greater budget deficit. Its show that the country has more debt than what they earn and it’s affects the income level of the country. The income level reduce make the Russian currency appreciate against the others.
Tax and State Budget Policy
November 20, 2009 Vladimir Putin announced government package of tax reforms. Corporate profit tax rate (24% in 2009) is to be reduced to 20%. Profit tax base will decrease for companies investing in capital assets as the immediately-recoverable depreciation allowance is raised from 10% to 30% of the asset cost. There will be no change in value added tax rates (maximum 18%) in 2009, but the government considered changing VAT accrual rules in favor of the taxpayers.
When the government reduced income and dividend tax, it’ll attract foreign investors to invest in the country and it’ll affect the demand of Russian currency. The greater demand of Russian currency makes the currency appreciate against the others.
Government Imposing Tax Barriers
In December 2009, the government lifted import tariffs on industrial equipment imported by metallurgy, construction, forestry and textile industry, at the same time enforcing increased tariffs on imported cars.
The government controls the import products by increasing the tariffs rate on some types of good. The import of the Russian has been restricted and makes the Russia demand for foreign currency

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