The Dollar Will Continue Its Fall

The ruble is becoming stronger
George Soros has recently placed the US dollar down at a near-all-time low. This action on the part of the world-known financier has made financial analysts talk something about which they have never talked before - a serious split in the American political and economic elite. Soros is basically known for his attack against the British pound sterling in 1992, which made the British currency stop being a world currency.

It seems not to be possible to overcome the crisis of the American economy. The Bush's administration is creating special conditions for companies that are closely connected with White House personalities. As a result, the financiers that support the US Democratic Party have been cast aside. This definitely exacerbates the pre-election opposition. The only opportunity for Democrats to make George W. Bush stumble and fall at the coming election is to aggravate the economic situation in the States and to make the dollar go down.

However, the US dollar has been a tool for saving money and deriving profit throughout the whole world. Therefore, the reduction of the American currency will ruin millions of people worldwide. This is especially dangerous for Russia, since the dollar became the major currency in Russia in 1991.

Russian financiers keep talking about the current situation with the US dollar: how to keep savings, how to obtain profit from the difference of the dollar and the euro. However, no one wants to say anything on what the strengthening of the ruble means for the country and for the people. It has already become evident that the Russian Federation’s Central Bank is not capable of struggling with the objective tendencies of the world financial market. The strengthening of the ruble is cutting into the profitability of Russian exports, and people are losing their dollar savings.

The declining dollar allows political problems to be solved in the USA and revives American exports. Therefore, one shall assume that the USA will not try to maintain its national currency. American military power is always capable of bringing the dollar back to its absolute status. That is why there is no point in the Central Bank struggling to preserve the current dollar rate against the ruble. Russian exports become less profitable, and Russian companies and the budget suffer losses, not to mention the population.

The Central Bank accumulates gold and currency reserves, which are placed abroad, working for the economy of the USA and EU states. However, record reserves make a very good trump card. In addition, a low dollar rate is very good for Russia from the point of view of foreign debt. President Putin pointed out in his address to the Federal Assembly that Russia's gold and forex reserves had increased by 5.5 times during the years of his presidency.

According to experts' estimates, the Russian Central Bank is repeating the  mistakes of South East Asian national banks that caused the Asian crisis in 1998 (and the default in Russia as well). The RBC news agency reports that the official currency rate dropped from 31.38 to 31.10 rubles per dollar in April of the current year - by 0.9 percent that is. The strengthening of the real ruble rate against the dollar came to 2.2 percent (taking into account consumer prices in Russia and in the States). The ruble gained 7.6 percent against the dollar during the first four months of 2003.

The Central Bank is continuing its policy of revaluating the ruble against the US dollar. There is too much foreign currency in Russia, and it is not working. For the time being, the Russian Finance Ministry does not see anything frightening about the strengthening of the Russian currency. Ministerial officials say that the economic situation allegedly allows gradually adapting to the strengthening of the ruble. However, the inflation rate is about to get out of control. Deputy Finance Minister Aleksey Ulyukayev believes that everything will be just fine if the ruble’s growth against the dollar does not exceed a level of 10 percent. This official mentioned a six or eight percent level before, though.

The Russky Focus news agency believes that if the growth of the real ruble rate achieves the level that was mentioned by Aleksey Ylyukayev, the cost of the American currency will return to the pre-crisis situation by the year 2005 - six rubles per one dollar.

In the meantime, the whole world keeps buying European, Canadian, Asian currencies - any other currencies but the USD. Deutsche Bank, the largest European bank on the forex market, has already recommended that its clients get rid of the dollar and invest in the euro. Bank analysts say that the euro rate vs. the dollar rate will go up to $1.20 per one euro as early as September. The Bank also predicted that the dollar rate would drop down to $1.40 per one euro within two years.

On the other hand, the fate of the European currency does not give too much cause for optimism either. The European macroeconomic statistics do are not encouraging to anyone. The surplus of the balance of trade in Europe dropped down to 1.6 billion from 5.2 billion in March of the current year, according to the Eurostat statistics agency. Moreover, the industrial output in Europe dropped by 1.2 percent in March.

However, no one doubts now that the dollar will continue falling. There will be no reason for its growth as long as the American government derives profit from a weak USD.