The economic situation in Russia going forward
Russia cannot continue the war for a long time, argues Paul De Grauwe:
- The incomes earned in the Russian war industry will not be able to be spent on consumer goods because these are in short supply. As a result, inflation will rise sharply. The temptation will be great to introduce price controls.
- High commodity prices are a temporary phenomenon. “What goes up must come down”. Gas prices, oil prices and commodity prices will fall again and will reduce the resources available to the Russian government today and make a protracted war impossible.
- Cuts of its gas deliveries today will, in the longer run, destroy one of the pillars of Russian foreign revenues as European countries would look for alternatives.
Russia will lose the war
By: Paul De Grauwe – LSE
The need to build resilience
First COVID and now the war between Russia and Ukraine point to the need of building resilience and rethink trade patterns, argues Michael Spence:
It is important to note that the necessary level of diversification – that is, a level that enhances a country’s economic security and bargaining position in the event of a crisis – is unlikely to emerge as a purely market outcome, because the economic and strategic benefits are not fully captured by market participants. Although market participants recognize the risks and will not refuse to diversify markets and sources of supply altogether, they probably will not go far enough. […] Given this, public policy and international coordination must play an important role in advancing this process.
Will Russia’s War Spur Trade Diversification?
By: Michael Spence – Stanford University
Will the sanctions compromise the role of the dollar in the global financial system?
The economic sanctions imposed on Russia show the power of the Western monetary system. Will these sanctions also be the impetus for China or India to make their currencies more convertible and render future sanctions less effective? Jim O’Neil doesn’t think so:
China would need to allow much greater freedom in the offshore use of its currency, it would have to give up its ability to maintain capital controls. So far, it has been unwilling to do this. Yet, without capital-account liberalization, no other country – not even one as financially desperate as Russia – would want to hold its reserves in renminbi. […] Even if a major power like China were to respond to today’s changing circumstances by pursuing major financial reforms, it would still have to offer credible assurances regarding the safety and liquidity of reserves held outside Western currencies.
Will Sanctioning Russia Upend the Monetary System?
By: Jim O’Neil – Pan-European Commission on Health and Sustainable Development
