The 2014–15 Financial Crisis in Russia and the Foundations of Weak Monetary Power Autonomy in the International Political Economy

ABSTRACT This article contributes to international political economy debates about the monetary power autonomy (MPA) of emerging market and developing countries (EMDs). The 2014–15 Russian financial crisis is used as a case study to explore why an accumulation of large international reserves does not provide protection against currency crises and macroeconomic adjustments in EMDs. The analysis centres on the interplay between two dimensions of MPA: the Power to Delay and the Power to Deflect adjustment costs. Two structural factors condition Russia’s low MPA. First, the country’s subordinated integration in global financial markets increases its financial vulnerability. The composition of external assets and liabilities, combined with cross-border capital flows, restrict the use of international reserves to delay currency crises. Second, the choice of a particular macroeconomic policy regime embraced the financialisation of the – mainly state-owned – Russian banking sector, thus making it difficult to transform liquidity inflows into credits for enterprises. Russia’s main comparative advantage, hydrocarbon export revenues, is not exploited. The type of economy created due to the post-Communist transition means that provided ‘excessive’ liquidity remains in the financial system and is channelled into currency arbitrage. This factor increases exchange rate vulnerability and undermines Russia’s MPA.

[1]  W. Cui,et al.  Quantitative Easing , 2018, SSRN Electronic Journal.

[2]  I. Viktorov.  Russia’s Network State and Reiderstvo Practices : The Roots to Weak Property Rights Protection after the post-Communist Transition , 2019 .

[3]  Annina Kaltenbrunner,et al.  Financialization and liberalization: South Africa’s new forms of external vulnerability , 2018, Competition & Change.

[4]  R. Connolly.  Russia's Response to Sanctions , 2018 .

[5]  Annina Kaltenbrunner,et al.  Subordinated Financial Integration and Financialisation in Emerging Capitalist Economies: The Brazilian Experience , 2018 .

[6]  G. Zucman,et al.  From Soviets to oligarchs: inequality and property in Russia 1905-2016 , 2017, The Journal of Economic Inequality.

[7]  Leslie Elliott Armijo,et al.  The BRICS and Collective Financial Statecraft , 2017 .

[8]  Juliet Johnson,et al.  Currency crises in post-Soviet Russia , 2017 .

[9]  J. Gans-Morse.  Property Rights in Post-Soviet Russia: Violence, Corruption, and the Demand for Law , 2017 .

[10]  L. F. de Paula,et al.  Keynes at the periphery: Currency hierarchy and challenges for economic policy in emerging economies , 2017 .

[11]  H. Schwartz.  The future of the euro , 2016 .

[12]  S. Maxfield,et al.  Atlas constrained: the US external balance sheet and international monetary power , 2016 .

[13]  Juliet Johnson.  Priests of Prosperity , 2016 .

[14]  A. Abramov,et al.  The state capture of Russian non-bank financial institutions and markets after the 2008 crisis , 2016 .

[15]  Anastasia Nesvetailova.  Against All Odds? Russia’s Financial Crisis and Global Geopolitics , 2016 .

[16]  Annina Kaltenbrunner.  Stemming the Tide: Capital Account Regulations in Developing and Emerging Countries , 2016 .

[17]  Annina Kaltenbrunner.  A post Keynesian framework of exchange rate determination: a Minskyan approach , 2015 .

[18]  Annina Kaltenbrunner,et al.  Developing countries’ changing nature of financial integration and new forms of external vulnerability: the Brazilian experience , 2015 .

[19]  Joachim Zweynert,et al.  Economic Ideas and Institutional Change: The Case of the Russian Stabilisation Fund , 2015 .

[20]  J. Whalley,et al.  Offshore Foreign Direct Investment, Capital Round-Tripping, and Corruption: Empirical Analysis of Russian Regions , 2015 .

[21]  Dirk Ulbricht,et al.  The Ruble between the Hammer and the Anvil: Oil Prices and Economic Sanctions , 2015 .

[22]  Jeremy N. Green,et al.  The Regressive Recovery: Distribution, Inequality and State Power in Britain's Post-Crisis Political Economy , 2015 .

[23]  M. Blyth,et al.  The Future of the Euro , 2015 .

[24]  Kuznetsov Boris,et al.  Industrialization in the Russian Federation , 2015 .

[25]  Shinichiro Tabata.  Emergence of regional powers in the international financial system , 2014 .

[26]  K. Gallagher.  Ruling Capital: Emerging Markets and the Reregulation of Cross-Border Finance , 2014 .

[27]  A. Abramov.  The Difference in the Behaviour of Domestic and Foreign Private Investors in the Russian Stock Market , 2014 .

[28]  N. Perdikis,et al.  Development and Financial Reform in Emerging Economies , 2014 .

[29]  M. Otero-Iglesias.  The Euro, The Dollar and the Global Financial Crisis: Currency Challenges Seen From Emerging Markets , 2014 .

[30]  A. Vernikov.  Comparing the banking models in China and Russia: Revisited , 2014 .

[31]  A. Vernikov.  "National Champions" in Russia's Banking Services Market , 2014 .

[32]  A. Yakovlev,et al.  Means of production versus means of coercion: can Russian business limit the violence of a predatory state? , 2014 .

[33]  Ashley Thomas Lenihan.  Sovereign Wealth Funds and the Acquisition of Power , 2014 .

[34]  Sandra Heep.  China in Global Finance: Domestic Financial Repression and International Financial Power , 2014 .

[35]  Mihaela Culea.  No Precedent, No Plan: Inside Russia’s 1998 Default , 2014 .

[36]  Sandra Heep.  China in Global Finance , 2014 .

[37]  Benjamin J. Cohen,et al.  Power in a changing world economy : lessons from East Asia , 2014 .

[38]  Leslie Elliott Armijo,et al.  The Financial Statecraft of Emerging Powers , 2014 .

[39]  Mattias Vermeiren.  Power and Imbalances in the Global Monetary System: A Comparative Capitalism Perspective , 2014 .

[40]  E. Helleiner,et al.  The Great Wall of Money: Power and Politics in China's International Monetary Relations , 2014 .

[41]  Michael Rochlitz.  Corporate raiding and the role of the state in Russia , 2014 .

[42]  Bruno Bonizzi.  Financialization in Developing and Emerging Countries , 2013 .

[43]  Shalendra D. Sharma.  Global Financial Contagion: Building a Resilient World Economy after the Subprime Crisis , 2013 .

[44]  A. Kuznetsov,et al.  The Financial Depth of Emerging Markets: The Case of Russia , 2013 .

[45]  R. P. Andrade,et al.  Exchange rate dynamics in a peripheral monetary economy , 2013 .

[46]  P. Rutland.  Neoliberalism and the Russian transition , 2013 .

[47]  A. Ledeneva.  Can Russia Modernise?: Sistema, Power Networks and Informal Governance , 2013 .

[48]  S. Kirdina,et al.  Evolution of the Banking System in the Russian Context: An Institutional View , 2013 .

[49]  A. Ledeneva.  Can Russia Modernise?: List of figures , 2013 .

[50]  Daniela Gabor.  Learning from Japan: The European Central Bank and the European Sovereign Debt Crisis , 2012 .

[51]  Daniela Gabor.  Managing Capital Accounts in Emerging Markets: Lessons from the Global Financial Crisis , 2012 .

[52]  Daniela Gabor.  The Road to Financialization in Central and Eastern Europe: The Early Policies and Politics of Stabilizing Transition , 2012 .

[53]  P. Sutela.  The Political Economy of Putin's Russia , 2012 .

[54]  Gerard Caprio.  The evidence and impact of financial globalization , 2012 .

[55]  P. Dutkiewicz.  Missing in Translation , 2011 .

[56]  Greta R. Krippner.  Capitalizing on Crisis: The Political Origins of the Rise of Finance , 2011 .

[57]  A. Elson.  Governing Global Finance: The Evolution and Reform of the International Financial Architecture , 2011 .

[58]  A. Elson.  Governing Global Finance , 2011 .

[59]  Ryan Walter.  States and markets , 2010, Review of International Studies.

[60]  M. Gilman.  No Precedent, No Plan: Inside Russia's 1998 Default , 2010 .

[61]  P. Hanson.  Russia's Inward and Outward Foreign Direct Investment: Insights into the Economy , 2010 .

[62]  A. Vavilov.  The Russian Public Debt and Financial Meltdowns , 2010 .

[63]  B. Pinto,et al.  Financial Globalization and the Russian Crisis of 1998 , 2010 .

[64]  Y. Adachi.  Building Big Business in Russia: The Impact of Informal Corporate Governance Practices , 2010 .

[65]  V. Popov.  The Long Road to Normalcy , 2010 .

[66]  E. Helleiner,et al.  The future of the dollar , 2009 .

[67]  J. Ghosh,et al.  The costs of ‘coupling’: the global crisis and the Indian economy , 2009 .

[68]  Richard W. Carney.  Lessons from the Asian financial crisis , 2009 .

[69]  F. J. C. Carvalho.  The Accumulation of International Reserves as a Defense Strategy , 2009 .

[70]  V. Popov.  The Long Road to Normalcy: Where Russia Now Stands , 2009 .

[71]  E. Helleiner.  Political determinants of international currencies: What future for the US dollar? , 2008 .

[72]  Ashby H. B. Monk.  Recasting the Sovereign Wealth Fund Debate: Trust, Legitimacy, and Governance , 2008 .

[73]  Y. Halabi.  Monetary Power and Monetary Statecraft , 2008 .

[74]  Lucy Chernykh.  Ultimate Ownership and Control in Russia , 2007 .

[75]  Andrew Barnes,et al.  Owning Russia: The Struggle over Factories, Farms, and Power , 2006 .

[76]  N. Woods.  The Globalizers: The IMF, the World Bank, and Their Borrowers , 2006 .

[77]  David M. Woodruff.  Property rights in context: Privatization’s legacy for corporate legality in Poland and Russia , 2004 .

[78]  M. Florio.  Economists, Privatization in Russia and the waning of the 'Washington consensus' , 2002 .

[79]  C. Dolan,et al.  Globalisation and poverty : channels and policy responses , 2006 .

[80]  Juliet Johnson.  A Fistful of Rubles: The Rise and Fall of the Russian Banking System , 2000 .

[81]  Jean L. Johnson.  A Fistful of Rubles , 2000 .

[82]  Arnoud Boot.  Relationship Banking: What Do We Know? , 2000 .

[83]  David M. Woodruff.  Money Unmade: Barter and the Fate of Russian Capitalism , 1999 .

[84]  M. Evangelista.  Internationalization and Domestic Politics: Stalin's Revenge: Institutional Barriers to Internationalization in the Soviet Union , 1996 .

[85]  J. Kirshner.  Currency and Coercion: The Political Economy of International Monetary Power , 1996 .

[86]  Jim Leitzel.  Russian Economic Reform , 1995 .

[87]  L. Cook.  The Soviet Social Contract and Why It Failed: Welfare Policy and Workers’ Politics from Brezhnev to Yeltsin , 1993 .

[88]  R. Mckinnon.  Financial Control in the Transition from Classical Socialism to a Market Economy , 1991 .

[89]  R. Karagedov,et al.  The Economics of Shortage , 1988 .

[90]  Owen,et al.  Ruling Capital: Emerging Markets and the Reregulation of Cross-Border Finance , 2014 .