1.

How would you classify the exchange rate regime used by Russia for the ruble over
the 1991-2014 periods?

Since the opening of the Russian economy under the Perestroika in 1991 until2014, Russia
implemented a long term currency strategy with highly controlled official exchange rate
accompanied by tight capital control. Russia managed floating exchange rate regime. Bank of
Russia uses the rublevalue of the dual-currency basket consisting in; the U.S. dollar 55% and
the euro55%, for the calculation of the central ruble rate. From 2014, the Bank of Russia
abolished the exchange rate policy mechanism through cancelling the permissible range of the
dual-currency basket ruble values (operational band) and regular interventions on and outside
the borders of this band. However, the new approach of the Bank of Russia to operations
targeted inflation does not provide for complete abandonment of the ruble’s exchange value,
because in case of financial stability threats can be implemented the necessaries interventions.
2.What did the establishment of operational bands do to the expectations of ruble
speculators? Would these expectations be stabilizing or destabilizing in your opinion?

The establishment of the operational bands had a significant bearing on the expectations of the
ruble speculators. Speculators had a firm belief that the value of the ruble would stabilize in
the long run. There was a firm belief that once the market rates reached one of the established
operational bands, the bank of Russia would take the necessary interventions to salvage the
situation. The interventions aimed at restoring back the value of the currency back to the mean
position. They at any time believed that at any time in the case the value of the ruble deviated
from the mean position, then it would eventually move to the mean value, and thus it would
attain a stabilizing effect. The measures that the bank of Russia would undertake to promote
the stability of the currency were well known to the speculators. For instance, whenever there
were movements towards the lower band, the bank of Russia would sell off the ruble reserves
in the bid to promote stability in its value. In the case the value of the ruble was moving towards
the uppers band, then the bank of Russia would respond by buying off the ruble. The bank of
Russia had also set a maximum of $700 million per day in the purchase of the rubble. In the
case the bank hit the limit on a particular day, then it would move the bands. The speculators
knew such efforts. The intervention efforts by the bank of Russia build confidence among the
speculators that the value of the ruble would eventually stabilize the value of the rubble.
3. Would Western sanctions alone been devastating to the ruble’s value, or was it the
plummeting price of oil that had the larger impact?

The sanctions had a significant impact on the value of the ruble. However, the situation was
aggravated by the plummeting price of the oil. Notably, a depreciating value for the ruble has
a significant bearing on the commercial activities in Russia. It would benefit certain
commercial sectors such as the exports in the case where the price is the primary factor that
influences the demand the products in the market. However, an insight on major exports from
Russia makes it clear that most of the commodities are priced on the global market. The
weakening rubble would thus not have a significant bearing on the level of sales of the products.
In this case, Russia is a primary exporter of oil. The price of oil is mostly set on the global
market, and thus the depreciating value of the ruble would not trigger more sales volume. The
depreciating rubble would also affect the consumption patterns among the citizens. In the case
they consume imported products, then they would end up spending more rubles for the same
value of goods. Such would result in inflationary pressures. It is thus evident that the Western
sanctions had a significant impact on the value of the ruble. However, the plummeting oil prices
resulted into a substantial effect as it led into inflationary pressures due to the impact of the
value of the rubble on commercial activities within the country.