Ilargi: Russia’s Central Bank Governor Is Way Smarter Than Ours

Lambert here: What a fun post! I’m not seeing a lot of sourcing on the trusting relationship between Nabiullina, the Central Bank Governor, and Putin, so it may be best to consider this post as a thought experiment; what if Putin trusted Nabiullina, as he seems to? Nevertheless, what a provocative thesis!

By Raúl Ilargi Meijer, editor-in-chief of The Automatic Earth. Originally published at Automatic Earth

It wouldn’t be a first, but it would certainly be a – bigger – shock. That is to say, the Bank of England hijacked the head of Canada’s central bank some time ago, but, while unexpected enough, that would pale in comparison to the US hiring the present Governor of the Russian central bank, Elvira Sakhipzadovna Nabiullina. It would still seem to be a mighty fine idea, though.

Not that I think it will happen, not to worry if you think Yellen is just what it takes at the Fed. But Nabiullina is both razor sharp and fiercely independent. Yellen is obviously neither; she’s a cog in a machine that huffs and puffs and pumps and dumps to make sure her overlords in the blissful world of US finance make ever more profit no matter how bad things get in American society.

There’s no need to be particularly sharp in order to play that role, and she was picked exactly because she’s NOT independent. Or let’s just say she’s a good listener.

Nabiullina is a whole different story. Not that I have much confidence in western readers understanding that this is so, let alone why. Not after the 24/7 highly public media campaigns and sanctions and oil price wars and Ukraine war talk and chest thumping directed at Putin and Russia, and after everything else that we don’t even know that plays out behind the veils.

Enjoy your conspiracies while you can, I’d say. Because despite more than a year of intense efforts to make Russia look like the empire of unspoken evil, financial markets, yes, the same ones Yellen manipulates at her lords’ bidding, have now made the Russian ruble and the Moscow stock exchange the biggest winners so far this year.

And that is due to a substantial extent to Elvira Nabiullina. You see, if she were just a blind or scared servant of Putin, or of his economic ideas, that would mean it was he who masterminded the resurrection of the currency and the stock market.

Think about it: that should make one really scared of Vladimir Vladimirovych. If besides all his other qualities, pursuits and activities (whether you see them in a positive light or not), he could also do that: save a $2 trillion economy from intense outside attacks.

Fear not: Putin is a mere mortal human being. One quality he does possess, however (he wouldn’t last in his position for 5 minutes if he didn’t), is a keen sense of who he can trust. And he trusts Elvira Nabiullina. She’s only been central bank governor since 2013, when she wasn’t even 50 years old, but she’s been a confidant for quite a while, most importantly as Putin’s private economic advisor in the years leading up to her present job.

You can all look up her career on Google or Wikipedia, interesting, but not overly so. What’s really important in Nabiullina’s career are two defining moments. Moments that make her stand out, and that define the relationship she has with Putin.

Sure, you can claim that she’s less independent than Yellen at the Fed, but who do you think you’re kidding? Yes, she has a hot line phone on her desk, and everyone is ushered out of the room when Putin calls her on that phone. But Yellen has hot lines to the US Treasury as well as to Jamie Dimon and Lloyd Blankfein and whoever lead those other banks and primary dealers. Independence?

So, to get to those two moments that define Elvira Nabiullina. The first was described by Bloomberg last month. In mid December 2014, the ruble was under vicious attack from financial markets. Nabiullina had already spent tens of billions of dollars in foreign reserves to prop it up. Then, on December 16, she, in a move nobody had foreseen, yanked up the interest rate in one fell swoop from 10.5% to 17%.

And here it comes: after that she did nothing. Not a thing. No more foreign reserves. Bloomberg quoted her as saying: “Speculators needed a cold shower.”

Mario Draghi said in 2012 he would do “whatever it takes to preserve the euro.” Nabiullina didn’t even have to say it.

The attack on the ruble was over. In January she lowered the interest rate to 15%, it’s at 13% now. Nabiullina says she expects it to be at 9% by the end of the year. The ruble is up 19% against the US dollar in 2015. No other currency has that record.

Did Putin order her to do this? No. They talked about it, and a lot, no doubt. But he knows she knows better. And he trusts her.

The second big moment came over the past few days, when Nabiullina announced that Russia will not get on the global central bank QE treadmill. Her reasoning, as Bloomberg reports, is that she sees problems with using debt to spur growth (eat your heart out, Krugman):

Nabiullina Sees ‘Limits’ in Using Debt Financing to Fund Growth

Russian central bank Governor Elvira Nabiullina raised questions about the use of debt financing to fund economic growth, underscoring the need to harness long-term capital as investment slumps. “We need to think about some other ways to finance growth, because financing economic growth with debt, in my opinion, has its limits,” Nabiullina said at a conference in Moscow on Thursday. “There won’t be long-term investment growth in Russia” without such sources of financing as pension savings and life insurance, she said.

“An excessive debt burden may be not only a catalyst for development and investment but also a hindrance,” Nabiullina said. Regardless of the high level of interest rates, the ratio of debt to Ebitda (Earnings Before Interest, Taxes, Depreciation and Amortization) “is already a considerable burden for companies, entire industries,” she said. Banking loans account for 57.6% of the Russian economy, according to Nabiullina. “Mandatory pension savings are of critical importance for sources of long-term financing and Russia’s capital markets,” the governor said.

Let me add some more from Reuters, so you get the full picture:

Russian Central Bank Chief Confident On Inflation, Banks, Ruble

“The acceleration of inflation… has in our view a temporary character. We expect quite a rapid fall in inflation if there are no new unforeseen circumstances..” Nabiullina said the central bank would continue cutting interest rates insofar as inflation risks receded. The bank has already cut rates twice this year. “On the whole we judge the situation in the banking sector as stable,” she said. “The banking sector maintains a substantial capital buffer and the banking sector is able to counter serious shocks even if crisis phenomena deepen.”

She said central bank stress tests showed that even if the oil price were to fall to $40 per barrel the sector would maintain capital levels above the regulatory minimum. Nabiullina also said the factors which had been weighing on the rouble had now passed, saying that repayments of foreign debts could be financed without this having a significant effect on the rouble’s value. “Thus the influence of those factors which were influencing the exchange rate and inflation last year are gradually receding to nothing..”

The entire financial markets attack ‘gradually receding to nothing’. The girl got style. Here’s thinking Nabiullina is right on this one too. Crippling sanctions? Crippling oil prices? Russia has survived it all so far.

There may well be negative growth in the country this year. But even if that were so, who would you choose to deal with that where you live? Yellen, Bernanke, Mario Draghi? Or would you go with a woman who’s shown she can not only think outside the box, but act outside of it too?! Who has both the guts and and the brains for it?!

She may well be one of Putin’s biggest weapons if the west elects to continue pestering Russia. It seems obvious: we need to hire her. But, caveat, to serve the American people, not Wall Street. Then again, I don’t think she’d want to do either.

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About Lambert Strether

Readers, I have had a correspondent characterize my views as realistic cynical. Let me briefly explain them. I believe in universal programs that provide concrete material benefits, especially to the working class. Medicare for All is the prime example, but tuition-free college and a Post Office Bank also fall under this heading. So do a Jobs Guarantee and a Debt Jubilee. Clearly, neither liberal Democrats nor conservative Republicans can deliver on such programs, because the two are different flavors of neoliberalism (“Because markets”). I don’t much care about the “ism” that delivers the benefits, although whichever one does have to put common humanity first, as opposed to markets. Could be a second FDR saving capitalism, democratic socialism leashing and collaring it, or communism razing it. I don’t much care, as long as the benefits are delivered. To me, the key issue — and this is why Medicare for All is always first with me — is the tens of thousands of excess “deaths from despair,” as described by the Case-Deaton study, and other recent studies. That enormous body count makes Medicare for All, at the very least, a moral and strategic imperative. And that level of suffering and organic damage makes the concerns of identity politics — even the worthy fight to help the refugees Bush, Obama, and Clinton’s wars created — bright shiny objects by comparison. Hence my frustration with the news flow — currently in my view the swirling intersection of two, separate Shock Doctrine campaigns, one by the Administration, and the other by out-of-power liberals and their allies in the State and in the press — a news flow that constantly forces me to focus on matters that I regard as of secondary importance to the excess deaths. What kind of political economy is it that halts or even reverses the increases in life expectancy that civilized societies have achieved? I am also very hopeful that the continuing destruction of both party establishments will open the space for voices supporting programs similar to those I have listed; let’s call such voices “the left.” Volatility creates opportunity, especially if the Democrat establishment, which puts markets first and opposes all such programs, isn’t allowed to get back into the saddle. Eyes on the prize! I love the tactical level, and secretly love even the horse race, since I’ve been blogging about it daily for fourteen years, but everything I write has this perspective at the back of it.


  1. vlade

    Hm… Draghi did much more than Nabiullina with simple words. Hiking rates by 5% is pretty dramatic. While it shows guts, I’d be much more careful with “she knew what she was doing”. If for nothing else, because no-one in the CB has any clue as to the impact of their decisions until they do so. Immediately after the hike ruble strenghtened, but then continued to weaken, and one could argue the weakness had much more to do with sanctions than anything else – and the fact that the sanctions meant that the liquidity window shrunk, relatively speaking. When more normal liquidity was restored, ruble strengthened and I believe it would have done so w/o the extreme rate hike. The hike may have persuaded some people to stop the liquidity flow, but even then, it was only measly 1% per month, and at times when kept loosing 5-6% per day in FX, so I doubt it was that important. As long as FX can move 20% per month, 1% per month in IR is irrelevant (and not only to speculators, but anyone with short-term cashflows).

    Also, I’d be careful with praising ruble strength, as while it helps imports, it hurts exports, which get a double whammy from oil and stronger ruble. If RU is serious about building economy that has a bit more than just commodities, it should welcome weaker ruble (Although not weakening tens of percents overnight of course..). But if the strong ruble is a badge of honour, then the claim she knows what she’s doing (economically-wise) is bollocks.

    1. hemeantwell

      If RU is serious about building economy that has a bit more than just commodities, it should welcome weaker ruble

      Agreed. I’ve been reading Kotz and Weir’s “Russia’s Path from Gorbachev to Putin…” and they are emphatic about how the transition from Soviet planning was botched by a muddled/criminal elite strategy that choked off industrial production investment and defaulted into raw materials extraction. The last thing that the now-rump industrial sector needs is a stronger ruble. The book has also been interesting for its description of management looting of firms, e.g. through transactions with shell companies, that recall some of Bill Black’s points regarding bank looting by executives. Their emergent capitalist elite blended in very nicely with what we’re stuck with.

      1. different clue

        Was it a “botch”? Or was it a deliberate burn-down? In order to facilitate the ‘garchs taking over all the valuable state property?

    2. Clive

      It’s not just that there was a dramatic hike in interest rates. History offers the opportunity for a pretty similar compare-and-contrast. The UK (while members of the euro-forerunner, the Exchange Rate Mechanism) came under similar speculative pressure. On “Black Wednesday”, the then chancellor tried to pull the same stunt as Nabiullina did

      The results couldn’t have been more different. The chancellor (effectively at the time the central bank, the Bank of England wasn’t — cough — “independent” like is allegedly is now) had no credibility and got thumped by the speculators (most infamously George Soros who is supposedly said to have made a billion — pounds or dollars, take you pick, the exact amount was never accurately substantiated — shorting sterling).

      What made Nabiullina so different in what is a re-run of the same situation ? My view is that she has balls, Russia is quite prepared to blow a resounding raspberry at “the markets” and a general F-U attitude is present in all parties concerned.

      Conversely, as for Yellen, Carney, Dhraghi et al, as Ilargi rightly suggests in his article, if Mr. Market throws a teensy weensy bit of a wobbly, there’s no limit to the bending over backwards they’d do to “restore confidence” or whatever expression they’d use.

      In a sentence (okay, two sentences), in Russia, they’ve had more than enough of “market forces” in the past 20 years and there, the state runs “the market”. Nabiullina showed she wasn’t in the least afraid of spanking the bottoms of the speculators a bit.

      More power to her is what I say.

    3. vidimi

      i disagree. jacking the key rate by 7% was a masterstroke that stopped the financial attack on the RUB dead in its track. she correctly recognised that, in contrast to the UK 23 years ago, the shorting had nothing to do with “economic fundamentals” and that a 17% interest rate would be prohibitively expensive to short for anyone who didn’t believe that russian inflation would be anywhere bear as high. had she not done it, the assault might have snowballed triggering a collapse of the RUB and possible hyperinflation.

      as for exports, russia exports primarily raw materials, which are internationally priced in USD, and it mostly exports east. secondly, some of its most recent, largest contracts have been denominated in RMB, so a weak RUB would be of no help.

  2. Ned Ludd

    In the U.S.,people are expected to be loquacious. Hence, it is surprising when people act without discussing or telegraphing their intent ahead of time.

    Mario Draghi said in 2012 he would do “whatever it takes to preserve the euro.” Nabiullina didn’t even have to say it.

    Carolinian linked to “Peculiarities of Russian National Character”, back in January, which explored some other cultural differences.

    To a westerner, an insult can be resolved by saying something like “I am sorry!” To a Russian that’s pretty much just noise… […]

    Although purely verbal apologies are worthless, restitution is not… The point is, these all involve taking pivotal actions, not just words, because beyond a certain point words can only make the situation worse, taking it from the “Go to hell” stage to the even less copacetic “Let me show you the way” stage.

    1. bruno marr

      …Russians don’t telegraph (explain) their intentions. They act and then look to see how perceptive you are in recognizing it. Putin doesn’t set “red line (s)” (see Obama). When Putin said a US attack on Syria would be a “bad idea” he knew (without stating it) that Russian anti-missile missiles traveling at Mach 2+ would easily destroy US cruise missiles traveling at 500 mph.

      1. ddd

        Cruise missile hug the ground. as good as the updated 1980s red army hardware it (and it is good), no military can shoot down cruise missile. I think the only way would be for a fighter, with good shot down capability, to manually target each one on a flat, straight pathway.

    2. Paul

      She couldn’t telegraph the rate increase to 17%. Besides, it was a panic move in a last ditch attempt to stem the currency slide. It’s not like she’s some kind of genius. Her options were limited, and she did what she could. It turned out pretty well, all things considered. That said, the Russian economy is pretty much toast, no matter what she does, as long as oil prices remain low.

  3. TMoney

    Got back from Russia recently. At 30 RUB/USD Russia would have been ungodly expensive.
    At 60 RUB/USD it seemed a bit cheaper than the USA. For a Purchasing Parity type exchange rate, 50 RUB/USD would be about right – IMHO.

  4. alex morfesis

    wonderful theater-crimea 4 cuba is complete

    ukraine needed to dump crimea as it was an economic nightmare

    putin was happy to trade off infidel for crimea, but his insiders would not be pleased with a ukranistan tied to

    a little bit of artillery theater and there you have it…

    russia has more oil, diamonds, coal, gas, etc than it can ever use, and more land too…

    it just can’t convince russian women to have children with russian men…

    otherwise, the world would not be worried about china…

  5. JEHR

    Speaking of finance, our Finance Minister has just announced that the Canadian government will soon introduce legislation that will outlaw deficits except for exceptional circumstances (disasters, recessions, acts of god). Wow! What a surprise it will be when his continual search to balance the budget creates a recession which can in turn make way for (allowed) deficits which is where we have already been. These guys are so smart that they even outsmart themselves!

    1. Eoin W

      Times of War was the other excuse for running a deficit. Which is important as the Reform Party supports the endless war philosophy. Canada is always at war therefore it’s ok to run a deficit.

      1. Ian

        Yeah, our Government is doing a hell of a job waging war on the general populace up here in Canada.

  6. dSquib

    I suspect it takes a pretty unique set of circumstances to do something so bold, or to be given in a sense license to.

  7. Bill Smith


    It’s wonderful over there. Inflation is 16.9%. The country is sliding into a recession. According to the Russian Economic Minster the economy will shrink by 3% this year.

    1. cwaltz

      I wouldn’t giggle too much. I daresay if the numbers weren’t being massaged in our country that we have an overly strong economy either(Atlanta Fed has our first quarter as NO GDP growth) and by poking the Russian bear we’re probably hastening our departure as a world reserve currency. It should be interesting to see who will fund our aggression once everybody figures out that the best way to diminish our importance is to stop investing in our currency.

      1. Paul

        I’m sorry to disappoint you, but the U.S. economy is doing pretty good right now. There is no valid comparison to be made with the level of misery Russians are having to accept.

        1. cwaltz

          If you think 0 percent growth and stagnant wages are good then by all means we’re doing pretty good.

          I daresay the 1 in 5 children living in poverty or the millions of Americans that can’t find jobs that pay their bills would agree with your assessment.

  8. NotSoSure

    Smarter? Not sure. Braver? Seems like it. The world is filled with smart people, they are practically a dime a dozen. People willing to do the right thing though is harder to find than a needle in haystack.

  9. susan the other

    If Russia is just crushing oil deflation before it can get out of hand then a two year horizon makes some sense. And it will conserve Russian reserves since the Saudis are hell-bent to sell theirs first. Deflation because the price of oil had been 3 times 40/bl when Putin announced to Russia that he was taking measures to shore up the economy and it would take 2 (3?) years to stabilize. He then fired the old CB head and went with Elvira. It will take two years, then, for everything to settle. In the meantime there’s plenty of vodka. The US/EU sanctions were brutal on the surface and in the propaganda – but Russia has diversified its economy now and is making the cheese it formerly imported from France, and other things. The only thing that appears to have changed is Russia’s persistent economic ties with the EU. Even so, Russia brought its South Stream into Turkey (now called the Turkey South Stream or stg like that) and is leaving it up to the EU to build their own transmission lines. And, oh yes, Boris Nemtsov was offed.

    1. chris9059

      “From the perspective of the working class…”

      Unfortunately, from that perspective most places, (certainly including the US) are pretty miserable places to live right now.

      1. cwaltz

        I think it’s amazing that anyone that reads a newspaper would think we’re doing so much better. 1 in 7 people are on food stamps and the numbers are worse if you’re a child. 1 in 4 essentially has less than $1000 in savings and about half have less than $10,000 saved for their retirement(translation: they’ll be working until they get sick and die.)

        But hey, let’s all giggle because the Russian population has it worse.

        1. Paul

          “More than half of Russians can’t afford to buy anything other than the basic necessities, the highest level in five years, a study showed.”

          I don’t dispute that the Great Recession has been disastrous for millions of American families, but the economy is growing and unemployment is declining. The next few years should be very good ones for American workers.

    2. Santi

      By this Misery Index Greece and Spain, both members of the European Union, are respectively 5th and 6th currently. This index is basically the addition of unemployment + inflation. Not really sure it is too meaningful as it does not take inequality or other things like education, availability of food, health, etc. into account. Another two EU countries (Croatia and Portugal) are in the top ten.

      1. Paul

        Unemployment corresponds to the ability of the average worker to earn a living. Inflation corresponds to how quickly purchasing power is being eroded. Combined, it says a lot about the ability of the average worker to make ends meet.

        The Greek economy is indisputably a basket case. I’m less familiar with Spain.

  10. participant-observer-observed

    Before that, we first need a central bank (and dare I say nation) that is in fact “ours” !

  11. Rosario

    So what this is implying, with what I’m reading as slight sarcasm WRT conspiracies, is that we are being purposely led into the abyss by our expert leaders and doers. Maybe not a movie style conspiracy, but a conspiracy nonetheless. I’m pretty sure Yellen and Nabiullina have access to the same textbooks and articles, and by the analysis provided she didn’t do anything that any economist worth a damn running a central bank (say Janet Yellen) wouldn’t (more like shouldn’t) do in a similar situation. Now just time to convince everyone that there is actually a conspiracy and we can get on with it.

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