The Russian rouble as a petrol voucher

Russia’s troubles are now well documented. From a monetary viewpoint they’ve been reasonably restrained, they could have done lots of silly things, like blowing all their foreign reserves, which probably would have just been given away to speculative traders. Capital controls may be another possibly bad idea, though it’s somewhat surprising it hasn’t, so far, been the natural instinct of such an authoritarian regime.

Russia clearly would have a hard time maintaining a dollar peg (not enough dollars), or say a gold peg (not enough gold). But they’ve got a lot of oil. And the Rouble, like most commodity country currencies, is strongly correlated with the flagship export — incidentally I’m not convinced this should be the case as often as it seems to be in practice, there may a self-fulfilling prophecy element in these correlations.

Revenue from oil sales are a large part of the Russian government’s income. So if they peg the Rouble to oil, they get constant income from this (assuming constant pumping volume) matching constant(ish) nominal liabilities (pensions, civil service salaries set in sticky nominal roubles). Remarkably this to an extent naturally happened: the oil price chart in roubles is much flatter than in dollars.

In normal times, the oil price might be considered too volatile to be used as a mean of payment but in crisis times, it may be less volatile than a free floating lame duck currency. And a peg can be undone in quieter times.

So I suggest that the Central Bank of Russia declares the Rouble convertible to a fixed quantity of oil.

Petrol Station with Cental Bank of Russia logo

Putative petrol station operated by Central Bank of Russia (credits: CBR logo from website, petrol station from Flickr user minaletattersfield, CC by-sa licence, collage commentisglee on same.)

They don’t even need to actually deliver oil for people wishing to redeem roubles directly — or only as a last resort. Delivering internationally traded oil futures would do fine. Indeed the rouble could become a well regarded, highly liquid, oil derivative in its own right, that just happens to also buy you a cocktail in Moscow.

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