Why you should care
Because a currency problem in Russia can have ripple effects across the globe.
It’s easy to overlook Elvira Nabiullina when she makes public appearances surrounded by men. This petite woman with a soft, composed voice even seems inconspicuous on the podium. Yet the 51-year-old president of the Russian Federation’s Central Bank can move markets with just a few words.
Nabiullina’s task is one of the most difficult in the world of central banking. Russia is caught in a vicious circle. The ruble is in free fall while inflation is soaring. The country’s central bank wants to keep consumer price inflation below 5 percent, but it recently exceeded 11 percent. Fear of political repression and dispossession is driving out entrepreneurs as well as investors. Currency reserves are falling as sanctions have left many firms urgently in need of fresh currency. Nabiullina is an ally and a confidante of President Vladimir Putin, yet his policies are making her life more difficult. Rescuing the ruble could be Nabiullina’s “mission impossible.”
In government, as in school, she simply rose through the ranks.
Nabiullina is an ethnic Tatar, born in Ufa, a city in the southern Urals, to a truck driver dad and a factory worker mom. Her academic talent paved the way for entrance into one of Russia’s top schools, Moscow State University, where she earned a Ph.D. in economics and married one of her professors, Yaroslav Kuzminov, who is now rector of Moscow’s Higher School of Economics. They have two children. In government, as in school, she simply rose through the ranks, starting off in 1995 as deputy chief of the Department of Economic Reform at the Ministry of Economy until she caught Putin’s eye after he became president for the first time in 2000.
She’s a rare woman in a high position in Russia, part of a small group of key economic modernizers, both smart and tough, says Angela Stent, a professor at Georgetown University. “She never smiles. She’s very intense. When she talks, her words are very measured,” Stent says. Nabiullina usually stays out of the public eye.
In early November, she took the bold move of letting the ruble float more freely, which reduced the predictability of central bank intervention in the markets: “We are going to intervene at any moment using whichever amount is necessary to counter speculative demand,” said Nabiullina. The measure was coordinated with President Putin, who that same morning announced that “speculative price jumps” would end in the near future, thereby prompting a significant yet short-lived recovery in the value of the ruble. Nabiullina garnered much praise for the measure but still had to endure finance minister Anton Siluanov’s criticism that she reacted “a little late.” Putin added his voice to the criticism at his much ballyhooed press conference in December, although he blamed others in the government as well.
Nabiullina has been firefighting for weeks without getting the blaze under control. A significant base rate increase — all the way to 17 percent — was ineffective, and interventions in the currency market proved similarly fruitless. The central bank’s foreign currency reserves shrank from $510 billion at the start of 2014 to $419 billion by the end of November — amounting to more than $80 billion defending the ruble. Meanwhile, the ruble’s value decreased over the same period. A dollar a year ago cost 33 rubles; now it’s nearly 59 rubles.
Russia’s current crisis is fundamental, similar to the events that led to the breakup of the Soviet Union.
Dealing with this ongoing crisis is a new challenge for the central bank. At first glance, the situation appears less dramatic than the late 2008 threat Russia faced in the wake of the global financial crisis. Back then, Nabiullina’s predecessor in office, Sergey Ignatiev, propped up the market by injecting more than a third of currency reserves into it. But according to Konstantin Sonin, vice rector of the Higher School of Economics, what happened then was a one-off shock. By contrast, he writes, Russia’s current crisis is fundamental, similar to the events of 1991 and 1992 that led to the breakup of the Soviet Union: a systemic crisis worsened by Western sanctions, tumbling oil prices and a political course that is unsettling investors.
Nabiullina, a macroeconomist who formerly worked under Putin as presidential adviser and minister for economic development, knows that the falling ruble is symptomatic of deeper problems. Since Putin’s return to presidential office in 2012, economic growth has slowed to the point of stagnation. The old, oil-based economic model of the 1990s is over. Absence of legal stability has harmed investment. And the Ukraine crisis has left Russia globally isolated. Capital fled and oil prices have collapsed. Probably Putin alone knows what he now expects of his central bank chief, who co-wrote his election program in the 1990s. She’s capable of consolidating her boss’s diverse ideas into a reform strategy. Has she already presented her boss with such a strategy for the Russian state? If she has, either it was ignored or, once again, she spoke too softly.