The Banking System and Economy of Russia Assignment 2

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The Banking System and Economy of Russia : Research question

How can Russian economy grow and became stronger in front of other countries for the next 10 years?

Proposal

I have chosen this topic, because I want to make a research of how Russian economy is currently falling for the last decade in front of other countries. It’s interesting for me as I am getting a job in the sector of Banking system. The sectors that I have chosen to look through, to find an answer to my research question, are politics, small businesses and corruption. By studying issues in those sectors, I believe I can find a possible solution, which will provide me with the right answer to how Russian economy can maintain and be stronger in front of other big countries.

Introduction

Development of banking system

The Bank of Russia (Central Bank of Russia) was formed on 13th July 1990 from the changing of the Russian Republican state bank. The Central bank is an independent unit which regulates the national currency and ensures it is stable as directed by the constitution. It is the main controller of the banking industry in Russia, in charge of banking licenses, standards of accounting and rules of banking operations (Partachi and Mija 2015).

It controls all the financial markets of Russia. It has the right to give out coins and ruble banknotes through the St. Petersburg and Moscow mints. The central bank distributes coins made from valuable and non-valuable metals in the country and also outside the country. Currently, the Central bank of Russia is holding 475 billion dollars’ federal reserves.

Body

How central bank secures and stabilizes the national currency.

The Central bank influences economic growth by controlling the amount of money in the financial system. They achieve this through the following three monetary policy tools (Goryunov, Drobyshevsky and Trunin 2015). Firstly they ensure a certain amount that the banks should hold by the end of each day. Secondly, they buy and sell securities from banks.

This tool is used to stabilize the banking system. Thirdly they guide on the rates to be charged on loans and bonds. This is because high-interest rates slow growth but prevents inflation. They also stabilize the national currency by being involved in the currency exchange market (Partachi and Mija 2015). When the demand for rubles is high, the buy the excess dollars in circulation and when the demand for dollars is high they buy the excess ruble to maintain a fixed exchange rate.

Problems facing the economy of Russia

The Central bank of Russia has failed in maintaining currency value leading to the continued devaluation of the ruble. Ruble lost value because of a reduction in confidence in the economy which made investors sell off their assets in Russia. Lack of confidence among investors as a result of a fall in the prices of oil and the economic sanction imposed by other countries to Russia due to their military involvement in the Ukraine war (Poltarykhin et al. 2018). The financial crisis leads to inflation which caused high cost of living due to inflation where prices of goods and services went up.

Connection of Geo politics, corruption and local small business to the fall of Russian economy.

The Russian economy largely depends on exports of crude oil. Crude oil prices started to decrease in February 2014 due to the increased production of oil in America. The increased oil supply in the market lowered the prices. Small and medium enterprises (SMEs) have been affected by the financial crises in a great way.

Due to the increase in the cost of living, employees are demanding higher pay which the small firms cannot keep up with. The cost of inputs such as raw materials and power has gone up raising the total expenditure which creates huge losses (Partachi and Mija 2015). This has made many SMEs bankrupt hence closing down.

The others still operating in the market are choosing to avoid paying taxes (tax eversion) to increase their profits. The political system is implementing laws that increase tax share worsening the current situation in the economy. The decrease in oil prices is being politicized leading to a lack of solution. Corruption levels in the country are very high which stands at 52%. Many businesses and people are avoiding paying taxes by bribing tax officials.

Conclusion

Online payment systems and how they can be connected to banking system in order to grow economics in Russia.

The Russian economy is experiencing a lack of attention in the banking, government regulation and political sector. All stakeholders should work together to give life to the economy. The CBR (Central Bank of Russia) can reduce inflation by selling government bonds to member banks and the public (Partachi and Mija 2015).

This will help in getting back the excess money in the economy. People should say no to corruption and agree to pay taxes to grow our economy. The more people are willing to pay their taxes the less the tax share will be. This will lower the cost of living. People should adopt the use of online payment systems available in banks to increase efficiency in the banking system (Poltarykhin et al. 2018). The banking system should lower their mortgages and loan interest rates to enable people to borrow more hence enabling growth.

Key words used in the proposal

Bank, Central Bank, Bank of Russia, Banking system, industry, organizations, bank structure, online bank, currency, money, credits, loans, corruption, investments, economy, ruble, business, mortgage, payments, federal reserve, retail, lending, finance, insurance, regulations, savings, crisis, asset, banknotes, treasury, commercial banks, investor, federal government, and institution.

References

Goryunov, E., Drobyshevsky, S. and Trunin, P., 2015. Monetary policy of Bank of Russia: strategy and tactics. Voprosy Economiki4.

Partachi, I. and Mija, S., 2015. Monetary Policy–Instrument for Macroeconomic Stabilization. Procedia Economics and Finance20, pp.485-493.

Poltarykhin, A.L., Alekseev, А.E., Kudryavtsev, V.V., Makhanova, T.A., Voronkova, O.Y. and Aydinov, H.T., 2018. Prospects for the development of the green economy of Russian federation. European Research Studies Journal21(4), pp.470-479.

 

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