Here is an interesting story in the New York Times about the Central Banker behind Russia’s move to reposition the country after the 2014 Crimea crisis. We referred to many of her strategies in the recent Mercator Webinar on The Impact of Russian Sanctions on the Payments Ecosystem. You can hear a rebroadcast of that event at this link. Elvira Nabiullina is the person responsible for protecting the Russian ruble. Several weeks ago, the Russian economy looked like the Kopeck, a fractional unit of the ruble, would be the defining currency. Still, her strategies are practical and appear to be keeping the economy in check. According to the NYT:
For the second time in less than a decade, Elvira Nabiullina is steering Russia’s economy through treacherous waters.
In 2014, facing a collapsing ruble and soaring inflation after barely a year as head of the Central Bank of Russia, Ms. Nabiullina forced the institution into the modern era of economic policymaking by sharply raising interest rates. The politically risky move slowed the economy, tamed soaring prices, and won her an international reputation as a tough decision maker.
In the world of central bankers, among technocrats tasked with keeping prices under control and financial systems stable, Ms. Nabiullina became a rising star for using orthodox policies to manage an unruly economy often tethered to the price of oil.
Ms. Nabiullina has an essential role in Putin’s cabinet.
Now it falls to Ms. Nabiullina to steer Russia’s economy through a deep recession and keep its financial system, cut off from much of the rest of the world, intact.
The challenge follows years she spent strengthening Russia’s financial defenses against the kind of powerful sanctions wielded in response to President Vladimir V. Putin’s geopolitical aggression.
She has guided the extraordinary rebound of Russia’s currency, which lost a quarter of its value within days of the Feb. 24 invasion of Ukraine. The central bank took aggressive measures to stop large sums of money from leaving the country, arresting a panic in markets, and halting a potential run on the banking system.
One of the essential takeaways from Mercator’s Webex is that Russia built a solid infrastructure to manage its payment requirements. From the debit perspective, the Russian National Payment System can stand in to distribute payroll and transact locally. However, things are not so rosy on the credit channel because bank liquidity is weak. The merchant function ported to Mir and the National Payment System will be business as usual. But for high enterprise value/low volume payments, Russia will find it hard to replace SWIFT, the global banking clearance network.
Elvira pushes on.
In her last crisis, she turned a catastrophe into an opportunity. In 2014, Russia was rocked by twin economic shocks: a collapse in oil prices — caused by a jump in U.S. production and the refusal of Saudi Arabia to cut production, denting Russia’s oil revenue — and economic sanctions imposed after Russia annexed Crimea.
Besides her record on monetary policy, Ms. Nabiullina has drawn praise for pursuing a thorough cleanup of the banking industry. In her first five years at the bank, she revoked about four hundred banking licenses — essentially closing a third of Russia’s banks —to cull weak institutions that were making what she termed “dubious transactions.”
And from the looks of it, the central banker sounds like she has a heart:
In March, Bloomberg News and The Wall Street Journal, citing unidentified sources, reported that Ms. Nabiullina had tried to resign after the Ukraine invasion and was rebuffed by Mr. Putin. The central bank rejected those reports.
“We are in a zone of enormous uncertainty,” Ms. Nabiullina said.
Overview by Brian Riley, Director, Credit Advisory Service at Mercator Advisory Group
