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Emerging Europe: CIS counts the cost of Russia

The rouble’s crash sent currencies tumbling across the Caucasus and Central Asia. Banks look relatively well placed to withstand an inevitable downturn. But with protracted stagnation looming, is it time for policymakers to build bridges further afield?


When the rouble plunged last autumn, pictures of exchange rate displays on Moscow streets were a staple of international media coverage – at least, until the Russia government ordered them to be taken down in the interests of public morale. What went largely unrecorded, however, was how the Russian currency’s gyrations were being watched just as anxiously in Baku, Yerevan and Almaty. 

Nearly 25 years on from the end of the Soviet Union, many of its former member states in the Caucasus and Central Asia still rely heavily on Russia as a source of remittances, foreign direct investment and export demand. Any weakening of the rouble therefore tends to put pressure on local currencies – and when the weakening is of the order seen late last year, the pressure is intense.

As the rouble collapsed in November following Russia’s move to a floating exchange rate, policymakers across the region struggled to keep their own currencies from following suit. Tajikistan’s central bank burned through half the country’s meagre foreign-exchange reserves in an attempt to stabilize the somoni, while Armenia – one of the few CIS states with a fully flexible currency – sold a quarter of its dollar holdings after a series of interest-rate hikes failed to halt the dram’s plunge. 

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