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Ruble liquidity bubble in Russia


The non-cash money supply in Russia doubled in dollar terms in just one quarter - 523 billion at the end of March 2022 and 1060 billion now - there has never been such a breakthrough in the history of Russia either in percentage terms, let alone in absolute terms.

Imports of goods and services to Russia in 2021 amounted to $379 billion, $304 billion in 2020 and $353 billion in 2019. The maximum import in four quarters was recorded in 2013 at $470 billion.

Imports in the first quarter of 2022 amounted to 90 billion (+14 y/y), and in the second quarter of 2022 imports are likely to fall by 44% y/y to $52 billion according to my estimates based on mirror trade statistics of Russia's main trading partners for April -May and analytical models for a set of operational indicators.
These estimates may not be exact, but close to the truth.

Imports are affected by foreign exchange earnings (mainly from the export of goods), current income and cash flows of economic entities denominated in foreign currency and liquid savings.

According to the latter, non-cash ruble money supply (expressed in dollars) has a correlation close to one in comparison with imports of goods and services. All cycles of contraction and expansion of the money supply and imports over the past 20 years have been worked out synchronously, as shown in the graph. Since the second quarter of 2022, they have diverged sharply - imports have collapsed, the money supply in dollars has grown at a record high.

If proportioned in hindsight, the current estimate of liquid savings corresponds to imports of 155-160 billion for the quarter, which is three times higher than actual imports.

This means that the economy accumulates a huge amount of undistributed income that used to be imported.

An interesting point is the surplus of unallocated funds that were previously used for imports. The state, business, the financial sector and the population collectively spent 28 trillion rubles on the import of goods and services in 2021, about 22 trillion rubles in 2020, and 22.8 trillion rubles in 2019.

Taking into account the growth of the ruble money supply in the first half of 2022 by 18-20% yoy and the untold wealth from exports, the potential distribution of financial resources for imports in 2022 could be at least 33-34 trillion rubles (about 8.5 trillion per quarter).

In the second quarter of 2021, about 6.9 trillion rubles were spent on imports, in the second quarter of this year, about 3.4 trillion, with an average exchange rate for the quarter of 66 rubles per dollar - a gap of almost 5 trillion from potential capacity. But this is at a rate of 66, and now it is almost 50 rubles.

Effective demand has the potential to boost imports by at least three times the current supply, but they do not give - known problems in breaking trade contracts and agreements, difficulties in payment, insurance and logistics.

According to preliminary calculations, imports of goods and services for the 2nd quarter of 2022 amount to 50-54 billion dollars, which is 46% lower than last year.

Yesterday, Putin legalized parallel imports, marketplaces organize so-called “gray” deliveries as best they can, bypassing official dealers and distributors. But this is difficult.

Even the growth of imports to 60-70 billion per quarter is an insignificant 3-3.5 trillion rubles at the current absurd exchange rate, which accumulates an incredible gap (liquidity gap) up to 5 trillion rubles per quarter!

In fact, this is a monstrous medium-term pro-inflationary factor. There is room for “creativity” and reflection here, where can such liquidity go? Real estate, stocks, goods (in relation to the population)? The problem is that in Russia there are not many domestically produced goods that have a distinctive feature for accumulation.