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TERRA ECONOMICUS

Debt monetization of the Russian economy: Key issues


TERRA ECONOMICUS, , Vol. 19 (no. 4),

The Bank of Russia’s issuance of “primary money” over the past 20 years has been based predominantly on an increase in net international reserves on the growth of net international reserves and is only marginally supported by the growth of government and corporate securities. Many economists argue that this way of monetization violates the country’s economic sovereignty and negatively affects economic growth. In this paper, the validity of this position has been confirmed using a shift-mode reproduction model and econometric analysis. For the retrospective long-term period 2011–2019, three scenarios are considered for activation of the debt (based on government securities) monetization method: when the role of the debt method increases by 20, 50, and 70%. All three scenarios have shown that in Russia, if the actual annual average issuance rate of M0 is maintained, the GDP rate increases, and inflation decreases within the framework of 2011–2019. One reason: It is statistically established that in countries with above-average yields, the transition to the debt method reduces the degree of undervaluation of the ruble, and this process, in turn, affects investment activity and, furthermore, economic growth and inflation. Interestingly, there is no such correlation in countries with high yields (USA, Canada, most EU countries etc.). In the calculations of the three scenarios, the growth of estimated public debt over the period 2011–2019 has outstripped the growth of actual public debt. In our opinion, this outpacing is one of the conditions for normalizing macroeconomic performance.
Citation: Maevsky V., Malkov S., Rubinstein A. (2021). Debt monetization of the Russian economy: Key issues. Terra Economicus 19(4): 21–35. DOI: 10.18522/2073-6606-2021-19-4-21-35
Acknowledgment: This research is conducted within the framework of the state assignment “Synthesis of theories of switching reproduction and institutional matrices: Application to the tasks of economic policy”.


Keywords: monetization of the economy; currency-based monetization; debt monetization; shifting mode of reproduction model; econometric analysis

JEL codes: B12, B31, C32, E21, E22, E23, E50

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Publisher: Southern Federal University
Founder: Southern Federal University
ISSN: 2073-6606