In terms of their economic impact on a targeted state, currency wars take top honors for their devastating effect during a hybrid war. The term «currency war» refers to a set of measures intended to drastically reduce (force the collapse of) the exchange rate of a national currency, in order to serve the interests of currency speculators and to ensure a country’s overall economic destabilization.
For Russia, currency wars are more dangerous than traditional economic sanctions. This was clearly evident when the ruble imploded in December, 2014. The campaign to bring about the collapse of the Russian ruble was conducted by financial speculators (both foreign as well as Russian companies and banks), but they were merely administrators blindly following their market instincts. The campaign to sink the ruble was planned by certain individuals we will call «money masters». They consist of the US Federal Reserve System’s biggest shareholders, who control the White House as well as the US Treasury and Wall Street and City of London banks, plus other key players in the global currency market.
Typically in such cases the role of administrator is played by speculators like George Soros, who make their deals using third-party funds more often than their own money. The technology and algorithms of the attacks on other countries’ legal tender have been honed right down to the tiniest detail. Suffice it to recall that in 1992 Soros was able to scuttle the British pound sterling – a currency that had retained its global status throughout the 19th and early 20th centuries. And don’t forget the financial crisis in Southeast Asia, where the currencies of several countries in the region suddenly came crashing down over the course of a few days.
But currency wars cannot succeed without propaganda attacks. The mass media, which is under the control of the money masters, is a pro when it comes to sowing panic in the currency, stock, and other markets. Or they can take the opposite tack and manufacture informational «bubbles», stoking the unrealistic expectations of market players. The media and a few government agencies have cultivated some long-standing relationships that are helpful in the manipulation of financial markets. I am referring to the statistical services that «sculpt» the numbers that the money masters require. In the US, that usually means the Bureau of Economic Analysis at the Department of Commerce.
International financial institutions are also busy with such creative endeavors. They specialize in making predictions that do not come true. The figures and forecasts of various «independent experts» are circulated by the global media. Then the international rating agencies (the «big three») enter the game, steering the markets by means of the evaluations issued to each country. Some countries are bumped up (Ukraine, for example), while others are downgraded (Russia, for example).
If necessary the money masters can always bring in their heavy artillery – for example, the Board of Governors of the US Federal Reserve, which sets the base interest rate. But often there is no need to even change the rate. It is enough for the Chairman of the Fed to merely drop the hint that the rate «could be changed», and this will elicit the desired reaction from the highly responsive players on the financial markets. This is the money masters’ strategic game plan, without which the currency and financial wars would rapidly lose their sting. In the ideological war of propaganda against Russia, the highest priority is placed on changing the perception of the «subject», and billions of dollars are earmarked for that purpose every year.
And as for the West, the very act of issuing money and loans is its heaviest artillery on the front lines of the financial war.
The West’s economic sanctions against Russia are designed to boost the effectiveness of its currency war. Restrictions on moving cash have not affected short-term financing, which is now frequently used to exert speculative pressure on the Russian currency.
As a result, capital hemorrhaged out of Russia at record levels in 2014, with a net loss of $151.5 billion. A disproportionately large percentage of this sum was withdrawn in December 2014, when the currency crisis occurred.
It is important to understand that a whole range of measures are required in order to halt the offensive in the hybrid war against Russia. Specifically, there is a need to tighten the regulations on the cross-border movement of capital and to control the issue and use of cryptocurrencies.
The foreign-exchange controls on cross-border transactions must operate in both directions. Filters should be put in place to screen out speculative capital entering Russia with the intention of despoiling the country. Only capital that is ready to work within the real economy should be allowed entrance. In the other direction, foreign-exchange regulations should be used to intercept whatever the currency cheats have tried to seize and cart out of the country. This type of control would solve two interrelated problems. First of all, it would keep the country from being looted. Second, it would prevent the collapse of the national currency.
The era of full global currency liberalization ended during the 2007-2009 financial crisis. During and after that crisis, many countries introduced foreign-exchange restrictions on the cross-border movement of capital, despite the IMF’s ideological stance, in order to protect their economies. In the end, and fearing a second wave of the global financial crisis, even the fund itself was forced to concede (this occurred in 2012) that countries could if necessary use tools such as foreign-exchange restrictions. This was quite a remarkable adjustment to the IMF’s policy. After all, for nearly a quarter century full currency liberalization had been the cornerstone of the Washington Consensus and the basis of economic liberalism.
Russia ought to introduce foreign-exchange restrictions on the cross-border movement of capital. Those limits, albeit in an abbreviated form, were in effect in the country until the mid-2000s. And that step has to be taken as quickly as possible – the second wave of the financial crisis could hit the world economy at any time. Russia needs to erect a defensive wall around its currency. All BRICS countries currently have some kind of foreign-exchange restrictions on capital transactions. Right now the Russian Federation is the only exception within this group. Russia needs some protection against the West’s currency aggression.