Outlook: The man who moves markets

GEORGE SOROS surely didn't intend to cause the Russian stock market to close its doors for business with his letter to the Financial Times yesterday warning of financial and economic meltdown in the former Soviet Republic. The trouble is that when someone as high profile in financial markets as Mr Soros makes these doomsday utterances, particularly in a situation as fragile as that faced by Russia, they tend to become self fulfilling.

Anything Mr Soros says or does has to be treated with the utmost suspicion. He seems much to prefer these days the business of travelling the world pontificating on matters of great importance to that of his trade as an international speculator.

Who wouldn't? And because financial markets rule all our lives as never before, everyone takes him very seriously, lapping up his pearls of wisdom.

But it should not be forgotten that though Mr Soros has tended in recent years to take a back seat in his various hedge funds, he is not entirely divorced from them. Very often, he's talking his book.

All that said, we can perhaps give him the benefit of the doubt in this case. Actually Mr Soros has been a heavy investor in rouble assets, and although he's sold down a lot of them in recent months, it can hardly suit his position to plunge the country into further turmoil. Moreover, both his analysis of the situation and his prescriptions for it seem to make a great deal of sense.

By devaluing, the IMF's dollar loans to Russia become worth more and the government would become that much more capable of servicing its rouble debt. As Mr Soros says, the outlook in the absence of such a move looks bleak. Either there is a wide-scale default, which would have catastrophic consequences both for the country and the wider international community, or the government would be forced to print money to pay its debts, leading possibly to hyper-inflation.

More contentious is Mr Soros's suggestion that immediately after the devaluation, the G7 provides Russia with sufficient reserves to start a currency board.

In the past, Mr Soros has been famously opposed to fixed exchange rates, but actually a currency board is a rather different animal to the dollar pegs of the Far East or Europe's exchange rate mechanism. By forcing the authorities to exchange the local currency for dollars, the effect is to apply a rigid and sometimes harsh monetary discipline that automatically guarantees whatever economic medicine the markets require. It worked wonders in Argentina while Hong Kong is a long standing role model for the virtues of the currency board.

The trouble is that Russia is so unstable politically and socially that there's no guarantee of long-term government commitment to such a system. And without that, it would lack international credibility from the start.

Mr Soros's formula for digging Russia out of its economic crisis is not going to be adopted lock stock and barrel, but he's right about the seriousness of the situation and he's made a useful contribution to the debate on how it might be corrected.

Start your day with The Independent, sign up for daily news emails
Life and Style
A monstrous idea? Body transplants might no longer be science fiction
Science An Italian neurosurgeon believes so - and it's not quite as implausible as it sounds, says Steve Connor
Sport
Demba Ba (right) celebrates after Besiktas win on penalties
footballThere was no happy return to the Ataturk Stadium, where the Reds famously won Champions League
Arts and Entertainment
Natural beauty: Aidan Turner stars in the new series of Poldark
arts + ents
News
Mia Freedman, editorial director of the Mamamia website, reads out a tweet she was sent.
arts + ents
News
people
Arts and Entertainment
The write stuff: masters of story-telling James Joyce, left, and Thomas Hardy
arts + ents...begging to differ, John Walsh can't even begin to number the ways
Sport
Jose Mourinho on Sky Sports
footballEXCLUSIVE COLUMN Paul Scholes: It was not a leg-breaking tackle, as the Chelsea manager had claimed
ebooks
ebooksA special investigation by Andy McSmith
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Telesales / Marketing Executive - B2B - OTE £25,000

£17000 - £25000 per annum: Recruitment Genius: An opportunity to join this new...

SThree: Trainee Recruitment Consultant

£18000 - £21000 per annum + OTE £45,000: SThree: SThree Group have been well e...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + OTE £45,000: SThree: SThree Group have been well e...

Recruitment Genius: Business Control Manager

£36000 - £44000 per annum: Recruitment Genius: Encouraging more businesses to ...

Day In a Page

HIV pill: Scientists hail discovery of 'game-changer' that cuts the risk of infection among gay men by 86%

Scientists hail daily pill that protects against HIV infection

Breakthrough in battle against global scourge – but will the NHS pay for it?
How we must adjust our lifestyles to nature: Welcome to the 'Anthropocene', the human epoch

Time to play God

Welcome to the 'Anthropocene', the human epoch where we may need to redefine nature itself
MacGyver returns, but with a difference: Handyman hero of classic 1980s TV series to be recast as a woman

MacGyver returns, but with a difference

Handyman hero of classic 1980s TV series to be recast as a woman
Tunnel renaissance: Why cities are hiding roads down in the ground

Tunnel renaissance

Why cities are hiding roads underground
'Backstreet Boys - Show 'Em What You're Made Of': An affectionate look at five middle-aged men

Boys to men

The Backstreet Boys might be middle-aged, married and have dodgy knees, but a heartfelt documentary reveals they’re not going gently into pop’s good night
Crufts 2015: Should foreign dogs be allowed to compete?

Crufts 2015

Should foreign dogs be allowed to compete?
10 best projectors

How to make your home cinema more cinematic: 10 best projectors

Want to recreate the big-screen experience in your sitting room? IndyBest sizes up gadgets to form your film-watching
Manchester City 1 Barcelona 2 player ratings: Luis Suarez? Lionel Messi? Joe Hart? Who was the star man?

Manchester City vs Barcelona player ratings

Luis Suarez? Lionel Messi? Joe Hart? Who was the star man at the Etihad?
Arsenal vs Monaco: Monaco - the making of Gunners' manager Arsene Wenger

Monaco: the making of Wenger

Jack Pitt-Brooke speaks to former players and learns the Frenchman’s man-management has always been one of his best skills
Cricket World Cup 2015: Chris Gayle - the West Indies' enigma lives up to his reputation

Chris Gayle: The West Indies' enigma

Some said the game's eternal rebel was washed up. As ever, he proved he writes the scripts by producing a blistering World Cup innings
In Ukraine a dark world of hybrid warfare and murky loyalties prevails

In Ukraine a dark world of hybrid warfare

This war in the shadows has been going on since the fall of Mr Yanukovych
'Birdman' and 'Bullets Over Broadway': Homage or plagiarism?

Homage or plagiarism?

'Birdman' shares much DNA with Woody Allen's 'Bullets Over Broadway'
Broadchurch ends as damp squib not even David Tennant can revive

A damp squib not even David Tennant can revive

Broadchurch, Series 2 finale, review
A Koi carp breeding pond, wall-mounted iPads and a bathroom with a 'wellness' shower: inside the mansion of Germany's 'Bishop of Bling'

Inside the mansion of Germany's 'Bishop of Bling'

A Koi carp breeding pond, wall-mounted iPads and a bathroom with a 'wellness' shower