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.

Alan Bennett criticised the lack of fairness in British society encapsulated by the private school system
peopleBut he does like Stewart Lee
John Terry, Frank Lampard
footballChelsea captain sends signed shirt to fan whose mum had died
Life and Style
food + drink
Arts and Entertainment
Rita Ora will replace Kylie Minogue as a judge on The Voice 2015
Life and Style
Life and Style
Alan Turing, who was convicted of gross indecency in 1952, was granted a royal pardon last year
ebooksAn unforgettable anthology of contemporary reportage
Arts and Entertainment
Sheridan Smith as Cilla Black and Ed Stoppard as her manager Brian Epstein
tvCilla Episode 2 review: Grit under the glamour in part two of biopic series starring Sheridan Smith
Life and Style
Arts and Entertainment
Tennis player Andy Murray's mum Judy has been paired with Anton du Beke for Strictly Come Dancing. 'I'm absolutely delighted,' she said.
tvJudy Murray 'struggling' to let Anton Du Beke take control on Strictly
Life and Style
Vote with your wallet: the app can help shoppers feel more informed about items on sale
lifeNew app reveals political leanings of food companies
David Moyes and Louis van Gaal
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

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

iJobs Job Widget
iJobs Money & Business

IT Project manager - Web E-commerce

£65000 Per Annum Benefits + bonus: Clearwater People Solutions Ltd: If you are...

Trainee / Experienced Recruitment Consultants

£20000 - £25000 per annum + OTE £40,000: SThree: SThree are a global FTSE 250 ...

Trainee Recruitment Consultant - Soho

£20000 - £25000 per annum + OTE £40000: SThree: As a Recruitment Consultant, y...

Trainee Recruitment Consultants - Banking & Finance

£20000 - £25000 per annum + OTE £40,000: SThree: SThree Group have been well e...

Day In a Page

Secret politics of the weekly shop

The politics of the weekly shop

New app reveals political leanings of food companies
Beam me up, Scottie!

Beam me up, Scottie!

Celebrity Trekkies from Alex Salmond to Barack Obama
Beware Wet Paint: The ICA's latest ambitious exhibition

Beware Wet Paint

The ICA's latest ambitious exhibition
Pink Floyd have produced some of rock's greatest ever album covers

Pink Floyd have produced some of rock's greatest ever album covers

Can 'The Endless River' carry on the tradition?
Sanctuary for the suicidal

Sanctuary for the suicidal

One mother's story of how London charity Maytree helped her son with his depression
A roller-coaster tale from the 'voice of a generation'

Not That Kind of Girl:

A roller-coaster tale from 'voice of a generation' Lena Dunham
London is not bedlam or a cradle of vice. In fact it, as much as anywhere, deserves independence

London is not bedlam or a cradle of vice

In fact it, as much as anywhere, deserves independence
Vivienne Westwood 'didn’t want' relationship with Malcolm McLaren

Vivienne Westwood 'didn’t want' relationship with McLaren

Designer 'felt pressured' into going out with Sex Pistols manager
Jourdan Dunn: Model mother

Model mother

Jordan Dunn became one of the best-paid models in the world
Apple still coolest brand – despite U2 PR disaster

Apple still the coolest brand

Despite PR disaster of free U2 album
Scottish referendum: The Yes vote was the love that dared speak its name, but it was not to be

Despite the result, this is the end of the status quo

Boyd Tonkin on the fall-out from the Scottish referendum
Manolo Blahnik: The high priest of heels talks flats, Englishness, and why he loves Mary Beard

Manolo Blahnik: Flats, Englishness, and Mary Beard

The shoe designer who has been dubbed 'the patron saint of the stiletto'
The Beatles biographer reveals exclusive original manuscripts of some of the best pop songs ever written

Scrambled eggs and LSD

Behind The Beatles' lyrics - thanks to Hunter Davis's original manuscript copies
'Normcore' fashion: Blending in is the new standing out in latest catwalk non-trend

'Normcore': Blending in is the new standing out

Just when fashion was in grave danger of running out of trends, it only went and invented the non-trend. Rebecca Gonsalves investigates
Dance’s new leading ladies fight back: How female vocalists are now writing their own hits

New leading ladies of dance fight back

How female vocalists are now writing their own hits