The Russian central bank governor Elvira Nabiullina has mastered many crises in Russia. But cushioning the Western sanctions could be too big for them too.
In 2019 the world was still fine for Elwira Nabiullina.
Elwira Nabiullina appeared in front of the press all in black. And that was no coincidence. Russia’s central bank governor is known for giving a glimpse into her thoughts with her dresses and brooches. On this day, however, the brooch was missing. From Nabiullina’s point of view, the Russian economy was probably buried that day. The mourning clothes were enough.
Nabiullina had nothing good to report. The Russian war of aggression in Ukraine has far-reaching consequences for Russia. The US and its western allies imposed far-reaching sanctions. The central bank itself was not spared from the punitive measures. Nabiullina went to extremes to stop the ruble from falling and give people at least some confidence in their local banks.
Drastic measures
The head of the central bank raised the key interest rate by 10 percentage points, introduced capital controls and banned the withdrawal of large amounts in order to stop the outflow of cash and foreign currency. Nevertheless, Nabiullina now has to deal with the consequences of a war that will quickly destroy what she has achieved in the nine years since she took office.
Why is the woman doing this to herself? The Bloomberg news agency reported recently that Nabiullina wanted to quit her job after the invasion. But sources inside the central bank said her resignation would be viewed by Putin as a treason. And that is one of the worst things that the Russian President can accuse you of.
Nabiullina continues
External pressure was having an effect. Instead of a new challenge, Nabiullina took over the presidency of the central bank for another five years. Somehow the central banker Putin probably also feels obligated.
The two have a close relationship, and the Russian president has encouraged and respected them since the beginning of his tenure. What’s more, Putin has taken to addressing Nabiullina by her first name, even in public — an unusual sign of familiarity for him.
Not part of the St. Petersburg Connection
However, unlike many other figures in power, Nabiullina is not a longtime ally from St. Petersburg, where Putin began his political career in the early 1990s.
58-year-old Elwira Nabiullina grew up far away from the Russian center of power in the industrial city of Ufa. Her mother worked in a factory and her father was a truck driver. Elwira was a model student, loved books and got a place at a university in Moscow in the 1980s.
In the capital she began to study economics and not only came into contact with Marx and Engels, but also with the works of Western economists whose books were not allowed to be published in the Soviet Union.
After the end of communism, she joined a group of young reformers led by her former professor Yevgeny Yasin. He had a major influence on Boris Yeltsin’s economic policy and was Economics Minister until 1997. Nabiullina dropped out of her PhD, entered government service, and rose rapidly through the 1990s.
The Russian crisis ended the reform era
But the policy of reform did not help Russia out of trouble. The economy collapsed and the country had to declare bankruptcy. After the so-called ruble crisis of 1998, the reformers in the Kremlin ran out of steam.
While many Yeltsin loyalists were marginalized when the Putin government took power, Nabiullina found a place again. Putin’s new economy minister, Herman Gref, took her under his wing. He was considered liberal and an ambitious designer. Gref expected a lot from Nabiullina. In 2006, she was even allowed to lead the preparations for Russia’s first G8 presidency.
She did it so well that Vladimir Putin raved about her organizational skills. Then it went fast. In 2007, the president promoted her to economics minister, and in 2013 Putin took the entire elite by surprise by making the strict bureaucrat head of the central bank.
Nabiullina’s first real test as central bank governor followed immediately. Russia’s conquest of Crimea in 2014 scared off many foreign investors, and sanctions hit the Russian economy. At the same time, the oil price plummeted in the fall. The currency plummeted, and many Russians tried to change their rubles into dollars. Initially, Nabiullina tried to calm the situation with half-hearted measures. But that wasn’t enough.
In December, the currency came under severe pressure. In order to prevent a collapse, Nabiullina imposed an emergency rate hike and was severely criticized for it. The measures are unnecessary, excessive and counterproductive, according to important bank managers. But history proved Nabiullina right: in early 2015, the ruble stabilized again. Putin’s confidence in his central banker grew.
inflation banned
Thanks to her good policies, the governor of the central bank has also brought inflation under control, bringing it down to its lowest level in post-Soviet history. This is particularly important in Russia, as the fall in the value of their assets in the 1990s is still a severe trauma for many people.
But Nabiullina didn’t just react. In recent years, under the impact of ever-tightening sanctions, it has taken many precautionary measures to protect the Russian economy. Under her aegis, the central bank accumulated one of the world’s largest foreign currency and gold holdings. This is intended to prevent the ruble from falling again. In addition, a separate payment system was introduced and the banking system stabilized.
The successes also caused a stir internationally. Specialist publications voted her “Central Banker of the Year”, and in 2018 the then IMF head Christin Lagarde compared her qualities to those of a great conductor.
But even the best conductor misses the beat when a war begins. According to Bloomberg the Russian central bankers had run through sanctions scenarios before the attack. Above all, a possible shutdown of the Swift system was considered. But it was not thought possible that the West would impose sanctions on the reserves of the central bank. The blockade of foreign exchange and gold reserves deprived Nabiullina of one of her most important tools.
The question is whether the last remaining technocrat in Putin’s circle of power is enough to cushion the dire consequences for the people of Russia. She succeeded in the first few days. But the West could apply even more pressure through energy sanctions. It could well be that Nabiullina will soon have to work again in a Soviet-like state economy. Comparable to the one she grew up in.