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Editor-In-Chief of Dow Jones and Managing Editor of the Wall Street Journal Robert Thomson: Mr President, what currently constitutes a greater threat to global development: inflation or deflation? Which, in your opinion, is more dangerous?
President of Russia Dmitry Medvedev: I think that it is only possible to answer this question on a case-by-case basis. If we are talking about threats to some individual nations, then it depends on the position those states are currently in. For our country, inflation has traditionally been the main threat, and we have been fighting day and night to minimise it.
I should mention that in early 1990s the inflation rate in the Russian Federation reached 1.5 thousand percent per month. Ultimately, we were able to lower it to 8–9 percent per annum, but then it grew somewhat again. Now, we are hoping that it will be around six percent this year, which would be a fairly good level for us. So perhaps, for Russia, the challenge of fighting inflation remains a major priority while for nations where the macroeconomic situation used to be more stable, deflation certainly poses a very serous threat, because it freezes economic development and becomes a deterrent to the economic life advancement.
I do not know when deflation might become a real threat for Russia. In any case, the situation last year was affected by a drop in our economic output. As a result, inflation was slowed. But I would like Russia to overcome inflation, to reduce it to a civilised level, which would allow banks to grant loans at reasonable rates and offer normal mortgages that follow modern principles, and would simply make life easier for huge numbers of people. Afterwards, if it ever comes to that, we will look into ways of fighting deflation.
Meanwhile, for some other nations this problem is quite grave. The last year developments in Europe, in the euro zone, demonstrated that indeed, deflation is a serious impediment. Thus, the truth is always case-specific and inflation/deflation threats should be address specifically in each and every country and there is no unquestionable solution to the matter on a global scale.
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Robert Thomson: Mr President, people throughout the world have been actively discussing an alternative reserve currency, an alternative to the dollar. But as soon as there is any sign of crisis wherever in the planet, everyone begins to buy dollars. How realistic is the project to create an alternative to the dollar? And how will we know that the discussions are over and the practical efforts have begun?
Dmitry Medvedev: How will we know? As soon as other nations, major economies, start keeping their reserves not only in dollars, but in some other currency as well; this will mean that the world has accepted a multicurrency system. But the truth is, it already exists. Russia holds reserves not only in dollars, but in euros as well, that is why we are carefully monitoring what is happening in the euro zone. Incidentally, I said last year that having a kind of supranational but the EU targeted currency like the euro helped in overcoming the first phase of the crisis. If the world had only been using the dollar, the situation now would be much more complicated.
The real question is how many such reserve currencies we actually need. Right now, several are used throughout the world. Is this enough? Apparently not, because last year, the dollar was not doing so well, and people really were avoiding the dollar. This was being done by both the central banks and average citizens who were trading dollars for other currencies; this was happening in Russia. The dollar is not universal, but clearly, the dollar is currently the biggest and most serious global currency, a reserve currency.
How many reserve currencies do we need? This is a question of economic practices. I think that if we created a system where the dollar holds a firm position, the euro is stabilised, and where other reserve currencies exist, those which have not been recognised as reserve currencies yet (and we hope at some stage to see ruble among those prospect reserve currencies), then our world would be much more stable and our economies would be doing better. How many such currencies would be best? Five? Six? I don’t know. I’ll say again that this is a question of economic practices. But it is absolutely clear that they are necessary and the recent developments in the euro zone serve as clear evidence of this.
So let’s join our efforts; the Russian Federation and many of its partners are ready to do so. Until we have the new reserve currencies system in place, we will all be certainly holding our breath, observing how the dollar exchange rate fluctuates, how the euro is doing, and what happens to several other currencies that presently are reserve currencies and hence used for funds accumulation and for economic goals accomplishment. We will see.
Robert Thomson: Mr President, perhaps you can help us give some kind of advice to investors here in Russia. What currencies will you be buying over the next several weeks?
Dmitry Medvedev: Do you mean Russia?
Robert Thomson: Yes.
Dmitry Medvedev: So long as nobody has come up with any better ideas, we will use the currencies available. Nevertheless, we have our own national currency which is fairly stable and which we try to protect. The world is presently based on the currency system of today which is the source of its complications and contradictions. So, of course, I cannot give any new advice. One should be attentive to what is happening globally, observing the spreads, monitoring the existing trends, paying attention to developing markets, and surveying how the Russian Federation, India, and the People’s Republic of China are developing. Hence you can make your own conclusions.
Robert Thomson: Have Chinese leaders had any discussions with you on pricing aimed at making the yuan convertible? Do you have any advice you could share with them for the good of the world, for the good, as you say, of having a basket of stable currencies in order to make the yuan convertible? Do you think this would be beneficial for the Russian economy and the global economy?
Dmitry Medvedev: I don’t think it would be quite right if I were to begin addressing President Hu Jintao through this platform, even via a wonderful moderator such as yourself, as I am not sure that in such circumstances he would perceive my ideas or advice adequately. I can nevertheless openly and straightforwardly admit that we indeed discussed this issue quite actively about a year ago, in Yekaterinburg, when we were having a meeting of the Shanghai Cooperation Organisation.
At that moment, the whole world was under a lot of stress. Evidently, each of us is realistic, so we were assuming, among other things, that a currency can only become a reserve currency when it becomes attractive, when other economies begin making reserves in that currency, when a significant proportion of securities in circulation – both primary and derivatives – are issued in that currency. Until this happens, talking about a new reserve currency is nothing but a wishful thinking. This does not mean that it will never happen though.
Some three to five years ago, all conversations on this topic simply seemed like hare-brained schemes and fantasies that would never come to be while now we are discussing this in full seriousness with everyone including our American partners, who are perhaps less interested than anybody in the emergence of other reserve currencies apart from the dollar.
But there is no way escaping it and we will still continue discussing it. We will certainly keep discussing the subject with our Chinese partners, especially in view of the scale of their economy. Today, it is also clear that the state of the yuan determines many economic processes, and not in China only. The same can be said with regard to the rupee, and I hope, to a certain degree, this can be applied to the state of the ruble as the national currency of the Russian Federation.
I want to say again that the future will show whether our forecasts are correct, but I think that the future of the global payment system will involve the use of several reserve currencies and the creation of a multicurrency portfolio.
Robert Thomson: Ms Lagarde, with regard to currencies, do you think that the euro is presently in the safe zone? If so, can you tell us why? And if not, can you explain?
Economic Minister of France Christine Lagarde: The answer is yes, the euro is in the safe zone.
Robert Thomson: Thank you very much.
Dmitry Medvedev: That is the right answer.
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Robert Thomson: We have just a minute and a half left. So I would like to ask you all the same question. I would like to request that you are very brief and precise in your answer, or perhaps even answer in just one word. Are we at the beginning, the middle, or the end of the financial crisis?
Dmitry Medvedev: A great deal depends on me right now. If I say that we are at the end of the crisis, and somebody else says that we are at the beginning, this will seem dissonant. So I will nevertheless say that in all likelihood, we are in the exit phase of the crisis. It is up to the financial analysts and specialists to determine whether this is the middle or the end, but in any case, we can see the light in the end of the tunnel. I believe the economies have begun to recover.
chairman of the Board of Directors of the Intel Corporation From 1998 To 2009 Craig Barrett: I think this really varies for each country. A financial crisis is a small explosion in the galaxy. The answer will depend on the choices made by different nations for their future investments in terms of exiting the crisis. As the President said, modernisation is taking place here in Russia, the country is investing in the 21st century, and hence this country will win. If you do not do this, then the financial crisis could persist.
Secretary General of the League of Arab States Amr Moussa: I think we are beginning to see the light in the end of the tunnel, although the road is still long and we shall hope that the light is not that of a train approaching us. We are seeing some kind of light but we are yet to learn what that light is.
Robert Thomson: Mr Sharma, do you see this light? What is it? Is it an oncoming train, or something else?
Commerce and Industry Minister of India Anand Sharma: No, we are seeing perceptible changes, but they are not homogenous. We are not seeing consistent economic recovery throughout the entire world and the growth rates have not led to a renewed upswing in employment, which is worrisome. We should carefully monitor these trends and remember, even though being optimistic, that growth and recovery will eventually come, but they will certainly be a result of coordinated efforts by governments, their interventions, and the recovery of key economies to be accomplished through stimulation. Thus, for some time being, a calibrated approach should be applied. Thank you.
Governor of The Bank of Israel Stanley Fischer: I will try to maintain focus on the economic aspects of our discussion. As far as the crisis is concerned, the worst is behind us. There are many problems yet to be addressed, but with an anticipated average global growth rate of four percent this year, and somewhat higher next year, the worst is behind us. But much remains to be done before we can say that the crisis is behind us.
Christine Lagarde: You said, the beginning, the middle, or the end, right?
Robert Thomson: Yes, please select one of the three.
Christine Lagarde: I would say that we are at the start of the end of the middle. (Applause.)
Robert Thomson: I would say that this is a very Churchill-like answer. I believe Churchill said it – the beginning of the beginning.
The last word would be that of the Wall Street. Thank you.
I would not like to disagree with Ms Minister Lagarde on issues such as this one, still, I would say that we are at the beginning of the end of the financial crisis.