3. Some lessons

The sudden currency crisis not only brought enormous losses to Russia, but also served as a warning to other emerging economies and prompted people to reassess some conventional problems in the past. This crisis deepened our understanding of the nature of the Russian economy and made us clearly acknowledge the importance and urgency of accelerating economic and industrial restructuring, revitalizing national industries and reshaping a diversified economy in Russia. Besides, this crisis has offered some new lessons.

First, this crisis made people deeply understand that in an ever globalized world, the financial market sees more turbulences than ever before and the possibilities and the frequency of a large-scale crisis are increasing. During the two decades between 1998 and 2008, two financial crises swept across the world. During this time and thereafter, various and numerous financial and currency crises took place all over the world. Such frequency is unprecedented in the history of economic development. The single factor or the combined factors, such as the government debt crisis, vicious expansion of stagnant and bad debts in big financial enterprises, the rapid changes of geopolitics, major adjustment of economic policies in big economies that have global or regional influence, the huge fluctuation of prices in the international energy market and other bulk commodities, may likely to cause regional or even global financial chaos. If the financial chaos cannot be dealt with in a scientific way, it will severely hinder a country's economic development. Therefore, financial authorities must establish solid risk awareness, conduct advance researches about every possible extreme situation and take due emergency measures in case of an emergency. Only by doing so can the losses be minimized once a crisis takes place.

Second, the crisis once again proved that relatively abundant foreign reserves are necessary to stabilize the currency rate, maintain financial order and effectively cope with emergencies in time. For years, there are debates whether new emerging economies should keep more foreign reserves. Some believed the more the better, while others said foreign reserves were unnecessary. They held their own opinions and one could not persuade the other. From this crisis of the ruble, people directly felt that relatively abundant foreign reserves are necessary to stabilize currency rate and even the entire financial order. It does not have to be proved with theories but has become a reality.

Third, the interest rate lever should be used prudently and scientifically given different national and market conditions. The interest rate is an important tool to adjust the financial market. But it is a double-edged sword and should be used with prudence. The economic environment must be taken into account and the concrete situation of different economies should be considered. For example, in 2014 Turkey, another emerging economy, effectively and successfully put the financial situation under control by substantially increasing interest rates. But Russia, while adopting the same method, did not achieve the desired outcome. During the process to curb the ruble crisis, the Russian government constantly raised the interest rates, which at one time even reached to 17 percent. The move was obviously unwise. As the Russian national economy was in a critical state, the increase of interest rates meant further curbing investment and consumption, which dealt a heavy blow to the economy which had already been in recession. It was proved that the increase of interest rates only added operation costs of banks and enterprises rather than preventing the currency from falling.

Fourth, a single measure alone cannot curb financial disasters. A combination of different approaches is more likely to succeed. The combination here includes various financial measures such as adjustment of interest rates, increase or decrease of rates of various taxes, purchase or selling of foreign currencies, selling of properties and auction of negotiable securities. In this regard, Russia can draw some lessons from Belarus. When the Russian ruble crisis was about to escalate, its neighbor Belarus also faced with similar dilemmas. A large sum of capital flowed outside, the inflation became more serious and people had greater expectation of currency depreciation. The government of Belarus, on the one hand, announced to increase interest rates so as to stabilize the buyers of the country's currency. On the other hand, it set up new taxes of buying foreign currencies and charged these buyers 30 percent of temporary taxes. At the same time, a temporary regulation required all exporters to exchange 50 percent of foreign currency incomes to Belarusian ruble so as to increase the market's foreign currency reserves. The financial foundation and economic situation of Belarus was no better than that of Russia, but effective governance helped avoid Russia-like currency turbulence.

Fifth, the governance of the market should be based on reality. Technological means could be the main, if not the only approach. Necessary administrative intervention could be adopted at critical times. From recent practices, we could see that no matter how tough the situation was, the Russian government had always adjusted the market without adopting administrative means, which costed Russia dearly. However, after largely increasing interest rates and selling enormous foreign reserves, the ruble's exchange rate had not been effectively taken under control. The losses were more than gains. Given the current international market, geopolitics and Russia's own economic development, market approaches alone could not work fundamentally. To some extent, administrative methods such as limited temporary foreign currency regulations could lend a helping hand. This would not only help ensure the country's financial security, which would avoid dragging down the national economy, but also reduce the governance costs of the market. After the framework of the market economy was formally established, market adjustments can certainly rely on technological measures with prudent use of administrative interventions. But it is not necessarily equal to giving up administrative interventions. Especially at urgent moments, short-term and limited administrative means could achieve more desired effects with less time, lower costs and fewer losses.

Sixth, sensitive reform measures in key times should be avoided so as not to send a wrong and misleading signal to the market. Among the Russian government's several economic policies in 2014, the most inopportune and blamed one should be that the Central Bank abandoned restrictions of the float exchange rate corridor of the ruble. Given the situations at home and abroad, such a policy was inappropriate, which couldn't be easier to understand. However, Russia's financial authorities turned a deaf ear to it, which misled the market and made the ruble further depreciated. This lesson was pain-taking.