Russian missiles and money

Russian President Dimitry Medvedev announced today that Russia will deploy short-range missiles in Kaliningrad, which borders on Poland, as a response to the U.S. missile defense installations planned for Poland and the Czech Republic.

The parliaments in those two countries have yet to approve the installations. Polish Foreign Minister Radek Sikorski said that U.S. President-elect Barack Obama indicated to him two months ago that he had doubts about the technical capabilities of the system and whether it was directed at Russia.

Sikorski says that Poland expects the new administration to go ahead with the missile shield. If Obama pulls back, U.S. prestige will plummet in Central and Eastern Europe.

I assume that Russia has plenty of missiles that can already target Poland, without any need to station some just over the border in Kaliningrad, so the Russian announcement is probably intended primarily to exert political pressure.

Meanwhile, Russia continues to suffer from its financial crisis which, while linked to international events, was precipitated by the invasion of Georgia. Russians are rushing to exchange rubles for dollars; the government is trying to stem the rush by circulating a false rumor that the United States is planning to remove $50 and $100 banknotes from circulation.

Russia had $600 billion in currency reserves last August, when the crisis began. The reserves have now fallen below $500 billion, which includes a drop of $31 billion last week alone. Indeed, the government may have fueled the rush to dollars by injecting $200 billion worth of rubles into its financial sector without adequate controls - speculators are using these rubles to purchase dollars and other foreign currencies.

Reserves of $500 billion are still quite substantial (imagine if the U.S. government had a war chest like that), but they won't last forever in such an environment. (Thanks to Radio Free Europe.)