Russia could start buying currencies from “friendly countries” (selling rubles to buy other currencies from allied countries) to try to influence the exchange rate of the dollar and the euro, as a means of counteracting the strong rises in the ruble, as revealed on Wednesday your finance minister.
The ruble has soared to seven-year highs, buoyed by capital controls that include restrictions on the withdrawal of foreign currency savings by Russians, which is eroding Russia’s export earnings from foreign sales of raw materials and other goods.
Moscow implemented several measures to prevent the ruble from collapsing right after the invasion of Ukraine began. The Bank of Russia raised interest rates, capital controls were implemented (many of them are still in place)… Despite everything, the Russian currency initially suffered sharp falls.
Those declines were prompted by fears of harsh Western sanctions in what Moscow calls the “special military operation” (the invasion of the neighboring country) in Ukraine that began on February 24.
After a few weeks from the start of the invasion, the Russian ruble has strengthened tremendously. Western countries have stopped exporting to Russia while still importing many raw materials. This has generated a large current account surplus that is boosting the ruble’s exchange rate. In addition, it is suspected that many Russian fortunes could have repatriated their capital (they have brought foreign currency to exchange it for rubles in Russia) to avoid sanctions abroad.
Now, Russia wants to weaken the ruble against the euro and the dollar, but nobody accepts selling rubles for dollars or euros, so Russia wants to assert what The Bank of Russia can sell rubles to buy, for example, yuan in an attempt to depreciate the ruble-yuan exchange rate and that in turn this fall affects the ruble-dollar exchange rate through arbitrage.
Accumulate currencies from “friendly countries”
Finance Minister Anton Siluanov says that under a “modified” budget rule that maintains the central bank’s policy of operating on a floating exchange rate, his ministry was willing to step in and hoard currencies from “friendly countries.” on your reservations.
“Through the currencies of friendly countries, through the exchange rates crossed with the dollar and the euro, it will be possible to regulate the cost of the euro and the dollar against the ruble,” he told a conference organized by a business lobby group. Russian. “We will discuss it with the economic bloc of the government. The central bank agrees,” he added.
Siluanov, who did not elaborate on how the plan might work, said Russia could also make unspecified cuts in state spending to try to help keep the ruble in check.
At a time when Russia is looking for ways to soften the blow of sanctions on its financial sector, Siluanov said his ministry will also suggest allowing export-focused companies to receive income from non-residents in cash.
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