it turns out that the crisis has to be resolved in russia itself, before anything intelligible can happen in novorossia

Financiers made the introduction of control over the movement of capital in Russia
Catherine Blizzard, RBC.ru, Sep 16 2014

The Bank of Russia may introduce control over the movement of capital if the ruble will greatly fall, writes in his review chief economist at FG BCS Vladimir Tikhomirov. In the next few days the Central Bank will have to start foreign exchange intervention to stop the fall of the ruble and if possible to raise its price. But if that doesn’t help, says the economist, the authorities will have to introduce control over the movement of capital. Persistent geopolitical tensions and a new round of sanctions have led to a serious weakening of the rouble. The rate to the Usaian dollar on the Moscow exchange is 38.7 rubles and to the Euro, 50.1 rubles; the two-currency basket on Tuesday, September 16, is 43.03 rubles, only 1.37 rubles from the upper limit set by the Central Bank of 44.40 rubles. What we are witnessing is the charge of the Central Bank for the declared purpose of the transition to a free-floating exchange rate and an unwillingness to intervene to raise the rate last Friday, that is to make a pre-emptive step to support the ruble, writes Tikhomirov. The short-term strategy of the Bank of Russia is based on expectations that support for the ruble will come from a sale of foreign currency by exporters, which will begin next week with the beginning of the quarterly tax season. But the problem is that the Central Bank will have to start intervention earlier, Tikhomirov is sure. The medium-term strategy of the Central Bank, he said, is based on the assumption that the current crisis in relations between Russia and the West (and accompanying this, the decline in supply of dollars) will be relatively short and the situation returned to normal within 1-2 months.

Tikhomirov indicates that in the short run on the ruble will be affected by many factors: the actions of the Central Bank, possible counter-sanctions from Russia, inflation, sales by exporters, and international oil prices, Usaian Fed policy, the negotiations concerning EU-Russia gas, and even the Scottish referendum. Each of these factors can affect the ruble independently or combination with others, indicates Tikhomirov. While the Central Bank is limited in its action to prevent panic in the currency market. The economist lists four tools that are available to the Bank of Russia: sales of currency reserves, rise in interest rates, increase in reserve requirements for open currency positions and finally the mandatory sale of foreign currency earnings. The first two measures will not help, according to the economist, since for the closed global markets before the end of the year must pay $77.6b. Sale of foreign currency is unlikely to calm the market, unless the amount of intervention is huge, writes the economist. A rate increase also will not be able to compensate for geopolitical risks. The increase in reserve requirements for open currency positions, according to Tikhomirov, also will not be effective: the banks still will not agree to sell their existing currency. But the fourth measure can be quite effective. Tikhomirov writes that it was used in the post-crisis period of 1998. He writes:

This step will be a serious deviation from the liberal foreign exchange regime which Russia imposed in 2005, but it can be justified in the current emergency situation. The Central Bank has the right to introduce such a measure, along with the requirement to open a special foreign exchange reserve deposits for cross-border operations. In other words, I think that FX interventions or interest rate increase will not be enough, but most likely, these tools will be used by the Bank of Russia as the first step. If the situation remains tense and the pressure on the ruble stays high, it is likely that they will be followed by the introduction of control over the movement of capital (reserve requirements and compulsory sale).

Two financiers told RBC that the subject of the introduction of control over the movement of capital was discussed at a meeting of Sberbank investor in the beginning of last week. A source in the financial-economic bloc said that the government of this subject is not discussed. The introduction of control over the movement of capital is possible, but only with a significant deterioration of the situation and a significant increase in capital outflows, says chief economist for Russia and CIS at Bank of America Merrill Lynch, Vladimir Osakovsky. Chief economist for Russia at CIS Renaissance Capital, Oleg Kuzmin, said:

Now the probability of introduction of control over the movement of capital is low, I agree. But it will increase if Russia will be the sanctions are the same as in Iran. If sanctions will be applied not only to the export of hydrocarbons and borrowing companies, but also on the current system. If you will be banned calculations with the outside world, then it makes sense the introduction of restrictions. Earlier in the EU was discussed off Russia from the system of exchange of financial information of SWIFT. However, in the fourth package of sanctions such restriction is not imposed. Another critical scenario can be based on the mandatory early repayment of external debt. This may result in the reduction of Russia’s sovereign rating, or simply the distribution of sanctions for securities that are in circulation. Payments of external debt then you can be at the expense of sovereign wealth funds or reserves of the Central Bank.

3 Comments

  1. Posted September 16, 2014 at 3:24 pm | Permalink

    (The dollar has increased against many currencies).
    Im still unsure how dollar is so strong.

    (Offcourse uncertanties make most go into the bigger currencies, but still there seems to be factors which can to easily knock currencies up and down).

    For Russia itself, a weak Ruble is positive… Since Russia is a netto-exporter (positive tradebalance).
    That way:
    1. They will get more Rubles for their sold products.
    2. A weak local currency makes it more benefitly with domestic production.
    A positive factor to increase own production.

    But to big changes in currency are always alarming.
    But i doubt Russia is to worried by the currency in itself.
    But Russia is more likely alot more worried about the underlaying reasons to why a currency weakends (like people fleeing with money. Or if Hedgefunds like Soros attacks the currency, or weak internal control. Etc).

  2. niqnaq
    Posted September 16, 2014 at 3:59 pm | Permalink

    This will not help, it looks like the expropriation of all Russian-owned property in Ukraine:

    The Ukrainian government is not going to make decisions about the postponement of the implementation of the Association agreement with the EU, Ukrainian Prime Minister Arseniy Yatsenyuk told RIA Novosti. He said: “I would like to officially declare the position of the government of Ukraine, no solutions that will delay the implementation of the agreement will not accept. And there is no discussion on this issue is not. On Wednesday we planned the session of the government, where the government decides about the so-called implementation of this agreement, there signed. To the Council of national security and defense proposed the following policy: First, the prohibition of entry to citizens of Russia, a number of political figures. In the previous list is about 200 people. The second, asset freeze. Third, ban on participation in the privatization of Ukrainian objects. Fourth, prohibition on withdrawal of capital from Ukraine. Prepared lists of all companies, where Russia as a state and private Russian investors have the corresponding property. All materials submitted, the expected final decision of the Council, which, I hope, will be adopted in the shortest possible time.”

  3. niqnaq
    Posted September 16, 2014 at 4:09 pm | Permalink

    “The Ukrainian army for compatibility with NATO forces will move to the standards of the Alliance, said the Director of the information policy Department of the Ukrainian foreign Ministry Yevhen perebyinis.” “Our partners from NATO clearly said that today the issue of Ukraine’s membership in the Alliance is not worth it. But we are several steps closer to a deeper level of cooperation with NATO. It is not just about some joint exercises, and real compatibility of our armies. That is, our army will be using the member countries to move to the standards of the armed forces of the Alliance,” said Perelini. He noted that NATO will provide Ukraine in this real technical, consulting and military-technical assistance”, transfers ITAR-TASS. “Regarding military-technical cooperation dialogue is conducted with a specific member countries. That is, not with NATO as an organization, because NATO as an organization has no weapons. It is the country that are in the Alliance. So the conversations are conducted with these countries,” said foreign Ministry spokesman.

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