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Russia's largest stock exchange has stopped trading in US dollars and euros. What does this mean for the ruble? Meduza

Russia's largest stock exchange has stopped trading in US dollars and euros.  What does this mean for the ruble?  Meduza
Russia's largest stock exchange has stopped trading in US dollars and euros.  What does this mean for the ruble?  Meduza

 


On June 12, the US Treasury Department extended sanctions against Russia, adding dozens of individuals and hundreds of legal entities to the list. Among them were Russia's largest exchange, the Moscow Stock Exchange (MOEX), and its subsidiary, the National Clearing Center, which serves as an intermediary in monetary transactions in the Russian foreign exchange market.

The US Treasury note that Vladimir Putin approved a series of measures aimed at attracting more capital through MOEX from Russians and non-Russians from friendly countries, thereby expanding opportunities for Russians and non-Russians to profit from the war machine of the Kremlin by investing in Russian sovereign debt, Russian companies and major Russian defense entities.

In response, the Moscow Stock Exchange announced that it would cease trading in US dollars and euros from June 13. However, trading on all other markets as well as in rubles and other currencies will continue as usual. according to a statement from the Central Bank of Russia.

2

So it will not be possible to buy dollars and euros in Russia?

No, the situation is not that extreme. The Central Bank clarified that businesses and individuals can continue to buy and sell dollars and euros through Russian banks. Furthermore, the bank said that all dollar and euro funds in the accounts and deposits of citizens and businesses remain safe.

Economist Grigori Bazhenov said the Telegram channel Ostorozhno Media that people will still be able to exchange currencies (yes, within the limits together by the Central Bank), but either in exchange offices, in banks or on other electronic platforms. He added that the measure mainly targets companies involved in trading sectors and is unlikely to have a significant impact on people who have never traded on the stock market.

However, sanctions against the Moscow Stock Exchange and the National Clearing Center mean that the process of trading dollars and euros in Russia will now be different.

3

How did trading work before?

Banks and other merchants submit various types of orders on the stock exchange to buy or sell currencies. The transactions were settled at the close of the trading session at 7:20 p.m. Moscow time. To facilitate these settlements, the National Clearing Center had corresponding accounts for each currency in foreign banks. Sellers and buyers of currency entered into transactions through the clearing center as an intermediary, rather than directly with each other.

For the Central Bank, currency exchanges on the Moscow Stock Exchange served as an indicator for determining the official exchange rate of the dollar and the euro against the ruble (based on the weighted average rate, which includes values minimum and maximum during the trading session, among other criteria). It was do at 3:30 p.m. Moscow time.

4

How do sanctions change this?

The National Clearing Center can no longer serve as an intermediary in dollar and euro exchange transactions because the new sanctions prohibit American and European organizations from having relations with it. As it is no longer possible to exchange dollars and euros on the Moscow Stock Exchange, exchanges will now take place over the counter.

This means that Russian banks and businesses will only be able to buy and sell dollars and euros directly through Russian banks that still have correspondent accounts open in the United States and the EU (Russia always has banks like this.)

5

Will the price of dollars and euros increase?

At least for the next few weeks or even months, or until Russian authorities manage to establish a new currency trading platform based on one of the Russian exchanges, a finance professional who worked in Russia. According to him, the difference, or spread, between the buying and selling rates will inevitably increase and by June 13, the spread of the dollar rate in exchange offices had in fact increased by several rubles.

However, some analysts see this as a positive factor for the ruble. The increase in the spread discourages speculative actions, explain Sofia Donets, chief economist at Tinkoff Investments. [So]there is no certainty that the ruble will weaken.

Alexander Isakov, economist at Bloomberg Economics believes These sanctions are unlikely to cause the exchange rate to weaken by more than 10% for a prolonged period. The Russian Central Bank and Finance Ministry will work to soften the blow by raising interest rates and increasing the supply of foreign exchange, he said.

However, some Russian banks immediately increased the rate at which they sold dollars in cash, with prices in some places reaching up to 200 rubles per dollar, as shown note by the Telegram channel You are an investor! These high rates are prohibitive and set by banks who do not want to sell the currency they have. However, on June 12, at 8 p.m. Moscow time, the dollar was trading within a reasonable range of 9,095 rubles on the applications of major banks, reported RBC.

Corporate clients could face even more problems, the Russian finance professional said. Previously, they could buy or sell what they needed on the open market, where everything was safe and transparent. Now the bank will set the price at its discretion, the cost of the exchange will likely increase and it will be very difficult to check whether it corresponds to market conditions. We're going back to the wild 90s, he told Meduza.

The sanctions could also lead to increased volatility, leading to large swings in exchange rates in the coming days, two Russian economists said. Volatility will be wild on Thursday and Friday, but then the shock will subside and rates will stabilize one way or another, one of them noted. (Neither economist was willing to predict exactly how they would stabilize.)

6

But will the Central Bank of Russia still set the exchange rate?

Yes. From June 13, the Central Bank together exchange rates of the US dollar and the euro against the ruble based on bank reports on transactions in the over-the-counter currency market as of 3:30 p.m. Moscow time on the current business day. According to According to the Central Bank, the official ruble exchange rate will remain unified and market-based, with the only change being the data used for its calculation.

In October 2022, the regulator also mentioned that if bank reports and data from digital platforms were not available, the official exchange rates of the dollar, euro and yuan against the ruble would be set equal to the previous day's value.

We have a fairly large volume of over-the-counter transactions with many participants, ElviraNabioullina, Director of the Central Bank. said in December 2023. The main concern is to find out about these professions, so you have to use various sources. But I don't think this alone can seriously affect the exchange rate. In May 2024, the share of the OTC market in the total trading volume was already reached 58.1 percent.

7

Will there be dollars and euros entering Russia?

Yes, but it probably won't happen without obstacles. Dollars and euros enter Russia mainly to pay for exports. These funds are deposited in the exporters' accounts with Russian banks which still maintain correspondent relationships with European or American banks. In theory, the latest US sanctions do not change anything: currencies from export contracts will continue to flow to Russia and will still be used to pay for imports via banks capable of carrying out such transactions, the professional said. of Russian finance. This means that the number of [currency] Buyers and sellers on the Russian market remain the same, he explained.

However, Alexander Kolyandr, non-resident senior researcher at the Center for European Policy Analysis (CEPA), said The sanctions imposed by Bell will make life more difficult for exporters, who will have more difficulty selling foreign currencies, and for importers, who will face higher costs to buy them.

This appears to be the main objective of the US Treasury sanctions: to reduce export revenues and make imports more difficult. For citizens, this will mean more expensive imports, a wider gap between exchange rates for buying and selling foreign currencies and additional costs for withdrawing funds from Russia and storing dollars and euros in accounts . Exchange rate volatility will also increase.

Economist Grigori Bazhenov said According to the Telegram channel Ostorozhno Media, it will become more difficult and more expensive to withdraw and export dollars and euros from the country. He believes this could further lock Russian capital inside the country. This actually helps stabilize the Russian economy. Without the sanctions against Russian capital, we would have seen a significant flight of capital from the country. It would only have been partially possible to stop it. [] Today even more, capital will be blocked and reinvested in our economy.

8

Could this lead to a currency black market?

Some analysts do not rule out this possibility, but it is impossible to predict it with certainty. Russian authorities could organize currency trading on alternative platforms, but these options would carry their own risks. Questions would arise about the transparency of transactions and the potential for rate manipulation, so it is possible that several exchange rates for the dollar and euro emerge: the official rate, the rates of individual banks and the black market rate, commented Alexander Potavin, analyst at the Finam financial group.

9

Will the yuan now become the main foreign currency in Russia?

The yuan was already the dominant currency on the Russian foreign exchange market, even before the current sanctions were introduced. For example, the share of the Chinese currency in foreign exchange trade reached a record 53.6 percent in May, and almost 40 percent in the over-the-counter market. according to the Central Bank. For comparison, the equivalent figure for the euro is currently around 10 percent. The yuan's share of Russia's foreign trade payments is also approaching 40 percent.

However, problems linked to transactions in Chinese currency have recently multiplied: Chinese banks, fearing secondary American sanctions, are refusing transactions with Russian counterparts or significantly dilatory them. These difficulties in settling transactions with China are probably one of the reasons why Russian imports have been reduced. in decline since the beginning of 2024.

Sources

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