Page 57 - RUSRptSept18

The Central Bank of Russia (CBR) said it will stop its regular foreign currency purchases on domestic market from August 23 until the end of September 2018 in order to "increase the predictability of monetary authorities and lower the financial market volatility." CBR announced the measure as Russian assets come under mounting sanction pressure and investors are getting increasingly nervous. On August 23 Russian ruble declined to RUB69-RUB70 to US dollar on the news that the regulator might continue to purchase foreign currency despite ruble's continuous weakening.
The Ministry of Finance will no longer demand repatriation of ruble revenue. The Ministry of Finance has published the first bill of a package intended to liberalize currency controls. According to the bill’s most radical proposal individuals and companies will not need to repatriate ruble-denominated revenue earned abroad starting in 2020.
In a country known for numerous initiatives to repatriate capital—creating ‘onshore offshores’ and offering tax holidays for billionaires —this move is huge. While much of Russia’s wealthiest receive revenue in dollars, this policy is a clear attempt to get more of the country's rich to settle transactions in rubles. This fits with Finance Minister Anton Siluanov's recent note that the dollar is increasingly unreliable for international accounts. Enterprising individuals and smaller exporters who have used foreign currencies for transactions abroad may try to start conducting business in rubles, boosting the turnover of Russian currency in the EU and China. MinFin explains its rationale behind the change by arguing that the repatriation of ruble-denominated export revenues is one of the main obstacles to the expansion of Russian business abroad. The Ministry hopes the amendment will reduce the administrative burden on exporters and thus allow Russia’s non-primary exports—i.e. everything other than commodities—to expand. In turn, MinFin hopes to stem capital outflow and strengthen exchange rate stability. The ministry’s other proposals are less radical. These include lifting restrictions on the receipt of funds from non-residents into Russians’ foreign accounts and abolishing reporting to the Federal Tax Service on the use of foreign account funds under 600,000 rubles ($8,892) a year.
The fall of the Turkish lira is having a knock on effect and dragging down the Russian ruble as investors become nervous that the Turkish crisis will infect other emerging markets. The rate of lira has fallen by one third in one week from TRY5.16 to TYR 6.89 lira to the dollar, according to the Central Bank of Turkey. Since the the beginning of the year the lira has fallen 1.83-fold. The rate of decline in the ruble is much lower: it has fallen by 7.4% YTD from RUB63.49 to RUB68.22 to the dollar over the same period. But the economic conditions for the rapid fall in the exchange rate of the Russian ruble and the Turkish lira differ as Russia has a healthy currency account surplus and a large amout of foreign exchange reserves, whereas Turkey has neither of these. But both countries are facing sanctions imposed by the US.
Russia’s diamond monopolist Alrosa has started to sell its diamonds to foreign customers, settling the deals in rubles, not dollars , according to Reuters reports on August 15. The move is the latest in Russia’s long-term campaign to end the dollar’s dominance as the settlement currency for international trade – a goal shared with Russia’s friends China and Turkey. Usually diamond deals are done in dollars, but as tensions between Moscow and Washington increase, Russia is starting to try and abandoned using the universal dollar as the currency of international trade. Russia has already made an attempt to sell oil in rubles using the St Petersburg commodity exchange, however, the idea has not caught on with international customers. But the Kremlin is hoping to have more luck with the smaller and more specialised international diamond trade. In June, Alrosa sold more than 10.8ct of diamonds at auction in Hong Kong for rubles, BCS Global Markets reports. The payment was made through a branch of state bank VTB in Shanghai. In addition, a long-term buyer of Alrosa from India paid for one of the scheduled
57 RUSSIA Country Report September 2018 www.intellinews.com