Page 79 - RusRPTFeb24

said Kremlin aide Maxim Oreshkin.
The Central Bank immediately responded to the proposal, saying it saw no great need to extend the decree. The Russian Union of Industrialists and Entrepreneurs – a business lobby group – also expressed its opposition. If the scheme is to be extended, the Union asked that there be a reduction in the percentage of revenue that must be sold.
The Central Bank expressed two concerns. Firstly, the impact of the compulsory currency sales is overstated, since interest rate hikes are far more important. Secondly, restrictions on exporters are damaging. “These restrictions hamper international payments and make it difficult to pay for the imports and equipment that we need. Therefore, we believe that this decree should remain temporary,” said the head of the Central Bank Elvira Nabiullina.
It’s true that, since compulsory currency sales were introduced, the ruble has recovered from record lows against the U.S. dollar. However, it would be wrong to attribute the currency’s movement solely to Putin's decree.
In Russia, foreign currency sales were compulsory for 14 years after the end of the Soviet Union – from 1992 to 2006. At that time, it wasn't just about topping up the budget. There was also a desperate lack of trust in the ruble: people sought to dispose of rubles as quickly as possible. The rules were tightened following the 1998 crisis (in this period the requirement was to sell 75% of foreign currency earnings). There was some easing in the following years, but the regulation was not fully repealed until 2006 (when it was presented as a big win for liberals in the government). The liberalization of currency legislation continued through the 2010s. Even during the 2014-15 crisis, when the ruble’s value halved against the U.S. dollar, exporters were only encouraged to sell currency – not obliged to do so.
The only time compulsory currency sales have been imposed since 2006 (prior to the current measures) was in March 2022, immediately after the full-scale invasion of Ukraine. They were lifted three months later as the ruble strengthened rapidly – to as much as 53 against the U.S. dollar.
By the summer 2023, the situation was very different. The ruble had fallen to about 100 against the U.S. dollar, and there were many things influencing this decline: heightened demand for imports; one-off exchange transactions due to the departures of foreign companies from Russia; and slow structural reform of the Russian economy. Put simply, the ruble rate was volatile, but there was no threat to underlying financial stability.
As a result of the decree, exporters really did increase the amount of foreign currency that they sold. These sales helped ease exchange rate volatility, but they were not the only reason for greater stability. High oil prices, currency
79 RUSSIA Country Report February 2024 www.intellinews.com