Page 96 - RusRPTJul24

requirement obliging leading exporters to sell foreign currency earnings. The order was first imposed in December 2023 as the ruble fell.
· The decision was made “taking into account the stabilization of the exchange rate” and “achievement of a sufficient level of foreign exchange liquidity,” according to a government statement. The Central Bank had always opposed compulsory sales, but in April, when the order was last extended, it failed to convince Andrei Belousov (deputy prime minister at the time), who regarded the sell requirement as a vital means of stabilizing the currency.
· This comes after the US imposed sanctions on the Moscow Exchange earlier this month, and the Exchange was obliged to end trading of US dollars and euros. This week, the ruble has strengthened, gaining 5% against the US dollar and almost 7% against the yuan. Admittedly, it pared some of these gains starting Thursday.
· According to analysts, one reason for the rebound is sanctions. Part of the external balance of payment, unconnected to foreign trade, was closed due to an outflow of rubles. Now that process is complicated by difficulties withdrawing rubles and obtaining US dollars for them. This is apparently a temporary problem.
· Another is problems with trade. The threat of secondary US sanctions has frozen payments for Chinese imports, which were down at least 10% y/y in the winter. Russian state media reported that after Putin’s visit to China earlier this year, many small, regional Chinese banks started to work with Russian clients. However, this means higher commissions, which also hamper imports – and the US is also trying to threaten smaller banks. This payment problem is clearly not yet fixed.
· In addition, a paradox has emerged: relative to the US dollar, the yuan is cheaper in Russia than anywhere else in the world. Apparently this is due to the yuan’s novelty factor as a means of saving, and there is an excess supply of Chinese currency. However, as with any market imbalance, this will soon cease to be profitable.
Most of the factors behind the ruble rebound seem to be temporary and, in many cases, resemble a scaled-down version of the period of ruble strengthening in 2022 after the full-scale invasion led to disruption to imports and capital outflow routes.
Long lines formed outside exchange kiosks in Moscow as the Central Bank of Russia (CBR) suspended trading in dollars and euros as a result of new US sanctions targeting banks facilitating sanctions-busting trade with Russia on June 12.
96 RUSSIA Country Report July 2024 www.intellinews.com