Central Bank Hopes to Start Converting Oil Fund Cash

The Central Bank hopes to receive the government's approval to start exchanging rubles from the $144 billion oil stabilization fund into foreign currency on the forex market, a official at the bank said Tuesday.

"We hope to receive an answer from the Finance Ministry this year. We hope the answer will be positive," Sergei Shvetsov, head of the Central Bank's financial operations department, told reporters.

The Central Bank proposed last month that rubles held in the stabilization fund could be converted on the open market as part of the transition to a floating exchange rate and inflation targeting.

Deputy finance minister and stabilization fund supervisor Sergei Storchak, now charged with attempting to embezzle $43 million, opposed the idea, saying the sums involved could upset the market. The Finance Ministry declined to comment Tuesday.

Currency purchases for the stabilization fund have averaged $5 billion to $6 billion per month this year, according to the Central Bank. The country's total gold and forex reserves have risen to $464 billion so far in 2007.

The Central Bank manages the fund, which collects the budget's ruble revenues when the price of crude exceeds $27 per barrel.

The fund is currently deposited in ruble accounts at the Central Bank and converted internally into foreign currency, using official exchange rates. The Central Bank then invests the cash in AAA-rated sovereign securities.

The fund comprises 45 percent of assets denominated in dollars, 45 percent in euros and 10 percent in sterling.

The Finance Ministry floated the idea of creating a separate agency to manage the stabilization fund, which will be divided next year into two subfunds with the new National Welfare Fund earmarked for investment in riskier assets such as stocks.