Speculators Blamed for Ruble's Collapse

The Russian government and Central Bank launched a clampdown on the country's currency exchange Wednesday as financial markets reeled in the wake of the ruble's largest-ever devaluation against the dollar.

While the ruble rebounded 160 points Wednesday on the Moscow Interbank Currency Exchange to close at 3,736 per dollar, President Boris Yeltsin darkly blamed Tuesday's 845-point dive on "sabotage," and Economics Minister Alexander Shokhin told Reuters that Russian authorities would check all of the past month's transactions on the exchange for suspected "illegal" trading.

"According to the law, banks and brokers participating on the exchange must trade currency only for clients who take part in export and import operations," Shokhin said. "They can buy dollars only for those who have contracts."

Interfax reported that the Central Bank had issued new rules designed to limit speculative trade on the exchange. The temporary rules would only allow dealers to use rubles already deposited at the exchange to buy dollars. Dealers are usually given 48 hours to pay for trades, which has allowed them to reap huge profits on the ruble's several sharp falls over the past two months by paying for trades in devalued rubles.

"The exchange mechanism was seriously abused," said Peter Derby, chief executive officer of Dialog Bank. "This sort of stuff doesn't happen anywhere else. It wouldn't be tolerated."

Exchange spokesman Vadim Yegorov said that he had heard of the new rules, but that the Central Bank had not yet officially informed the exchange.

The ruble's dizzying fall continued to ripple through the country's financial markets Wednesday, forcing the Finance Ministry to cancel a planned auction of 1 trillion rubles in six-month treasury bonds due to a lack of demand, and precipitating the closure of two leading futures markets.

The Finance Ministry decided instead to hold a 1-trillion-ruble auction of three-month bills on Thursday.

"The auction is designed to attract money away from the hard currency market, and I think it has a very good chance," said Mikhail Laufer, securities expert at the Moscow Interbank Currency Exchange, where the auctions take place.

The yields that the government will need to pay on the bills, however, are likely to be higher than they have been since the beginning of the year. As speculative funds have rushed out of ruble-based securities in search of bigger profits in dollars, annualized yields on previous issues of treasury bills have exceeded 250 percent on the secondary market, compared to 165 percent at the last primary auction of three month bills.

The interest rates at which banks lend money to each other -- often for speculation on the hard currency market -- have also jumped to about 150 percent, prompting the Central Bank on Wednesday to raise its refinancing rate to 170 percent from 130 percent.

Meanwhile, blame games continued as to who or what was responsible for the ruble's fall. Yeltsin sacked acting Finance Minister Sergei Dubinin, and recommended that the parliament remove Viktor Gerashchenko as head of the Central Bank. Gerashchenko admitted Wednesday that the Central Bank knew the ruble was overvalued as early as spring, but had not acted to devalue the currency accordingly.

Derby said that the ruble's problems and its political repercussions have scared some conservative investors. Large, Western institutional investors are looking for a fundamentally stable market, one without huge currency fluctuations or political instability.

"The sad part is there were real opportunities for large scale investing," Derby said. "When the climate gets as rough as it is here, institutions start questioning whether their money wouldn't be better off in some place like India or Latin America. There are a lot of places to invest in this world."

In one sign of declining investor confidence in Russia, the value of Vnesheconombank bonds -- issued to cover hard-currency debts of the former Soviet trade bank -- fell more than three points to 34 1/4 percent of their face value.

The ruble's gymnastics, however, made little noise on the stock market, where most transactions are done in dollars, said Viktor Agroskin, vice president in charge of development at the Rinaco-Plus brokerage firm.