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. Last Updated: 07/27/2016

Currency Ruling Set to Benefit Foreign Firms

Foreign firms will find trading and investing in Russia easier if the Central Bank carries out a promise to end currency restrictions on non-resident firms, banking sources said Tuesday.

The Central Bank made the promise as part of a joint statement on monetary reform with the Russian government released Monday. It said that foreign companies would be allowed to sell hard currency for rubles from July 15 and buy hard currency by Sept. 15.

Nikolai Gusev, chief analyst for the Moscow Interbank Currency Exchange, said Tuesday that this pledge would end Soviet-era rules that still stop foreign firms from opening ruble bank accounts except for very limited purposes, such as meeting office operating expenses.

"Changing this law would be a major step toward internal convertibility of the ruble", Gusev said, as opposed to the limited convertibility that exists now at the twice-weekly MICEX trading, kiosks and at commercial banks for tourism purposes. "The ruble will become just like any other world currency".

But Michael Franz, director of Bank Austria, a Moscow-based hard-currency bank, said it was too early to say whether the Central Bank would keep its pledge to remove the restrictions. "We have heard announcements of this sort before", he said.

Alexander Papachristou, an attorney from the law firm White & Case, said Russia's currency laws create a sort of "monetary apartheid". Because foreign firms could not invest or trade here, Russian firms were protected from competition and domestic prices were unrelated to the world market.

Under the current law, wholly owned foreign firms, as opposed to joint ventures, cannot open ruble accounts for trading or investment, nor can they write import and export contracts in rubles.

The Central Bank's promise means that from July 15 the banks will be able to convert dollars into rubles and open ruble bank accounts which could allow them to trade and invest. From September, they would be able to buy dollars with rubles, which means they could send profits back overseas.

Many foreign firms have already bypassed the laws on buying rubles and opening ruble accounts. They do this by acquiring 100 percent of a Russian firm. Some have even bought their own Russian bank.

But the restrictions still affect many areas of business. For example, foreign investment in Russia's privatization program has been limited because foreign firms cannot open ruble accounts to buy vouchers and shares.

Gusev said that even if the Central Bank honored its promise to eliminate currency restrictions, it was likely foreign firms would have to open special bank accounts for investment operations such as buying into privatized firms. Gusev said that the other potential use of opening ruble accounts was trading for goods at ruble prices on Russia's internal markets but this offered only limited opportunities for foreign firms in the current market.