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. Last Updated: 07/27/2016

Central Bank Fights Exchange Tax Plan

The Central Bank has asked the Moscow government to repeal a tax on currency exchanges that it fears would cripple the country's largest venue for dollar trade.


The bank, in a letter sent to both the Moscow government and City Duma, requested that they repeal a decree to introduce a 0.1 percent tax on the exchange's turnover beginning March 1.


The tax would more than double the cost of buying and selling currency at the Moscow Interbank Currency Exchange, which now charges a 0.1 percent commission on net trade of rubles or dollars.


Bankers and exchange experts believe that the tax will force commercial banks either to trade directly with each other or move their hard-currency operations to St. Petersburg, home to Russia's second-largest currency exchange, where there is no such tax.


"From our point of view it is economically unjustified," Central Bank press secretary Alexei Stepenin said Wednesday. "We have expended a great deal of effort to create a legal market."


Stepenin said the city had not responded to the request, although it had promised to do so by Tuesday evening. City officials would not comment.


Igor Doronin, currency expert at MICEX, said that the tax would fall heavily on the Central Bank, since the state bank's intervention on the market during periods of high demand for dollars can account for as much as 80 percent of trade. Central Bank Chairman Viktor Gerashchenko said recently that the bank spent $1.1 billion on the exchange in January alone.


The state bank uses quotations from the exchange to determine its official rate of the ruble against the dollar, which Stepenin said would become difficult if trade moved off the exchange." It is essential that the ruble rate reflect the real situation in the economy," he said. "It's hard to use an off-exchange rate as the official rate.''


It would also be difficult for the Central Bank to control the rate if most trades were done outside the exchange.


According to Yury Tkachov, head of hard-currency operations at Menatep bank, commercial banks have concluded hundreds of agreements to trade hard currency directly with each other, seeking to cut costs for themselves and their clients. Menatep already does about half of its hard-currency trade in Moscow off the exchange, he said.


If the tax goes into effect, Tkachev believes that only exporters, who must sell half of their hard-currency earnings on one of Russia's six exchanges, will continue to use the MICEX.