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. Last Updated: 07/27/2016

Bank Needs To Respect Private Cash

The Central Bank has done it again. By sending commercial banks a secret telegram that orders them to transfer as many cash rubles as possible to its vaults by July 1, it has succeeded in spreading panic among Russian financial circles.

Short of cash, many exchange points are not working and businesses are suspending commercial transactions until it becomes clear exactly what the Bank is planning.

Whether the bank is really intending to reindex the ruble, soak up excess cash in a bid to fight inflation or is preparing to peg the ruble -- which are just some of the explanations currently making the rounds -- is beside the point.

Whatever the real aim, it is the high-handed manner in which the bank is executing its policies that matters.

The bank cannot continue -- as it did in the Soviet era and beyond -- to treat the money of private companies and individuals as if it were the bank's own funds. Russia's financial world is growing increasingly sophisticated and, consequently, vulnerable to the kind of scares the bank has a habit of creating from time to time.

It is hardly surprising people are jumpy. In 1993, the bank withdrew virtually overnight all banknotes printed in previous years. Moscow's stores and restaurants were suddenly filled with people on a spending binge trying to offload their "old" rubles before the bank's deadline expired.

In 1991, the then-Soviet government pulled off a similar feat, withdrawing all high-denomination banknotes -- which in those days meant 100- and 50-ruble bills -- from circulation. Many members of the public lost huge amounts of money overnight.

In January, the appearance of a mysterious sealed letter caused rumors to spread like wildfire that the Central Bank was about to freeze all hard-currency accounts. Thousands of Russians lined up at banks to withdraw their cash as a consequence.

Given this kind of history, the Central Bank should expect little other than panic and confusion whenever it issues an instruction that does not give adequate notice and explanation of its intentions. And if, as appears likely, the bank's current aim is to claw back some of the rubles it has been pumping into the economy of late, it is an unbelievably clumsy way of achieving this aim.

There may well be a need to take "hot" rubles out of the economy if higher inflation is not to be a by-product of the currency's rise. But command-economy style edicts are not the way to achieve this. One can only hope the move does not damage newly found confidence in the ruble and send investors scuttling back to the safe haven they know best: the U.S. dollar.