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. Last Updated: 07/27/2016

Free Ruble to Bring New Rules

The Russian government has announced that it is removing all barriers to full convertibility for the ruble, opening the way for free buying and selling of the currency.

The move, which has been expected since Russia signed a three-year loan agreement with the International Monetary Fund earlier this year, may trigger important changes in the country's complex currency regulations, lawyers said Monday.

According to a statement from the Russian Central Bank released Saturday, the introduction of full convertibility, to be in place by the end of this month, will radically change the whole system of currency regulation in Russia.

"In the future, state currency regulation in the Russian Federation will deal only with operations linked to the movement of capital," the statement said.

Alexander Bychkov, an attorney with Baker & McKenzie's Moscow office, said he expects the introduction of "new concepts in the currency legislation" following the government decision.

"All legislation in the field was drafted long before [this decision], at a time when relations between the ruble and other currencies were quite different," he said, pointing to the ruble's stabilization and strong appreciation over the last year.

This optimism was shared by other lawyers interviewed Monday.

"Russia will definitely move towards a more liberal currency regime," said an attorney at a Western law firm, who asked not to be named.

In recent months the Central Bank has taken tentative steps towards an easing of some of the numerous regulations guiding hard currency transactions in Russia.

A Central Bank order dated April 24 liberalized aspects of the Russian currency legislation, for example giving Russians the right to purchase residential real estate abroad without prior permission. However, this provision is still contingent on a special approval by the Board of the Russian Central Bank.

Also under the April 24 order, Russian banks with general currency licenses will be permitted to lend funds in foreign currency to both residents and non-residents for periods exceeding 180 days -- a transaction that earlier required special permission.

Lawyers said changes such as these may have a limited immediate impact, since they legalize practices that are already widespread, but added that they are part of the overall positive trend toward deregulating hard currency transactions.

However, in day-to-day activities, the issue of licensing remains a stumbling block. According to lawyers, strict Central Bank practices aimed at reining in capital flight, rampant when the current "Law on Currency Regulation and Currency Control" came into force in October 1992, now often limit Russian companies seeking to raise capital on the international markets.

Any Russian company obtaining a loan from a foreign bank, or entering into any other arrangement involving payments in hard currency, for a period of 180 days or more, has to be licensed by the Central Bank.

However, the licensing procedure takes 1 1/2 to two months in the best of cases, lawyers said, and may drag on "indefinitely" if the Central Bank perceives a risk that capital involved in a transaction may not be repatriated to Russia.

The Central Bank formulates most currency regulations in the absence of a comprehensive up-to-date law on currency control

"Last year we issued 500 pages of currency regulations," Viktor Melnikov, head of the Central Bank's currency control department, told a parliamentary hearing earlier this year.

But according to Melnikov, "three times more regulations are needed" to secure proper regulation of currency transactions in Russia.

Work on a new currency law, singled out by the State Duma's budget committee as "a key legislative priority for 1996," has been slowed down by disagreements among the government agencies involved in its drafting. According to the Central Bank, seven different government organs are presently involved in currency control in Russia.

However, despite shortcomings in both the regulatory framework and the way it is enforced, lawyers agreed that the problems can be managed.