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. Last Updated: 07/27/2016

As Ruble Crashes, Public Gouged




Russia's Central Bank on Tuesday placed limits on currency exchange points to stop speculators from taking advantage of Russia's financial confusion by gouging customers.


The rush to buy dollars continued unabated as the country started to feel the effects of the government's shock decision Monday to allow the ruble to devalue.


In official trading on the Moscow Interbank Currency Exchange, the ruble exchange rate fell to 6.88 to the dollar Tuesday, a decline of 6.4 percent.


The official ruble rate has fallen in value by 8.7 percent against the dollar since Friday.


But in unofficial trading at small exchange points across the country, banks have been charging much higher rates of up to 10 rubles to the dollar, taking advantage of the desperate demand for dollars.


To mitigate the effects of the confusion on average Russians, the Central Bank on Tuesday announced rules setting a 15 percent limit on the spreads between buy and sell rates set by exchange points.


Since the start of the week when the Central Bank announced it would allow the currency to free-fall, exchange points have hiked the margin between buying and selling rates for hard currency.


Exchange points bought dollars and then charged up to 40 percent more when they sold them, netting a huge profit. For example, exchange points in Moscow offered to buy dollars for as little as 6.3 rubles but many change points sold dollars for as much as 9.5 rubles.


According to the new Central Bank regulation, licensed currency traders will not be allowed to set prices fluctuating more than 15 percent between the dollar purchasing and selling rates. Exchange rates on the street will still vary but Irina Yasina, the Central Bank's spokeswoman, said the new rules would "stop the prices at which U.S. dollars are sold across the country shooting to the skies.


"We already have instances from the Kuzbass region where people have just stopped blocking railways. Even there, dollars are sold at the rate of 10 rubles per dollar and there is a serious demand for them," Yasina said.


Yasina said that licenses to conduct operations with foreign currency will be revoked from banks and exchange offices that violate the Central Bank order. Starting Wednesday, the Central Bank is also planning to open a hotline for the public to complain about violators.


According to Yasina, public mistrust about the economic situation in the country is to blame for the skyrocketing exchange rates. "We had something similar in December, before ruble redenomination [when three zeroes were struck of the nominal value of all ruble notes]. Then, too, the dollar jumped and remained high until people calmed down," Yasina said.


Street exchange rates and official exchange rates, which previously were closely aligned, have been thrown out of kilter by the decision to allow the currency to devalue.


Having exhausted its reserves in an attempt to hold the ruble steady, the Central Bank this week announced it would allow the currency to trade freely. It is prepared to see the ruble fall to as low as 9.5 to the dollar by the end of the year.


The focus for determining the ruble exchange rate has now shifted from the Central Bank to the Moscow Interbank Currency Exchange, or MICEX, the main ruble trading floor.


Banks buy and sell rubles and dollars on the floor and supply and demand determines the rate. The Central Bank can intervene by buying or selling dollars but it has indicated it will not do so except to smooth out fluctuations.Exchange rates at change points are only indirectly related to the MICEX rate, however, and speculators can use public ignorance to earn extra profits above official rates.


The importance of the MICEX trading floor has grown dramatically over the past two days because of the banking crisis that has accompanied the ruble devaluation.


About $200 million were traded on MICEX on Tuesday, equal to the trade volume for a whole month last year. Igor Doronin, an analyst for MICEX, said that trade was now focused entirely at MICEX because the informal off-market interbank trading, which had previously handled much of the trade, had collapsed because banks did not trust each other.


Doronin also explained the heavy volume by saying that banks were now trading heavily in foreign exchange to compensate for the loss of the treasury bill market, which had previously attracted most short-term funds.


While Russians across the country were rushing to exchange rubles for dollars, some businesses followed the banks and raised the exchange rates they apply to transactions in rubles.


For example, Austrian Airlines raised its exchange rate to nine rubles per dollar Tuesday. The move made air tickets 40 percent more expensive for cash customers who by law are required to pay in rubles.


Some Moscow hotels also hiked exchange rates. Tverskaya Hotel charged for its services at nine rubles per dollar Tuesday. Radisson Slavjanskya Hotel switched its rate from 6.4 rubles per dollar to 8 rubles per dollar in the middle of the day.


In attempt to fight a massive hike in the cost of living, the Russian State Tax Service started checking retail prices in the country's major cities. The raids were intended to punish firms that used the devaluation as an excuse to artificially hike prices, Interfax reported Tuesday.