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. Last Updated: 07/27/2016

EDITORIAL: Rules Won't Hold Ruble Up Forever




The Central Bank is running out of fingers to plug the dike that is holding up the ruble.


In recent months, the bank has slapped more and more administrative restrictions on turning rubles into dollars. It began last year when the bank introduced a dual exchange rate system where one favorable rate was set in morning trade for the Central Bank and importers while other buyers got a lower rate in the afternoon.


The Central Bank then tightened rules forcing exporters to repatriate their hard currency earnings.


Banks that have allegedly breached these rules have in recent months been punished. The Central Bank has banned some offending banks from official hard currency trading. And the police have even raided three banks and their customers who were allegedly conspiring to get around the rules in a more sinister way.


Individuals have been hit with a $5,000 limit on the amount of dollars that can be taken out of the country at one time.


And last week, non-resident banks were told they could no longer under any circumstances convert the rubles that they kept in checking accounts to make settlements with their partner banks in Russia. This is an especially worrying precedent since it is clearly confiscatory and in breach of International Monetary Fund principles.


To its credit, the Central Bank has not yet banned the dollar outright. But it is doing its best to stop people buying hard currency.


The above administrative methods, combined with tight monetary and fiscal policy, have succeeded in slowing the ruble's fall. The ruble is now only 25 to the dollar, not the 50 that many were predicting.


But the question is how long these measures will do any good. Financial markets are all acutely aware that Russia's hard currency reserves, needed to support the ruble, have now shrunk to just $10.7 billion. And reserves are likely to dwindle further since the Central Bank has ear-marked them for the repayment of Russia's daunting foreign debts.


Unless Russia gets a massive loan from the International Monetary Fund or confidence in the Russian economy mysteriously returns, the Central Bank will have to accept that the ruble cannot be held at its current levels. Yet a sharp devaluation would be politically unpalatable and probably mean the end of the current government and the Central Bank.


Administrative currency controls will not work for ever. They cannot substitute for a clear statement of how the government plans to get Russia out of the mess it is in.