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. Last Updated: 07/27/2016

Fund Plans to Convert Rubles on the Market

The Central Bank on Wednesday proposed converting rubles held in a stabilization fund on the open market as part of a plan to streamline banks' refinancing operations.

"The conversion of the stabilization fund's money should normalize the situation on the currency market and create greater stability," deputy chairman Konstantin Korishchenko said.

The stabilization fund, which collects ruble revenues when the price of crude exceeds $27 per barrel, grew to 3.65 trillion rubles ($148 billion) as of Nov. 1. Its funds are deposited on ruble accounts in the Central Bank and converted internally into foreign currency. The Central Bank then invests the cash in AAA-rated sovereign eurobonds.

The structure is designed to insure against lawsuits that have in the past led to the freezing of Russian assets abroad.

Korishchenko, who described the plan as a working proposal, said it was intended to balance out the currency market, where the ruble is under sustained appreciation pressure.

"To pay into the stabilization fund, banks and companies sell foreign currency on the market, and the stabilization fund buys it via the Central Bank," Korishchenko said. "This creates a serious imbalance on the currency market and distorts the whole picture in terms of the exchange rate and liquidity."

Prime Minister Alexei Kudrin said the Federal Treasury, acting through the Central Bank, would retain control over converting money held in the stabilization fund.

"The Federal Treasury will carry out operations as before," Kudrin told reporters, adding that according to the proposal, the conversion would "take place on the open market and in effect can have an impact on the market."