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Russia to Ramp Up Controls After Central Bank Fails to Save the Ruble

Tim Fries

Published: August 16, 2023 10:25 pm

Russian President Vladimir Putin is expected to meet with the country’s policymakers on Wednesday and hear their proposals to shore up the economy and the ruble, the Financial Times reported. The move comes after Russia’s emergency 3.5% rate hike failed to stop the ruble’s decline against the US dollar.

Russia’s Finance Ministry Proposes a Set of Measures to Prop Up Economy

According to a report by the Financial Times, Russian President Vladimir Putin is set to explore options to ramp up currency controls after the emergency interest rate hike of 3.5 percentage points on Tuesday failed to curb the rouble’s slide against the US dollar.

Putin will reportedly listen to proposals from Russia’s policymakers that would make it obligatory for exporters to convert a portion of their foreign currency earnings into roubles. The FT report says that most of these foreign currency funds are currently held overseas.

More specifically, Russia’s finance ministry proposed to require exporters to sell up to 80% of their foreign currency revenue within 90 days after delivery. In addition, the proposals also suggested banning companies that refused to comply from receiving government subsidies.

Furthermore, other proposed actions included prohibiting paying out dividends and extending loans overseas, canceling import subsidies, and restricting currency swaps. Also, one of the suggestions was to trim the amount of foreign currency exporters are allowed to send abroad.

Ruble Hits 16-Month Low

Russia’s emergency rate increase on Aug. 15, and the proposed currency control measures, underline the rising concerns in the Kremlin over the impact the Ukraine war is leaving on the country’s economy.

The national currency, the ruble, plummeted to almost 102 to the dollar on Monday as Putin’s economic advisor, Maxim Oreshkin, wrote an opinion piece in the state-owned Russian news agency Tass. In the article, he pointed to the central bank’s “loose monetary policy” as the cause of both the falling currency value and the rapid increase in inflation.

As a result, the ruble dipped below a crucial threshold for the first time since March 2022, when the Russian economy was at risk of collapse following Moscow’s invasion of Ukraine. The decision led to several Western sanctions against Russia, putting immense pressure on the nation’s economy.

The ruble lost nearly 30% of its value against the US dollar in 2023, making it one of the worst-performing global currencies this year. The USD/RUB pair was 95.3 at publication, the lowest in 16 months.

This article originally appeared on The Tokenist