Central Bank: mandatory sale of foreign currency by exporters may be a temporary measure

The measure on the mandatory sale of foreign currency by Russian exporters can only work in the short term and is temporary in nature, said the chairman of the regulator Elvira Nabiullina at press conferences following the meeting of the board of directors.

“As for the effectiveness of currency restrictions, our position has not changed. We believe that such restrictions, if they work, may work in the short term <...> This measure is temporary and applies to large exporters, and we will monitor how it works,” she said.

The effects of this measure, the Chairman of the Central Bank noted, may be associated with a decrease in short-term volatility in the foreign exchange market due to an increase in turnover. The exchange rate, Nabiullina added, is formed under the influence of fundamental factors, which include the dynamics of exports and imports, as well as the attractiveness of the ruble as a store of value, which the regulator influences using the key rate.

Later, Nabilullina noted that it is almost impossible to correctly determine the impact of this measure on the exchange rate.

“It will be difficult, because this measure was taken against the background of a strengthening trade balance, against the background of an increase in the key rate, at a time when these two factors significantly affect the exchange rate,” she said.

On October 11, Russian President Vladimir Putin signed a decree introducing for six months a requirement for mandatory repatriation and sale of foreign currency earnings on the Russian market by individual exporters (the list is not disclosed). Starting from October 16, within 60 days from the date of receipt of currency, exporters are required to credit at least 80% of this amount to their Russian accounts. Of the total foreign currency earnings credited to accounts in Russia, companies are required to sell at least 90% on the domestic market within two weeks. This value must also be at least 50% of the total amount of foreign trade contracts, regardless of their currency.

As Vedomosti sources noted at the time, the decision to resume the mandatory sale of export earnings was due to the fact that the business did not comply with informal agreements on the return of foreign currency earnings.

The Central Bank then announced that it expects a reduction in foreign currency in Russian company accounts in the coming months due to the requirement to sell foreign currency earnings, wrote “Vedomosti”. At the beginning of October, companies held 50.2 trillion rubles in banks, of which 23%, or $119 billion (11.6 trillion in ruble equivalent), was in foreign currency. This is the maximum percentage of foreign exchange of funds of organizations since May 2022.