The Bank of Russia is against segmentation of the foreign exchange market and restrictions on capital movements

The Bank of Russia believes that restrictions on capital movements are appropriate only as short-term response measures in the event of significant risks to financial stability. Segmentation of the foreign exchange market, according to the Central Bank, can lead to negative consequences. Earlier, the head of the Ministry of Economy, Maxim Reshetnikov, expressed the idea that to combat the volatility of the ruble, an analogue of the Chinese model with a membrane between the domestic and foreign markets may be required.

“The Bank of Russia believes that restrictions on capital movements are appropriate only as short-term response measures to maintain the smooth operation of the financial system in the face of significant risks to financial stability. The Bank of Russia believes that such restrictions cannot be an effective tool for long-term influence on the market level of the exchange rate,” the Bank of Russia said in a statement (quoted from RIA Novosti).

The regulator emphasized that such restrictions may slow down the adaptation of the Russian economy to external conditions, as they make it difficult to adjust the exchange rate. “Market segmentation, including the use of so-called membranes, will lead to multiple rates and negative consequences for the financial market as a whole,” says the Bank of Russia.

With a proposal to limit capital movements earlier today, September 25, spoke Russian Minister of Economic Development Maxim Reshetnikov at a meeting of the Federation Council. In his opinion, an analogue of the “Chinese model”, that is, “a kind of membrane between the internal and external ruble markets” will solve the problem with the national currency exchange rate. Mr. Reshetnikov then noted that this is exclusively the position of the ministry and is being discussed with the Bank of Russia. At the same time, he spoke out against two rates of the national currency.

Mr. Reshetnikov justified the need to create a membrane by the fact that more than a third of foreign exchange earnings (35%) returns to the country in rubles and the department, together with the Central Bank, is studying where exporters get such rubles from. “We must establish clear monitoring and a clear understanding of how many rubles we have circulating abroad, how they get there,” said Maxim Reshetnikov.