The Central Bank eased currency restrictions to make life easier for banks

Experts explained how this will affect the ruble exchange rate and the country’s economy

The latest press release from the Central Bank, published on the regulator’s website, is dedicated to the extension of existing currency restrictions for another six months. But it does not contain the phrase that banks can only sell the currency that they received before April 9, 2022. This was perceived by the market as another relaxation in currency regulation. “MK” discussed with experts how the decision of the Bank of Russia will affect the country’s economy, the dollar exchange rate and the pockets of Russians.

Strict currency restrictions were introduced by the Bank of Russia in March 2022 in response to sanctions from Western countries and a sharp weakening of the ruble. At that moment, the EU and the USA also banned the import of cash dollars and euros into our country. To stabilize the situation in the financial market, on March 9, 2022, the Bank of Russia completely prohibited the sale of currency into the hands of citizens, and also limited the issuance of foreign currency deposits to individuals in the amount of $10 thousand, and then only those that were opened before this date.

The Central Bank of the Russian Federation immediately noted that it would not be able to completely remove currency restrictions until the sanctions were in effect, but it would make concessions to the extent possible. The regulator kept his word. Over the course of a year and a half, liberalization of the foreign exchange market gradually took place. In particular, banks received the right to sell foreign currency to citizens – but only that which arrived at the cash desks before April 9, 2022 (the Central Bank set such a “cut-off”).

And now the Bank of Russia has extended restrictions for citizens for six months: they can still withdraw from their accounts only the currency that was received on them before March 9, 2022. The withdrawal amount cannot exceed $10 thousand or the equivalent amount in euros. However, banks no longer need to sell to Russians only the currency that arrived at the cash desks before April 9, 2022. “The decision taken by the regulator gives the market a signal that there is enough cash currency to satisfy demand,” says Associate Professor of the Department of State and Municipal Finance of the Russian Economic University. Plekhanov Mary Valishvili. “The Central Bank itself announced this a few weeks ago; this fact is indirectly confirmed by a significant reduction in the premium to the exchange price.”

The ruble reacts very sharply to any currency easing. On Friday, September 8, it ended the trading day at almost 98 rubles per dollar, and just under 105 rubles per euro. True, there is a possibility that the reason for its strengthening was not the decision of the Central Bank of the Russian Federation to give additional relief to banks, but the statement of the head of the Russian government, Mikhail Mishustin, that the budget in August was executed with a surplus of 230 billion rubles, while oil and gas revenues of the state treasury are significantly ahead of last year’s meanings.

As Freedom Finance Global analyst Vladimir Chernov pointed out, the measure taken by the Central Bank will not have any noticeable impact on either the ruble exchange rate or the Russian economy. In recent months, banks have noted a constant influx of foreign cash due to the depreciation of the ruble, and by the beginning of August its volumes increased by 9.6% compared to the previous month, to 2 trillion rubles. Russians can still withdraw from their foreign currency accounts only those funds that were received before March 9 last year and in the amount of no more than $10 thousand or euros equivalent to this amount (above this amount can only be withdrawn in rubles). Theoretically, these measures should provoke an increase in the supply of cash currency in bank cash desks, which, with a fall in demand for it from the population, should lead to a decrease in its value. However, they will not fundamentally change anything, since exchange rate formation is formed depending on changes in the balance of demand and supply of currency on the exchange, and not in exchange offices, therefore, most likely, these measures will only slightly reduce bank foreign exchange spreads (this is the difference in price between buying and selling currency – N.T.), the analyst indicated.

Financial expert Mikhail Spektor recalled that the Central Bank will increase foreign currency sales almost 10 times from September 14 to 22, to 150 billion rubles. This is the largest currency intervention in recent times. The regulator will sell 21.4 billion per day, while at the current rate it sells 2.3 billion per day. At the same time, on September 5, the Ministry of Finance announced that from September 7 it would increase foreign currency purchases by 7 times, from 2 billion per day to 13 billion per day.

In theory, the market will receive 8 billion rubles. more than leaving it. However, there are also large non-state players – such as banks, which were allowed to sell cash currency to the population, and at the same time now have where to buy it. Naturally, banks will take advantage of this – make money on the spread, buying the currency of the Central Bank of the Russian Federation cheaper and selling it to the population at a higher price. As a result, even if the total supply of currency exceeds demand, this is unlikely to seriously strengthen the ruble, the expert emphasized.