The Ministry of Economy is discussing a control system regarding cross-border ruble and foreign currency payments

The idea of ​​​​developing a complex system of exchange control in relation to cross-border ruble and foreign currency payments has been introduced into the public field – Minister of Economy Maxim Reshetnikov announced the possibility of such restrictions in a speech at the Federation Council. The idea of ​​“membranes” between the external and internal ruble markets will most likely not be discussed in the government for now, and even in a limited form it is categorically rejected by the Bank of Russia.

The Ministry of Economy, on its own initiative, is discussing with the Bank of Russia a number of ideas related to the regulation of cross-border flows in rubles, head of the Ministry of Economy Maxim Reshetnikov said on Monday, September 25, at the Federation Council (F Council). This is the first official confirmation that departments of the general government are discussing the impact of the division of the de facto market for ruble payments (“offshore” – outside the Russian Federation and national) on the exchange rate of the ruble to reserve currencies.

Maxim Reshetnikov spoke in the Federation Council twice on September 25: in the morning – at a meeting of the Federation Council Committee on Economic Policy, in the afternoon – as part of the “government hour” at a plenary meeting of the Federation Council. The situation on the foreign exchange market was discussed at the first event, including in connection with the discussion that arose about the key rate of the Bank of Russia, and this topic was also discussed in the “big” speech of the minister at the plenary meeting of the Federation Council: Mr. Reshetnikov confirmed the official position of the Ministry of Economy, according to which the expected long-term holding The Central Bank’s key rate at a high level limits investment lending in the Russian Federation and in the medium term industrial growth and GDP growth.

The minister’s “big” speech at government hour, which was technically the department’s commentary on the budget macro forecast for 2024–2026, was very detailed.

In particular, the minister said that the shortage of personnel in the Russian economy until 2030, amounting to 2.3 million people, according to the Ministry of Economy, can be covered by internal resources by approximately half; at least 1 million jobs will need to be filled additionally by increasing the share of employed in population and migration. “We remain an open and market economy,” the minister declared at the end of his speech.

However, this openness has its costs, which were discussed at the morning meeting in the Federation Council. In particular, after the president’s recent order to “timely” take measures to prevent the weakening of the ruble (we recall that, apparently, as part of this order, the Ministry of Finance practically implemented the idea of ​​a “stepped” export duty on non-core exports – see. “Kommersant” from September 21), Maxim Reshetnikov said, the Ministry of Economy is discussing with the Bank of Russia the possibility of introducing measures to control ruble circulation outside the Russian Federation. Now these measures are an exclusively debatable position of the Ministry of Economy in the dialogue with the Central Bank, and it does not go beyond the boundaries of the two departments.

The Minister of Economy described the essence of the Ministry of Economy’s ideas as “probably some kind of, let’s say, analogue of the Chinese model, when there is still a kind of “membrane” between the domestic ruble market and the external ruble market.” The meaning of the idea, as the minister emphasized, should not be discussed publicly for now: “the situation is quite complicated, not all issues can be discussed openly, but nevertheless we need to build this system” (quoted from TASS).

According to the Ministry of Economy, on the side of foreign exchange foreign trade transactions, standard “exchange control” measures are ineffective: the department estimates the actual return of foreign exchange earnings to the Russian Federation at 85% based on the results of six months.

The department explains the weakening of the ruble since the end of summer 2023 by two factors. The first and stronger one is a 35% return of foreign currency earnings by exporters from outside the Russian Federation in rubles. According to the minister, a market of “essentially offshore rubles” has already been formed outside the Russian Federation, which ensures a shortage of currency in the domestic market of the Russian Federation and, as follows from this logic, puts pressure on the ruble exchange rate against the currency. The second factor is the “imbalance of currencies”, in which imports paid by importers of the Russian Federation in dollars and euros are returned to the Russian Federation in yuan and the currencies of third countries, creating, among other things, arbitrage opportunities. The solution, the Ministry of Economy believes, may be to use the Chinese experience of the offshore and onshore yuan system, while the economic department rejects the idea of ​​multiple ruble exchange rates – monitoring ruble exports of capital and (this follows from the logic of the head of the Ministry of Economy, who avoided proposals of this kind directly) restrictions on such exports capital must be carried out within the framework of a single exchange rate.

The Central Bank officially rejected the idea of ​​“membranes” just a few hours after Maxim Reshetnikov’s speech, emphasizing in a press release that “restrictions on the movement of capital 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” and will not be effective as a tool to influence the ruble exchange rate.

From the point of view of the Bank of Russia, “membranes” (restrictions) of any kind inevitably lead to a multiplicity of exchange rates, which is unacceptable, in any case, with the chosen monetary policy model of the Central Bank.

Nevertheless, quoting Maxim Reshetnikov, “a request to the Central Bank and the Ministry of Finance” for tools to limit the movement of ruble capital exists and is in the public field. While it is unlikely that it will be quickly implemented given a stable exchange rate, however, if the situation with the exchange rate further deteriorates and the exchange rate is transferred to prices, the idea of ​​“membranes” has an excellent chance of at least being tested experimentally. This in itself is very problematic for the future of economic policy. The unusual situation in which the freedom of capital movement after “currency” sanctions against the Russian Federation (after the start of the Russian military operation in Ukraine) is ensured by the absence of capital control over ruble transactions, is a valid palliative. Refusal of it will mean no less than a refusal of de jure convertibility of the ruble, and not by decisions of the USA and the EU, but by the decision of the Russian Federation.

Dmitry Butrin