The proposal to introduce a Chinese analogue of the foreign exchange market in Russia has caused heated debate

The Ministry of Economic Development and the Central Bank entered into an absentee dispute over how to stabilize the ruble exchange rate. The topic itself sounds extremely tricky: is it worth creating in Russia some kind of analogue of the Chinese model of the foreign exchange market, or rather, a “membrane” (layer) between two ruble markets – internal and external? The idea put forward by the head of the Ministry of Energy, Maxim Reshetnikov, frankly did not like the Central Bank.

From what the minister said at an extended meeting of the Federation Council Committee on Economic Policy, it is absolutely unclear how this mechanism will look and work. According to Reshetnikov, it is necessary to track “how many rubles circulate abroad, how they get there, how the flows go, and how much they increase.” Now “this monitoring is not fully in place,” and “the more rubles there are, the less currency will come here,” the official noted, implying the policy of the Chinese regulator (People’s Bank of China) regarding the yuan as a positive example.

And then Reshetnikov, wittingly or unwittingly, pricked the management of the Bank of Russia: “If we do nothing and only rely on the tools, primarily regulation of the key rate, that we have, then we will have the real sector of the economy hostage.” However, his speech also sounded a conciliatory note: “In no case can there be two courses. This is an extremely harmful phenomenon for the economy, we are against it. And here we have the same position with the Central Bank.”

In turn, Elvira Nabiullina’s department met with hostility the initiative of the Ministry of Economic Development. According to the Central Bank, the creation of so-called membranes in the foreign exchange market can lead to multiple (segmented) exchange rates and negative consequences for the financial system. In general, the Central Bank spoke out against permanent restrictions on the movement of capital, since they “complicate foreign economic activity, especially now when companies are forced to build new supply chains and new payment routes.”

“In China, there are two yuan exchange rates – offshore and onshore. That is, external and internal, purely market and regulated by the state,” says Candidate of Economic Sciences, financial analyst Mikhail Belyaev. “At the same time, there is no impenetrable wall between them. This model is unlike the one that existed in the USSR, when the Soviet ruble did not enter the external arena at all. Only with a huge stretch (as carriers of a similar function) can we talk about Vneshposyltorg checks, which were issued as salaries to foreign workers and accepted in Beryozka company stores. When China began to develop foreign markets about 30 years ago, it created a double-loop system for the yuan in order to protect the national currency from the potential negative influence of external factors.”

Let’s assume, MK’s interlocutor argues, that the offshore yuan exchange rate begins to strengthen, holding back exports and creating other problems for Beijing. In this case, the NBK may take some regulatory measures so that part of the national currency flows to the external market. As a result, the supply increases and the exchange rate drops slightly. In the second scenario, when the offshore yuan becomes cheaper, the Chinese regulator ensures its flow into the country. However, we are talking about a very moderate, and not a radical adjustment of the course, which depends, first of all, on the general state of the economy and is poorly amenable to administrative influence. By themselves, in isolation from deep economic processes, the two yuan currency circuits do not work. And the economy in China, firstly, has high growth rates, and secondly, it is controlled by the state. In this sense, the Russian one, with its market nature and current weakness, has little in common with the Celestial Empire.

“So the proposal of the Ministry of Economic Development is unacceptable in any way – neither methodologically, nor especially in relation to Russian realities,” sums up Belyaev. “Trying to create a double-circuit currency system in our country means taking a step back in evolution, to long-outdated ideas about how the economy should work.”

According to Alexey Vedev, director of the Center for Structural Research at RANEPA, in this particular case we are talking not so much about mechanisms for regulating the ruble exchange rate, but about a potential shift to a different economic model. The one where the state and some modern analogue of the Soviet State Planning Commission reign supreme. At the same time, the market model that Russia has been developing for the last thirty years, having scored a lot of bumps for itself, is completely crossed out. The decision on the “membrane,” to put it mildly, is risky from the point of view of economic efficiency, since it essentially means a return to socialist methods of management.

“The position of the Central Bank is justified,” says Alexander Shneiderman, head of the sales and customer support department at Alfa-Forex. “If multiple exchange rates emerge at once, it will confuse international investors and our country’s business partners, which will negatively affect its economic climate.”