What happened
The Moscow Stock Exchange and the National Clearing House (NCC) came under US blocking sanctions. This means that American companies are prohibited from doing any transactions with them.
The Moscow Stock Exchange has suspended dollar and euro trading since June 13. Additionally, instruments pegged to these currencies, such as the Hong Kong dollar, are not traded.
The Central Bank stated that transactions in dollars and euros will be made in the over-the-counter – interbank – market. The Central Bank will use bank reports and over-the-counter transaction statistics to determine exchange rates.
At the same time, businesses and Russians will be able to continue buying and selling US dollars and euros through domestic banks. The Central Bank of Russia emphasized that savings in American and European currencies in bank accounts will be safe.
You can also buy foreign currency from exchange offices.
How will this play out?
Mikhail Vasiliev, chief analyst of Sovcombank, explained to socialbites.ca that dollar and euro trading in Russia will now be less convenient and more expensive.
“At the same time, Russian business, citizens and authorities have accumulated experience in interacting with sanctions and also have significant flexibility and adaptability. Therefore, we expect new work plans to be created under Western sanctions within a few weeks,” the analyst noted.
According to him, Russia is now a little more disconnected from the dollar system, but this is almost impossible to do completely, given the role of the Russian Federation in global trade.
“Russia, which has been selling a lot of raw materials abroad for many years, traditionally had a trade surplus and foreign exchange surplus. Therefore, like other currencies, the dollar and euro will continue to flow into the country from trade. “As a result of sanctions, the role of the dollar and euro in Russia will continue to decrease, and the role of other currencies, especially the yuan and ruble, will increase,” Vasiliev said.
The expert added that in many countries of the world the foreign exchange market is over-the-counter and interbank:
“Banks have various over-the-counter platforms through which they trade currencies. The market for dollar and euro trading in Russia will now also be over-the-counter and interbank. We also note that the over-the-counter currency trading market in Russia is not inferior in size to the foreign exchange market. Therefore, all operating technologies have already been debugged. Sanction risks to the Moscow Stock Exchange first emerged in October 2022. “Since then, the Bank of Russia, banks and other market participants have prepared for the implementation of these sanctions against NCC.”
According to Vasiliev, the Central Bank will continue to set official exchange rates, including the dollar and euro. And many contracts and transactions in Russia depend on the official exchange rate.
“The foreign exchange market for foreign exchange trading was affordable for everyone with its transparency, minimal costs and low spread (difference between the selling price and the buying price). The analyst emphasized that now the market for buying and selling “toxic” currencies will become less transparent, the role of banks in it will increase, costs will increase and the difference between buying and selling foreign currency will increase.
Will Russia return to the USSR?
Experts do not rule out the introduction of new fees for storage and transactions in non-cash dollars and euros, which will make them even more “toxic”.
“Of course, there will be elements of speculation on the part of individual banks, but very aggressive ones, that is, banks, can easily lose their licenses,” said Timur Aitov, head of the council’s financial security commission. Chamber of Commerce and Industry of the Russian Federation (CCI).
At the same time, the intervention of Russian authorities in the situation cannot be ignored. Candidate of Economic Sciences Ekaterina Fedyukovich, an expert at the analytical center of the Synergy University, admitted a return to Soviet times in a conversation with socialbites.ca.
“If the state intervenes and sets a legally permissible level of spread, then there is a risk of getting something similar to the times of the USSR with the gray cash market,” he said.
BitRiver financial analyst Vladislav Antonov admitted that new sanctions may not lead to the Central Bank imposing fixed exchange rates. He said the current situation is inappropriate but not critical. Antonov explained that Russian officials will have to rebuild the system to manage without foreign exchange dollars.
Fedyukovich added that Russia could pay for exports in other currencies (for example, yuan):
“This option is very interesting in general, but unfortunately it is not the most reliable (we have already observed problems with payments in yuan) and leads to an increase in the country’s dependence on China. There should be no technical problems in determining the currencies pegged to the dollar and the exchange rates of the dollar. The calculation can be made based on the exchange rate of any tradable currency. For example, the same yuan.”
The economist explained that the value of the dollar in rubles can be calculated based on the ratio of dollar-yuan and yuan-ruble values.
“In the first stage, the Russians will have losses because now new relations and new markets will begin to emerge. Of course, it is convenient to have a single centralized buying and selling channel with large liquidity. But there will be a change, we are absolutely sure of that. I think it is a matter of a few months, if not a few weeks,” said Alexander Millerman, head of the IURR Department of Finance and Insurance at the Presidential Academy.
What will happen to the ruble exchange rate?
At the close of trading on the Moscow Stock Exchange on June 11, the dollar rate was 89.1 rubles and the euro was 95.6 rubles. Vasiliev admitted that the cost of the dollar will increase in the first days after sanctions 94-98 rublesand euro 101-105 rubles.
“However, when the first shock in the foreign exchange market passes and market participants create new working models, we believe that the dollar will return to the range of 90-95 rubles and the euro to the range of 97-102 rubles,” the analyst said. Additional.
According to him, if it is possible to wait a week or two before buying “toxic currencies”, it is better to do so.
At the same time, Aitov, on the contrary, recommended buying dollars and euros if necessary, since he did not expect the situation to improve.
Financial expert Alexey Krichevsky, author of the Telegram channel “Economism”, says that if you need money now, you should go and buy it, and if you have the opportunity, it is better to wait, because panic buying now ” As always, the first days of crises are February 2022, March 2020 and December 2014 was in.
“There is no fundamental reason to panic. And it is not physically possible to create a plan with foreign accounts and cards in a few days. Therefore, the ideal scenario is to wait for the storm to pass or borrow money from friends or acquaintances and promise to repay in foreign currency in case of a real emergency,” Krichevsky advised.
What are you thinking?
Source: Gazeta
Ben Stock is a business analyst and writer for “Social Bites”. He offers insightful articles on the latest business news and developments, providing readers with a comprehensive understanding of the business world.