• ACI Russia

08/27/1998 09:23:51 INSTANT VIEW - Russia c.bank suspends rbl trade

MOSCOW, Aug 27 (Reuters) - Russia's central bank suspended

trade of the rouble against all currencies on the Moscow

Interbank Currency Exchange on Thursday after cancelling

rouble-dollar trade on Wednesday.

Traders on Thursday had bid 8.2 roubles to the dollar

against offers of 9.5 roubles to the dollar, while the central

bank had set its official daily rate, and the starting rate for

exchange trade, at 7.86 roubles to the dollar.

The central bank also said foreign exchange and gold

reserves had fallen to $13.4 billion on August 21 from $15.1

billion on August 14.

The rouble on Wednesday had slid over 40 percent against the

mark, fixing on MICEX at 7.600 roubles to the mark.


"It's delirium, that's what we call it. The central bank

says it will not sell dollars, at the same time it keeps the

previously announced official trading band, at the same time the

rouble effectively devalues against the mark so it breaks this

trading band.

"An official rate exists but no-one uses it. The exchange

rate on the interbank currency market is 11 (roubles to the

dollar) and at 12-13 for deals to settle tomorrow, which is also

not within the trading band.

"No one really knows what's going on, this is the problem."


"What is going on right now is that they are in the process

of making the rouble a non-convertible currency. Basically it is

a problem of the fact that there are no natural holders of the

rouble at the present. Why would there be? The rouble isn't much

good to anyone right now.

"It is clear that the central bank needs to do something

right now. This simply isn't sustainable. The central bank is

burning through their dollar reserves at an alarming rate...

"It is a good bet that they only have about $6 billion

dollars of actual usable reserves because a large part of their

reserves are in gold.

"The central bank has just two choices: they can let the

rouble go and the market will establish an appropriate rate --

but that might mean the exchange rate could go plummeting -- or

they can impose capital controls. That is in effect what they

are doing right now by cancelling trading. They (the central

bank) could wind up not having trading at all and scrap MICEX."



"The key issue is domestic sentiment... There are two

options: either you can provide some comfort to residents such

that they start to believe they should stay in roubles, which is

extremely difficult in the political vaccuum, or else you simply

close off access to foreign exchange and you do that by

suspending internal convertibility.

"That, I think, is the route that they will have to take.

"Once they've done that we have to have a resolution of the

underlying politcal problem.... Once that is then resolved, I

think it is only at that point will they be able to look

sensibly longer term at the exchange rate and decide what the

exchange rate policy should be and potentially look at options

like a currency board, for example, to try and put some faith

back into residents and ultimately non-residents in the rouble.

"If that is the route that they follow, then what will

happen inevitably and very quickly -- and I think it is already

happening -- is that the black market will develop. The black

market rate would probably be somewhere around 20 roubles to the


"There is a complete vacuum of power in Russia at this point

in time...that is ultimately at the root of this crisis and

that's progressively worsening the crisis on a daily basis.

Until it's resolved we're not going to find a way out of this."


"What the government needs to do to get out of this muddle

and move toward a healthy economy is introduce a package of

concrete austerity measures that take a long-term approach to

the problems and strengthen the country's weak fiscal position

and financial sector.

"Fiddling around with montary policy is not the answer. The

banking sector is in danger of going belly-up and that would be

disasterous. To prevent that a full package of measures is

needed. Russia's banks are vital right now to solving the

country's tax problems. As the conduits through which payments

are made, they are key to solving the tax collections problems."

((Moscow Newsroom, +7095 941-8520


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