The Russian ruble has had two decades to become a freely convertible


MOSCOW, October 26. Soviet President Mikhail Gorbachev 25 years ago signed the decree about the establishment of the country’s commercial exchange rate of the ruble against foreign currencies. Then it was the first step towards a free floating exchange rate. The same point, in moving the ruble to a floating exchange rate set by the Bank of Russia Elvira Nabiullina.

The first steps to a free course

Soviet President Mikhail Gorbachev on October 26, 1990 signed the decree “On the introduction of a commercial rouble exchange rate to foreign currencies and measures on creation of the all-Union foreign exchange market”. According to the decree, in addition to the official exchange rate established by Gosbank of the USSR, was introduced the commercial rate, which from 1 January 1991 could buy foreign currency for rubles legal entities.

Commercial dollar exchange rate was first established on 1 November 1990 at 1.8 rubles per dollar, while the official rate remains 55 cents.

At that time very acute was the question of how to move to convertibility of the ruble, that is how to move away from the artificial exchange rate of the ruble 55 cents on the dollar. In the late 1980s, the country has adopted the law on cooperatives, joint stock companies, established a system of commercial banks, there were formed the conditions for the refusal of the state monopoly of foreign trade and the abandonment of the currency monopoly.

It was created, and financial institutions to trade currency. In the late 1980-ies the first foreign exchange auctions was to Vnesheconombank of the USSR, on which enterprises could trade foreign currency. Thus, the decree of Mikhail Gorbachev almost legitimizes what is already practiced Vnesheconombank. In 1990, the state Bank of the USSR has created a new structural unit – the Center of interbank currency transactions, the so-called Currency stock exchange, on the basis of which in 1992 was established the “Moscow interbank currency exchange” MICEX.

“After this (decree – approx.) there were many courses. Was course, which was financed by the budget of the organization, was the rate at which bought various goods for import. The course was different for different products, which those rare people who receive monetary income could change in the Bank”, – says Andrey Nechaev, who in 1992-1993 he held a post of the Minister of economy of Russia.

“Certainly, it (the decision of Mikhail Gorbachev – ed.) is the first step with a free rouble exchange rate. The first attempt to move to real market supply and demand for currency”, – says member of the Supervisory Council of VTB Sergei Dubinin, who was in 1991-1992 by expert office of the President of the USSR, and in 1995 headed the Central Bank of the Russian Federation.

However, experts believe that the reform of 1990-ies in the transition to the commercial rate of the ruble was not too successful. “The most acute problem was the liberalisation of prices. Had release rates practically throughout the volume of the national economy. The further it is delayed, the more painful then this happened,” – said Dubinin.

Agrees with him and the research supervisor, National research University “Higher school of Economics” Yevgeny Yasin, who in the late 1980s, he was head of Department State Commission for economic reform under the USSR Council of Ministers. “Mikhail Gorbachev took the step that was justified then, although he from the beginning has very little influence played because the crisis was deeper. There were other problems – the goods were not in the stores. We could change course, however you want, but until then, not yet liberalized the prices, nothing can be done. But Gorbachev did,” said Yasin.

Fee for the market rate

Free ruble was introduced in Russia on 1 July 1992 statement of the Central Bank of the Russian Federation “On the official exchange rate of the ruble”. The Bank of Russia has equated an official rate of the US dollar with the stock, increasing it from 56 cents up to 125 dollars Since the transition to a unified market exchange rate began a long period of falling of the Russian currency, then known as “black Tuesday”. In those years, on Tuesdays and Thursdays was determined by the rate of the ruble against the U.S. currency on trading results on MICEX.

In order to maintain the exchange rate of the ruble, the Russian government and the Bank of Russia in 1995 has made the decision to enter the currency corridor, within which the financial regulator supported the ruble, conducting foreign exchange intervention. However, the ruble still lost positions. From July 1992 until January 1998, the ruble has devalued 47 times: from 125 to 5960 rubles (or 5.9 rubles after denomination). After a technical default on the main types of government debt in August 1998, the rouble has again fallen to 20 rubles. The gradual weakening of the ruble continued for three years. In 2002, the Bank of Russia set the ruble in 31,86 ruble, which lasted at that level for almost 12 years.

Basket, intervention and reversal to floating exchange rate

In February 2005 the Bank of Russia to determine the real ruble exchange rate enters the dual-currency basket comprising the dollar and the Euro. To focus only on the dollar in that period was no longer relevant. The dollar weakened and the Euro strengthened its positions. Initially, the basket was 10% Euro and 90% from the dollar in 2007 the ratio changed and amounted to 45% Euro and 55% dollar. The currency corridor became a mild form of control of the ruble. The financial regulator carried out a large-scale buying or selling of currency at overcoming the ruble corridor.

According to Sergey Dubinin, the binding of rouble to a basket of currencies played the role of a nominal anchor, as it was necessary to stop the catastrophic inflation, but after this, these measures have become onerous.

Every time to maintain the exchange rate of the ruble the Bank of Russia had to use foreign exchange reserves. So during the financial crisis of 2008-2009 on the currency market spent about one-third of foreign exchange reserves. The devaluation of the ruble amounted to 40%. It was difficult then to deal with inflation and reduce it to several percent. In 2011, the Bank of Russia, which was then headed by Sergei Ignatyev, has committed to the abolition of the currency corridor and marked the transition to a floating exchange rate.

Care to float freely

The point in moving the ruble to a floating exchange rate was set for the new head of the CBR Elvira Nabiullina. According to the monetary policy of the Bank of Russia to complete the transition to the floating exchange rate is expected from 1 January 2015. However, the pressure that was put on the rouble, threatened the waste of foreign reserves. The Bank of Russia has dismantled the currency corridor two months earlier – November 10, 2014. In December, President Vladimir Putin said that the Central Bank does not intend to blindly “burn” its reserves.

“Well, the ruble is now in free swimming. This removes a large amount of problems. For example, eliminates the problem of constant pressure on the ruble,” – said Dubinin. According to Yevgeny Yasin, the latest action Nabiullina on the transition to a floating exchange rate is a continuation of the line begun by Mikhail Gorbachev. And to return to the regulation of the ruble does not make sense, he said. “Why don’t you make the course more expensive,” says Yasin.

Return to the control rate

However, there is talk that the government is discussing options for a return to management of the exchange rate. “The rumors about the possible introduction of regulation of the ruble go all the time, especially related to the restriction on the movement of capital. In my opinion, the exchange rate is strong enough, the effective instrument of macroeconomic policy and, of course, it acts as calibrator”, – said Deputy Minister of economic development Alexei Vedev.

According to Sergey Dubinin, the return of administrative measures to nothing lead. “As in 1990-e years people have learned to avoid all this, it now resumes. You can get a black market currency or destabilization of the situation. Why are these experiments done on yourself? Especially because recently all this happened before our eyes”, says Dubinin.

The Bank of Russia is satisfied with the current volatility of the ruble, said recently the first Deputy Chairman of the Central Bank Dmitry Tulin, noting that the Bank of Russia is not yet able to ensure the stability of the ruble. “We would want the ruble to the basket of currencies was stable, it would be very helpful to the economy and anti-inflationary policy. But to ensure it’s impossible. You have to think about how we can mitigate the impact of exchange rate fluctuations,” said Thulin.