Yahoo Finance Russians See Little Fallout After US Sanctions Hit Dollar Exchange Trade
(Bloomberg) -- The latest round of US sanctions effectively ended three decades of daily exchange trading in the dollar for Russia’s ruble that first began in the twilight of the Soviet Union. Russians mostly took the news in stride.
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The Moscow Exchange from Thursday halted trading on several markets involving dollars and euros after the company, also known as Moex, was targeted along with its settlement depository unit under US restrictions aimed at further isolating Moscow from the international financial system over its war in Ukraine. The UK followed the US with sanctions on the exchange.
The Bank of Russia said transactions with those currencies would still be available over-the-counter, and that it would use data to set the ruble’s exchange rates for those pairs, implementing solutions it had been long preparing. On Thursday, the central bank said that interbank rates hadn’t deviated from the market in a significant way, confirming OTC data could determine current exchange rates in domestic markets.
The bank also set the official ruble-dollar rate for Friday at 88.2080, little changed from the previous day.
Still, the changes are likely to lead to increased costs for market participants due to higher commissions and wider bid-ask spreads as well as unfavorable exchange rate fluctuations. The moves have also left many wondering how well the exchange rates will work, and how much costs will increase.
Questions linger over if and how yuan transactions, which now account for more than half of Russia’s foreign currency trade, might be affected. Chinese banks are likely to gradually abandon cooperation with Russia’s national clearing house under pressure from the US, said a person close to Russia’s central bank, who asked not to be identified. Still, they will keep providing yuan liquidity to support imports, the official said.
“Overall, there is a sense that the main costs are related to lack of information about exchange rates and flows, but not to the shortage of currency,” said Evgeny Koshelev, an analyst at Rosbank. “The cost of alternative conversion channels for exporters are relatively fixed, albeit not small. For importers, they could increase at first, then a return to the previous level is possible.”
The MOEX Russia Index opened down as much as 4% in Moscow on Thursday but have recovered practically all losses by late afternoon.
For companies in Russia, it’s just one more headache within an increasingly difficult business environment.
Top executives at several metals producers said they don’t expect the sanctions will impact the actual sales of commodities, but costs to convert foreign currency will rise.
Another executive at a fertilizer maker said the company was more worried about technology sanctions rather than the end of the ruble-dollar exchange trading.
Russia’s energy giant Gazprom hasn’t used the Moscow Exchange for settlements in a long time, according to a manager at the company, who asked not to be identified due to the sensitive nature of the topic. Nearly 60% of foreign currency conversions are handled over-the-counter rather than on the exchange, according to central bank data.
Banks “will definitely not lose in this situation,” said Evgeny Kogan, a professor at Moscow’s Higher School of Economics, in a post on Telegram. “Their income will only increase due to the expansion of spreads and commissions on over-the-counter transactions.” He predicted that costs would increase by a few percentage points or less, and trading volatility would rise.
Aside from a report in local media that some banks in the city of Novosibirsk had stopped selling dollars and there were lines forming outside a lender, most areas of the country seemed to take little notice of the event.
“Transactions in dollar and euros for individuals have already been significantly limited for quite some time,” said Sofya Donets, an economist at T-Investments. “For the average Russian, nothing much will change.”
A decade of shifting away from western currencies, prompted when sanctions were first imposed over Russia’s 2014 annexation of Crimea, may limit the disruption from the US penalties. The share of currencies Russia has labeled as toxic, which include the greenback and euro, fell to 45.9% in exchange-based foreign currency trading in May, while the yuan’s share rose to a record of 53.6%, according to the Bank of Russia’s data.
The central bank had also been preparing for just such an event since last year. To avoid a collapse in settlements, the regulator developed additional mechanisms for determining official exchange rates in case there is no data from the Moscow Exchange, including from sources like bank statements and OTC trading platforms.
“In general, there are still a lot of questions,” Kogan said. “Most problems will be solved one way or another. The main thing is not to commit rash and emotional actions today.”
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