There Moscow Stock Exchange stopped trading in dollars and euros from June 13, 2024. This happened the day after the introduction of harsh American sanctions against the Moscow Stock Exchange and its divisions: the National clearing center and the National settlement depository. The latter was also already subject to European sanctions. The news caused an emotional reaction in Russian market. Russian stocks fell at the opening of trading. Banks immediately widened the difference between the buying and selling rates of the dollar and the euro to 15-20 percent. On the market Otc, the ruble first fell, and then recovered the fall just as quickly. Russian shares collapsed at the opening of trading, and among those most affected were the shares of the Moscow Stock Exchange, which lost 15 percent. Market participants have a lot to worry about. If only because there are many situations linked to the official dollar exchange rate in the country. For example, the mining taxexport duties, including a progressive duty that was introduced in the fall of 2023. Until recently, the official exchange rate was determined during exchange negotiations.
There is always the possibility of buying or selling dollars and euros in banks. Immediately after the publication of information on sanctions and the decision to halt negotiations, the Bank of Russia has issued a series of statements intended to reassure the market. The free movement of foreign currencies, according to the regulator, will remain in Russia: in addition to the exchange, there is an over-the-counter market where banks directly exchange currencies with each other. Citizens, according to the Central Bank, always have the possibility to buy or sell dollars and euros in banks. As regards the official rate, the Central Bank, from the autumn of 2022, has prepared a “Plan B”, created precisely for cases like this. The Bank of Russia will set the official rate on the basis of information on buying and selling rates in large Russian banks, as well as data from trading platforms that are needed the market over-the-counter. So the budget issue can be considered more or less resolved.
Although continue to use the dollar exchange rate as one of the main parameters of the federal budget or using it to calculate taxes and duties is anomalous to say the least in the current circumstances. After all, completely reorienting ourselves towards the Chinese currency would mean becoming even more dependent on Beijing. Furthermore, it is still not entirely clear what to do with currency regulation and the obligation of exporters to return foreign currency earnings to the country and sell them on the stock exchange. If companies, after having repatriated the currency, were to exchange it at the rate set by the bank, exporters risk suffering a loss. Paying for imports or receiving money for exports will become an even longer and more painful process. There is another nuance that could theoretically destabilize the situation on the Russian financial market. Most large Russian banks are already included in the sanctions lists and cannot continue to use the services of American and European correspondent banks to carry out transactions in dollars and EUR. However, until recently they still had the opportunity to use their exchange accounts for transfers (including those of clients), as well as for other operations.
Given that this practice is quite widespread, customers of these banks will face additional problems. On the other hand, it must be said that – for some time – the main currency pair on the Moscow Stock Exchange is the yuan-ruble and, after the cessation of trading of the dollar and euro, the position of the Chinese currency in Russia will only strengthen. It is against the yuan that the Russian ruble will now fall or rise. And the prices of the dollar and the euro on the OTC market they will become a derivative of two rates: the cost of the yuan in rubles and the cost of dollars in yuan. Russians who are not yet accustomed to monitoring the development of the Chinese currency exchange rate will have to learn to do so. As for foreign currency savings, which Russians prefer to form in world currencies, the Bank of Russia ensures that dollars and euros in the accounts and deposits of citizens and companies remain safe. Here, however, we must be aware that these currencies in Russian banks are nothing more than numbers in a banking application. Furthermore, they lost a significant part of their functionality long before the current round of American sanctions. Long gone are the days when you could pay for a cocktail on a Turkish beach or a portion of fresh oysters in a Parisian restaurant with a card linked to an account in dollars or even in Sberbank rubles. Currency transfers outside of Russia also always require more ingenuity and a fair amount of time to study the remaining loopholes. In the immediate future, not much will change on this front. Unless the Russian authorities, as already promised by Moscow Foreign Ministrydo not introduce new restrictions in anti-sanctions framework and the total de-dollarization.
University professor of international law and security regulations
