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- At the right rate: banks from 40 countries will be able to participate in currency trading in Russia
At the right rate: banks from 40 countries will be able to participate in currency trading in Russia
The Cabinet of Ministers has expanded the list of states whose banks may participate in currency trading in the Russian Federation. Now a number of countries from Latin America, Africa and Southeast Asia will be able to do so. Financiers believe that this step can be seen as a continuation of the course to support Russian importing companies, which have a demand for foreign currency of these countries for the purchase of equipment, raw materials and supplies. Details - in the material "Izvestia".
More tools - more money
The Russian government has increased to 40 the number of friendly and neutral countries, credit organizations and brokers of which will be allowed to trade on the Russian foreign exchange market, as well as on the market of derivative financial instruments. Now representatives of Argentina, Cambodia, Laos, Ethiopia, Laos, Mexico, Nigeria, Tunisia and Ethiopia will be able to participate in currency trading.
The initial list of friendly and neutral countries included more than 30 states, including Armenia, Belarus, Kazakhstan, Kyrgyzstan, Uzbekistan, as well as Brazil, China, Egypt, India, UAE, Saudi Arabia, Serbia, Thailand, Turkey, South African Republic, etc. The list of friendly and neutral countries included more than 30 countries.
According to Svetlana Solyannikova, vice-rector for research at the Financial University under the Government of the Russian Federation, the expansion of the list, firstly, indicates the development of economic ties with the countries included in the list, secondly, provides additional opportunities for international payments and reducing the volatility of the ruble exchange rate. Thirdly, it expands opportunities for hedging currency risks of commercial banks, brokers and other participants of foreign economic activity.
- The more counterparties on the Russian currency market, the higher its liquidity and, accordingly, all other things being equal, the less volatile quotations are," says Nikolay Tarasov, Director of the Banking Development Department of the Association of Banks of Russia.
Admission of more foreign banks will help to increase the turnover of conversion of the Russian ruble into currencies of friendly countries, believes Sergei Vyzhlakov, head of the Internet trading department of the Sinara Investment Bank. The more banks from other countries participate, the more favorable conversion becomes, spreads narrow and liquidity grows.
In the bank "Derzhava" explains that now no currency, except for the yuan, is not traded on the Moscow Exchange in significant volumes, and the trend is more likely to reduce turnover, the transfer of trading on other platforms or in individual foreign banks. No Russian exchange has announced the start of trading in any new currency for a long time. The bank believes that this way is now preparing for the emergence of branches of foreign banks in Russia, and they will already be represented on Russian exchanges.
The ARFG notes that the current expansion of the list should lead to more stable pricing. In addition, the participation of foreign banks in direct currency conversion reduces the dependence of bilateral quotations of national currencies on fluctuations in the rates of world reserve currencies.
What is needed for fair exchange rate formation
Maxim Ovodkov, President of the National Association of Investors (NAI.RF), believesthat the macroeconomic effect of the new measure will be an increase in the supply of industrial goods and agricultural products.
The investment group "Trinfico" points out that the list is represented by developing countries and so-called frontier markets - traditionally dependent on foreign capital and technology markets. Thus, Argentina and Mexico are almost entirely oriented to the American financial market, and the banking sector is represented by organizations from the list of unfriendly countries or their subsidiaries (BBVA, Citi, Santander, HSBC). It is unlikely that the management of these organizations can coordinate their participation in the auction, the financiers argue.
The impact on import-export operations will certainly be positive due to easier conversion and payment for goods in the countries, but because of the relatively small turnover of goods, this effect should not be overestimated, notes Trinfico. About $1 billion a year with Nigeria, a few hundred million dollars with Ethiopia and even $2 billion with Tunisia look insignificant relative to trade volumes with China, which exceed $200 billion.
Professional trader Alexander Rezvyakov explains that increasing the number of participants in the market usually increases liquidity (supply and demand). The ruble exchange rate will be fairer and more stable, he believes. And, most likely, exporters, importers and, in general, all those whose business depends on the exchange rate of the national currency will have lower hedging (insurance) costs.
However, Alexander Abramov, head of the Laboratory of Analysis of Institutions and Financial Markets of the Presidential Academy IPEI, believes that it will not be possible to form a real ruble exchange rate against one or another currency immediately. The mechanism of currency pricing through cross-rates in the foreseeable future will remain in Russia, as well as in most other countries against the ruble, the expert believes.
Pros and cons
Director of the National Association of Financial Planners Andrei Paranich notes that the disadvantage of settlements in national currencies can be called a relatively low liquidity of national currencies compared to the U.S. dollar, euro and a number of other currencies. Low liquidity is also expressed in wider spreads in transactions with these currencies and greater amplitude of quotation fluctuations. However, since settlements using the US dollar, euro, etc. are difficult for Russian exporters and importers, the increase in the efficiency of transactions in national currencies can have a noticeable effect.
For Russians, this effect, for example, can be expressed in the form of a decrease in the cost of imported goods, confirms the financier. At the same time, it may not only be a question of simplifying export-import transactions with countries whose financial organizations are directly involved in currency trading in Russia, but also of expanding the range of possible options for payment on a global scale.
Elena Sidorova, Professor of the Department of Taxes and Tax Administration at the Finance University, sees a number of useful manifestations in this expansion. First of all, the integration of the Russian Federation in regional international projects is increasing. Then the demand for purchase of the Russian ruble increases, which supports the exchange rate. Further, due to its stabilization, pressure is exerted on inflation, which makes it possible to fight it more successfully. The possibility of imposing sanctions on trade in national currencies is also reduced, as direct ruble quotations are formed for settlements in national currencies, Sidorova adds.
Among the disadvantages she calls the fact that the trade deficit leads to the accumulation of a large surplus of national currencies, which is very difficult to spend. An example is India. In the 2022-2023 fiscal year, trade turnover between India and Russia reached a record $49.3 billion, exceeding the goal of $30 billion by 2025 set by the two heads of state in 2014. Fuel and fertilizers accounted for 91% of this volume. Russia has become one of India's top three trading partners for the first time in history, behind only the US and China, but India's exports totaled just $3.1 billion in FY 2022-2023, leaving Russia with a large surplus of rupees that it is finding it extremely difficult to spend.
Finam FG analyst Nikolay Dudchenko still does not believe that the innovation can have a very significant impact on trading volumes. In 2023, a representative of Mosbirzhi reported that the share of foreign participants in the currency section amounted to about 4%, which is quite small. Granting access to organizations from Argentina, Cambodia, Laos, Mexico, Nigeria, Tunisia and Ethiopia is unlikely to significantly affect the balance of power, he admits.
Vladimir Grigoriev, associate professor at the Economics Department of the Russian Academy of Sciences, is sure that one should not expect a quick effect from these innovations. So far we are talking about the legal and organizational-technical basis. In his opinion, two conditions are necessary for everything to start working.
First, the expansion of the use of national currencies in international settlements. So far it is much easier to receive rubles or other national currencies for exports than to pay for imports with them, including to the countries issuing these currencies. This largely determines the volatility of the Russian ruble - the demand for dollars exceeds their supply.
Secondly, the reduced sensitivity of Russia's partners to sanctions. And the reason is simple. Secondary restrictions mean disconnecting "offenders" from the global financial system. The share of the dollar in international settlements is 48%, the euro - 31%, the yen - 4%, the yuan - 2%, all other currencies of the world combined - 15%. Disconnection from the global financial system completely deprives such a bank of international business, the interlocutor concluded.
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