Russian Central Bank wants to become a serious policy maker

MOSCOW, February 9. (By Marina Pustilnik RIA Novosti commentator). Last week the Central Bank of the Russian Federation announced that it began targeting the ruble exchange rate against a euro-dollar basket. The bank said in a statement it had begun targeting a dual currency basket – made up of 90 U.S. cents and 10 euro cents – as of Feb. 1 and would gradually raise the weighting of euros. “Increases of the weighting of the euro in the twin currency basket, to a level appropriate for the task of exchange rate policy, will take place step-by-step as market players adapt,” the statement said.

Over the last year the Central Bank made several announcements saying that it would target the ruble exchange rate against a basket of currencies instead of a single U.S. dollar. The country’s financial authorities also made a couple of statements promising to increase the share of euros in the foreign exchange reserves that have been recently hovering around $120 billion mark. The latest announcement made in December was one of the reasons which provoked dollar’s fall against euro on international forex markets. Seeing that Russia’s reserves are sixth largest in the world – and the largest outside Asia – this simple statement was enough to move the dollar-euro exchange rate in favor of the single European currency.
Of course the Central Bank’s decision has its practical reasons, considering that the U.S. currency has been continually weakening against the euro for the last three years. The dealers say that in the end targeting the ruble against a dual currency basket should help stop the ruble being buffeted by sharp moves of dollar-euro exchange rates. Still, no other practical outcomes are foreseen at the moment and the dealers say that “we don’t really understand what this really means”. It is clear that for now (and for a long time ahead) Russia won’t give up on quoting the ruble against both the dollar and the euro separately and it is only logical, because that’s what everyone does since the exchange rates of these two currencies are at the moment too different.
It seems then that the real reason behind such announcement is Russia’s desire to flex some of its financial muscles, to prove to itself that it is still an entity that should be reckoned with. It is clear that if the Central Bank acts on its promise to change some of its reserves from dollars to euros, it will be a signal to forex traders to buy euros and sell dollars. An exchange of 10% is tantamount to openly throwing $10 billion into the international money market. May seem like a relatively small sum on the scale of what is being traded daily on world forex markets, but in reality it is enough to add some shake to the dollar’s already unstable position.
Moreover, the analysts say, that the Russian Central Bank’s announcement may trigger similar moves by the central banks of Asian countries. The experts say that such a decision would be a good solution for China, whose currency has been for 10 years tightly bound to the U.S. dollar, causing complaints from its trading partners. China, however, announced that it will keep quoting yuan against the dollar for now on. Still, Russia’s announcement is likely to be the first one in the series of many, as more and more countries around the world recognize the growing importance of the single European currency.
And it doesn’t really matter whether Russia’s financial authorities were acting on their own behalf or whether they were asked to announce such a move by “greater forces”. After all the Central Bank is supposed to be an organization free from political pressure. Doesn’t matter really, because for all of its practical reasons, albeit unseen by many, a public announcement of intention, a statement of purpose of sorts, is not a call to other countries that find themselves in a situation, similar to Russia’s. This announcement is first and foremost addressed to the United States and the European Union, because Russia wants to be considered by them as a force that has to be accounted for. Had it been purely practical decision, the move could be done without much ado and then presented as an accomplished fact. But in the form that it was (and has been) done it most of all resembles a threat by small boy: “Do like I say or suffer the consequences!” The sad thing is that the Russian government still fails to understand that it should strive for recognition of its real economic accomplishments and not for something that can be considered a version of blackmail.
Source: Russian Information Agency