explainers

What’s happening with the ruble and yuan in Russia one month after the Moscow Exchange halted dollar and euro trading?

Source: Meduza

It’s now been a month since U.S. sanctions against Russia’s largest stock exchange forced it to halt trading in U.S. dollars and euros. In the days that followed the suspension, the ruble’s official exchange rate against these currencies experienced unusual fluctuations. However, the Russian currency has since slightly strengthened against the dollar. Meduza explains the dynamics of the exchange rate, the effects of the new sanctions on Russian businesses and citizens, and whether the yuan now dominates Russia’s foreign currency market.

On June 12, the U.S. Treasury Department imposed another round of sanctions against Russia, adding dozens of individuals and hundreds of legal entities to the SDN list. Among them were Russia’s largest stock exchange, the Moscow Exchange (MOEX), and its subsidiary, the National Clearing Center, which acts as an intermediary in foreign currency transactions on the Russian exchange market.

The sanctions essentially blocked MOEX from dealing in dollars, and on the same day, the exchange announced it would halt trading in U.S. dollars and euros. Previously, Russia’s Central Bank used currency trading on the Moscow Exchange to determine the official exchange rate of the dollar and euro against the ruble (based on the weighted average rate, which includes the minimum and maximum values during the trading session, among other criteria). With dollars no longer traded on the exchange, the Central Bank has switched to using bank reports and information from other over-the-counter digital trading platforms to determine the exchange rate.

Even though we’re outlawed in Russia, we continue to deliver exclusive reporting and analysis from inside the country. 

Our journalists on the ground take risks to keep you informed about changes in Russia during its full-scale invasion of Ukraine. Support Meduza’s work today.

In the first few days after the changes, the rate posted by the Central Bank fluctuated sharply. From June 18 to 20, the official exchange rate fell from 89 to 82.6 rubles per dollar, then rose to 85.4 rubles in one day. Over the past month, the official ruble exchange rate even strengthened slightly against the dollar (by approximately one ruble) and, after a few jumps, remained roughly the same against the euro.

In its June financial market risk review, the Central Bank stated that “the transition to a new mechanism for setting the official exchange rate had a minimal and short-term impact” on the ruble. The rate still primarily depends on foreign trade: the inflow of foreign currency from exports and the outflow for imports.

According to Russia’s Central Bank, the main reason for the ruble’s strengthening over the past month was that importers were forced to purchase less foreign currency due to increased problems with international payments. However, these issues aren’t related to the sanctions against MOEX. Since the end of last year, Russian businesses have reported increasing difficulties with payments through banks in China, India, and Turkey, which have become more cautious about the threat of secondary sanctions. This has led to fewer purchases abroad by Russian importers: SberCIB analysts estimated that deliveries of goods in May were about 30 percent lower than would be expected under normal payment infrastructure conditions.

At the end of May, Central Bank analysts warned that if Russian importers continue to face issues with cross-border payments, imports will remain low, thereby supporting the ruble’s exchange rate. This situation is somewhat reminiscent of the summer of 2022, when the Russian currency also strengthened. However, Central Bank economists noted that back then, there was a shift towards importing goods from Asian countries, which are generally cheaper than European imports. Now, due to ongoing payment and logistics problems, imports will become more expensive in foreign currency terms. This, in turn, will drive up inflation, which is already high. By the end of June, inflation had risen to 8.6 percent year-on-year, up from 8.3 percent at the end of May.

The sanctions squeeze

For ordinary Russians, the sanctions against the Moscow Exchange seem to have had little impact on the availability of cash dollars and euros, which can still be purchased at banks and currency exchange points. In the initial days after trading was suspended, many banks sharply increased the spreads between buying and selling rates, with some also reducing purchase limits. However, these spreads soon returned to previous levels at most banks, and statistics from the past month indicate that Russian citizens didn’t rush to buy Western currencies.

According to the Banki.ru portal, on July 12, the cash dollar exchange rate in Moscow banks ranged from 84 to 88.4 rubles for buying and from 88.4 to 95.3 rubles for selling, with the Central Bank rate set at 87.98 rubles to the dollar.

Retail investors faced slightly more difficulties. In the first few days after the halt in exchange trading, some Russian brokerage companies temporarily blocked clients from withdrawing dollars and euros from their accounts. Most brokers quickly lifted these restrictions, but some warned investors that their foreign currency assets might be frozen. These “frozen” dollars and euros could be withdrawn by converting them to rubles at the June 13 exchange rate.

At the end of June, MOEX indirectly admitted that some funds in brokerage accounts remain frozen. An official exchange representative told RBC that these funds can be recovered by contacting the U.S. Treasury Department. However, brokerage companies interviewed by RBC said there were no large sums left in their clients’ accounts.

Russian businesses have felt the negative impact of the sanctions against MOEX more acutely than private individuals. Companies report that the Russian foreign exchange market has become less transparent, currency operations now take longer, and costs have increased. Central Bank Head Elvira Nabiullina acknowledged “the market’s concerns about exchange rate transparency” and promised to publish a detailed methodology showing how the official dollar and euro rates are calculated. She asserted that it’s incorrect to claim there are multiple exchange rates in Russia, as the government doesn’t set separate rates for exporters and importers, for example.

A market monopoly

Without the dollar and euro, the yuan has nearly monopolized the foreign currency market on the Russian stock exchange. According to the Central Bank, following the June 12 sanctions, the Chinese currency accounted for 99.6 percent of all exchange transactions. (Other currencies from “friendly” countries, like the Belarusian ruble, the Kazakhstani tenge, and the Turkish lira, are also still traded on MOEX.) On the main page of the platform, there are now yuan quotes where a spot trading chart for the dollar-ruble pair used to be. Additionally, Russians who want to save in foreign currency are now being steered toward investing in the yuan.

At the end of June, many Russian financiers feared that yuan trading on MOEX might stop, just as dollar and euro trading had. Bloomberg, citing a source close to the Central Bank, reported that the regulator was preparing for such a scenario. According to the publication, this could happen under U.S. pressure: a special license for operations with the National Clearing Center, now blacklisted by the U.S., is only valid until August 13. After that, Chinese counterparties might refuse to work with it. The Central Bank quickly issued an official statement saying it “sees no grounds” for such a scenario. Russian financial analysts, however, consider it “quite possible.” If this happens, yuan transactions will also shift to the over-the-counter market, with the Central Bank independently calculating the exchange rate for the Chinese currency.