Vladimir Putin to meet on currency control after the rouble’s fall

Two people with knowledge of the situation said that President Vladimir Putin would discuss the need to tighten currency controls on Wednesday, after an unprecedented 3.5 percent rate hike failed to stop the rouble from falling.

The people who spoke to the media said that Putin was planning to listen to proposals from Russia’s finance ministry, which would require exporters convert a portion of their foreign currency income, currently mostly held overseas, into roubles.

Exporters would be required to sell 80 percent of their foreign exchange revenue within 90 calendar days following delivery. Companies that refuse to comply with the proposal will not receive government subsidies.

Other measures proposed include a prohibition on dividends, and the extension of loans to foreign countries even those deemed to be “friendly” to Russia. They also include cancelling import subsidies, limiting currency exchanges, and reducing how much currency exporters can take out of Russia.

This proposal would be the first time Russia had increased currency controls after Putin’s invasion of Ukraine in early last year. It shows that the Kremlin is increasingly concerned about the impact of the war on the economy.

Three people with knowledge of the situation say that the only economic official to speak out in favor of currency controls was Finance Minister Anton Siluanov.

Putin listened to the policymakers’ suggestions to boost the rouble, after the central banks’ extraordinary rate hike had only a modest effect on the exchange rates.

One of those familiar with the situation said, “These issues aren’t resolved in any other way than with him.”

Elvira Nabibullina is sensitive about currency controls. She had told her friends that she would resign from her position if they were introduced, but stayed in the post and implemented them last spring after the invasion.

Economists say that the pressure on rouble has left policymakers few options. The rouble briefly fell below the 100-dollar barrier on Monday.

The rouble has been weakened as the war continues. This is due to the ballooning deficits caused by increased military expenditures, the drop in export revenue and the growing dependence on imports.

The economic policymakers in Russia are openly divided over the cause of this slide.

Maxim Oreshkin’s article, Putin’s adviser on economic policy, claimed that “a strong ruble is in the interest of the Russian Economy” and blamed its fall on the central bank.

Oreshkin claimed that the year-long cycle of easing by the central bank had fueled a borrowing bonanza which overheated Russia’s economy. He also said that it had “all necessary instruments” for reversing the decline.

The central bank is limited in its ability to increase the rouble, say economists. Western sanctions have frozen about $300bn worth of the currency reserves.

Elina Ribakova is the director of the Kyiv School of Economics’ international program. She said that there are two levers the Russian authorities can pull to support the Ruble. First, the Russian authorities should avoid the price cap [imposed by the west] and increase export revenue to boost the current account surplus. “The second is capital controls.”

Ribakova warned that the decline in the value of the ruble should not be taken as a sign that western efforts to choke off Russia’s financing sources are working. She added that “it’s important to pay closer attention to efforts to circumvent energy restrictions.”

The central bank increased rates on Tuesday to combat inflation. However, it also said that the rouble was affected by the drop in exports and the increase in government borrowing, which had led to an increase in demand for imported goods.

The Kremlin or the Finance Ministry did not respond immediately to a comment request. Reuters was the first to report on the specifics of the proposals.