Capital Control Stabilized the Situation on the Currency Market

Monitoring of Russia's Economic Outlook. Trends and Challenges of Socio-Economic Development. Moscow. IEP. 2022. No. 5, pp. 3-7

5 Pages Posted: 11 May 2022 Last revised: 28 May 2022

See all articles by Alexandra Bozhechkova

Alexandra Bozhechkova

Gaidar Institute for Economic Policy; Russian Academy of National Economy and Public Administration under the President of the Russian Federation (RANEPA) - Institute of Applied Economic Research

Elena Sinelnikova-Muryleva

Gaidar Institute for Economic Policy

Pavel Trunin

Gaidar Institute for Economic Policy

Date Written: May 6, 2022

Abstract

In late February 2022, the EU countries and the USA put in place sanctions against the Bank of Russia, which imply freezing of international reserve assets. As a result, about 50% of the reserves ($300 bn of the $630 bn available as of February 1, 2022) were affected by the sanctions.
Countries whose international reserves were previously frozen (Iran, Libya, Syria, etc.) experienced a large-scale weakening of their national currencies and a significant acceleration of inflation. At the moment in Russia these processes were limited thanks to anti-sanctions measures, primarily tough restrictions on capital movement.
The measures taken by the Bank of Russia in the context of the reserves freeze are in line with global practice. Nevertheless, the Russian situation is in many ways unique, as the Bank of Russia adheres to the inflation targeting regime and actively used interest rate policy in response to negative shocks. Central banks in other sanctioned countries adhered to a managed exchange rate regime. Thus, the Bank of Russia has a more flexible toolkit for counteracting shocks.
The freezing of reserves led to the suspension of the budget rule. Accordingly, despite the reduction of exports, the price growth on key commodities led to a sharp increase in the supply of foreign currency on the Russian foreign exchange market, while demand remains limited due to the effect of restrictions on capital flows. In the medium-term period, as a new equilibrium is established in the markets, it is advisable to develop an alternative version of the budget rule, ensuring, as before, a lower correlation between oil prices and the exchange rate.

Keywords: Russian economy, currency market, capital control, key rate

JEL Classification: E51, E52, E58

Suggested Citation

Bozhechkova, Alexandra and Sinelnikova-Muryleva, Elena and Trunin, Pavel, Capital Control Stabilized the Situation on the Currency Market (May 6, 2022). Monitoring of Russia's Economic Outlook. Trends and Challenges of Socio-Economic Development. Moscow. IEP. 2022. No. 5, pp. 3-7, Available at SSRN: https://ssrn.com/abstract=4102063 or http://dx.doi.org/10.2139/ssrn.4102063

Alexandra Bozhechkova

Gaidar Institute for Economic Policy ( email )

Gazetny pereylok 3-5
Moscow, 125993
Russia

Russian Academy of National Economy and Public Administration under the President of the Russian Federation (RANEPA) - Institute of Applied Economic Research ( email )

Russia

Elena Sinelnikova-Muryleva

Gaidar Institute for Economic Policy ( email )

Gazetny per 3-5
Moscow, 125993
Russia

Pavel Trunin (Contact Author)

Gaidar Institute for Economic Policy ( email )

Gazetny pereulok, 3-5
Moscow, 125993
Russia

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
5
Abstract Views
57
PlumX Metrics