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Peter Davis

An writer at FOMOdrive

  • Sep 25, 2023
  • 3 min read

Reshetnikov proposed the “Chinese model” for the ruble exchange rate

The head of the Ministry of Economic Development suggested a "Chinese wall" as a solution to the issue of the ruble exchange rate.

The Central Bank was against it and identified the potential risks associated with such a situation.

At a meeting of the Federation Council on economic policy, Maxim Reshetnikov, the head of the Ministry of Economic Development, proposed an analogue of the “Chinese model” to combat fluctuations in the ruble exchange rate. This model would involve building a “membrane” between the domestic and foreign markets of the Russian currency.

RBC writes that, according to him, the issue cannot be resolved solely through the key rate or conventional monetary policy instruments.

The head of the department stated that it is essential to monitor "the amount of rubles circulating outside of the country, how they are getting there, and the direction of the flows." However, he noted that "this monitoring is not currently in place in its entirety."

He then explained that we need to be aware of the potential risks associated with the exchange rate, as an increase in the number of rubles would lead to a decrease in the amount of foreign currency entering the country.

Reshetnikov stated that this is the stance of the Ministry alone, but it is being discussed with the Central Bank. He also highlighted that there is no discussion of having two exchange rates, as it is "very damaging to the economy."

The Ministry of Economic Development's proposals for a "membrane" for the ruble were rejected by the Central Bank.

The Bank of Russia has reported that the segmentation of the foreign exchange market, which includes the implementation of membrane mechanisms, will result in multiple exchange rates and have a detrimental effect on the financial market as a whole.

Furthermore, these limitations on capital flows make it hard for the exchange rate to respond to alterations in external factors, thus hindering the economy's ability to adjust to these modifications.

The regulator stressed that capital movement restrictions should only be used as a temporary solution when there is a substantial danger to financial stability.

Alexander Isakov, Bloomberg Russia economist, stated that a division of the market like this is more likely to be seen in systems that are less developed than the Russian economy. He believes that there is no need or rationality in reverting back to an archaic system, as the current one is quite advanced.

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