Russian Finance Ministry in Talks Over Market Currency Purchases

Russia’s Finance Ministry is discussing a central bank proposal to buy foreign currency for the Reserve Fund on the market, scrapping transactions with the regulator, Deputy Finance Minister Alexei Moiseev said.

“Bank Rossii is proposing that the Finance Ministry conduct these operations regularly on the market throughout the year,” Moiseev said in an interview. “For instance, in July, the ministry accumulates the money; in August, it announces how much currency it may buy weekly or daily, and then it comes to the market.”

Russia, the world’s largest energy exporter, funnels extra proceeds from oil and gas sales to the Reserve Fund, one of the country’s two sovereign wealth funds, which is also used to help finance the budget deficit. The funds are managed by the central bank under guidelines set down by the Finance Ministry.

The ministry’s off-market conversion of ruble revenue into foreign currency, usually made once at the start of every year, may complicate efforts by the central bank to manage liquidity in the financial industry. The current system, under which the central bank buys rubles accumulated throughout the year by the Finance Ministry, has “two big minuses,” Moiseev said.

“First, it slightly raises the exchange rate,” he said. “Second, it leads to some unpredictability with the liquidity situation.”

The ruble is the fifth-best performer over the last three months among more than 20 emerging-market currencies tracked by Bloomberg, gaining about 5.5 percent against the dollar. Russia channeled 713.5 billion rubles ($23.7 billion) in last year’s energy revenue to the Reserve Fund, which had $86.2 billion as on Feb. 1.

‘Colossal Number’

“Talks are in the initial stage,” Moiseev said, adding that a “colossal number of technical questions” must be discussed. “It’s an unusual practice, and no decision has been made on the issue.”

The Finance Ministry’s budget department has argued that it’s difficult to predict how much currency must be bought on the market each month, and “there’s a risk of mistakes,” according to Moiseev. The ministry may model its practice after the central bank’s “planned” currency interventions, he said.

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