Former Russian Minister of Finance, former head of the “Otkritie” group and “VTB 24” bank, economist Mikhail Zadornov, identified “stuck rupees” as an unexpected reason for the weakening of the ruble.
If the Russian government wants to increase the value of the Russian currency, he suggested that it should address the problem of unrecovered earnings from exports to India.
The economist said that Russia exported oil and petroleum products to India worth $30 billion in the first half of the year, while Russian imports from India are estimated at around $6-7 billion annually.
“We have nothing to buy in India, but we cannot retrieve these rupees because the rupee is a non-convertible currency. $30 billion in six months is more than the entire positive balance of the current account,” Zadornov stated in his article published on Tuesday, August 29, in RBK.
Zadornov referred to the issue of rupees being held in India as challenging and stated that the Russian government and the Central Bank should solve the problem. He maintains that the failure to repatriate earnings from exports to India over the summer months directly contributed to the value decline of the currency during that period.
The expert noted that in the context of a weak ruble, “it is necessary to accept the need for government intervention in the foreign exchange market.”
According to Zadornov, taking control of the sales of foreign currency by exporters and finding a solution to the problem with the rupee may potentially bring the exchange rate back to about 85 rubles per dollar. This is provided that the prices of commodities do not continue to fall.
Elvira Nabiullina, the head of the Central Bank, gave a speech in June about the challenges of settling transactions in national currencies. She acknowledged the challenges of settling transactions in rupees but emphasised that the magnitude of this difficulty is not growing and that a trade imbalance is the root cause of the issue.
On August 25, during the trading session on the Moscow Exchange, the value of one dollar touched 95 rubles for the second time in a week. This was the highest level the dollar had achieved in the previous week.