Russia’s largest stock exchange has stopped trading in U.S. dollars and euros. What does this mean for the ruble?

On June 12, the U.S. Treasury Department expanded sanctions against Russia, adding dozens of individuals and hundreds of legal entities to the SDN list. Among them were Russia’s largest stock exchange, the Moscow Exchange (MOEX), and its subsidiary, the National Clearing Center, which serves as an intermediary in currency transactions on the Russian foreign exchange market.

The U.S. Treasury noted that Vladimir Putin “has approved a series of measures to further attract capital through MOEX from both Russian and non-Russian persons from ‘friendly countries’— expanding opportunities for both Russians and non-Russians to profit from the Kremlin’s war machine by making investments in Russian sovereign debt, Russian corporations, and leading Russian defense entities.”

In response, the Moscow Exchange announced that it would halt trading in the U.S. dollar and the euro as of June 13. However, trading in all other markets and in rubles and other currencies will continue as usual, according to a statement from Russia’s Central Bank.

No, the situation isn’t that extreme. The Central Bank clarified that “companies and private citizens can continue to buy and sell dollars and euros through Russian banks.” Additionally, the bank stated that all funds in dollars and euros “in the accounts and deposits of citizens and companies remain safe.”

Economist Grigory Bazhenov told the Telegram channel Ostorozhno Media that people “will still be able to exchange currency (yes, within the limits set by the Central Bank), but either at exchange offices, banks, or on other electronic platforms.” He added that the measure “mainly targets companies involved in trade sectors” and is “unlikely to significantly impact individuals who have never traded on the exchange.”

Nevertheless, the sanctions against the Moscow Exchange and the National Clearing Center mean that the process for trading dollars and euros in Russia will now be different.

Banks and other traders would submit various types of orders to the exchange to buy or sell currency. Transactions were settled at the close of the trading session, at 7:20 p.m. Moscow time. To facilitate these settlements, the National Clearing Center had correspondent accounts for each currency in foreign banks. Currency sellers and buyers made deals through the Clearing Center as an intermediary, rather than directly with each other.

For the Central Bank, currency trading on the Moscow Exchange served as an indicator for determining the official exchange rate of the dollar and euro against the ruble (based on the weighted average rate, which includes the minimum and maximum values during the trading session, among other criteria). This was done at 3:30 p.m. Moscow time.

The National Clearing Center can no longer act as an intermediary in exchange transactions involving dollars and euros because the new sanctions prohibit U.S. and European organizations from having any dealings with it. Since it’s no longer possible to trade dollars and euros on the Moscow Exchange, the trading will now be over-the-counter.

This means that Russian banks and companies will only be able to buy and sell dollars and euros directly through Russian banks that still have open correspondent accounts in the U.S. and the E.U. (Russia still has banks like this.)

At least for the next few weeks or even months — or until the Russian authorities manage to establish a new platform for currency trading based on one of the Russian exchanges, a finance professional who used to work in Russia told Meduza. According to him, the difference, or “spread,” between the buying and selling rates will inevitably increase — and on June 13, the spread for the dollar rate at exchange offices had indeed increased by several rubles.

However, some analysts view this as a positive factor for the ruble. The increased spread “disincentivizes speculative actions,” explained Sofia Donets, the chief economist at Tinkoff investments. “[So], there’s nothing that definitively suggests the ruble will weaken.”

Alexander Isakov, an economist with Bloomberg Economics believes it’s unlikely these sanctions will cause the exchange rate to weaken by more than 10 percent for a prolonged period. “The Russian Central Bank and the Finance Ministry will strive to mitigate the shock by raising interest rates and boosting currency supply,” he said.

However, some Russian banks immediately raised the rate at which they sell cash dollars, with prices in some places reaching up to 200 rubles per dollar, as noted by the Telegram channel You’re an Investor! These high rates are “prohibitive” ones set by banks that don’t want to sell the currency they have. However, on June 12, as of 8:00 p.m. Moscow time, the dollar was trading in a “reasonable” range of 90–95 rubles in the apps of major banks, reported RBC.

Corporate clients may face even more problems, said the Russian finance professional. Previously, they could buy or sell what they needed on the open market, where everything was safe and transparent. Now, the bank will set the price at its discretion, the cost of exchange will likely increase, and verifying whether it matches market conditions will be very difficult. “We’re returning to the ‘wild nineties,’” he told Meduza.

Sanctions might also cause increased volatility — meaning significant exchange rate fluctuations in the coming days, explained two Russian economists. “Volatility will be wild on Thursday and Friday, but then the shock will subside, and the rates will stabilize somehow,” noted one. (Neither economist was willing to predict exactly how they’ll “stabilize.”)

Yes. Starting June 13, the Central Bank will set the U.S. dollar and the euro exchange rates against the ruble based on bank reports of transactions in the over-the-counter currency market as of 3:30 p.m. Moscow time on the current business day. According to the Central Bank, the ruble’s official exchange rate will continue to be unified and market-based, with the only change being in the data used for its calculation.

Back in October 2022, the regulator also mentioned that if both bank reports and digital platform data were unavailable, the official exchange rates for the dollar, euro, and yuan against the ruble would be set equal to the previous day’s value.

“We have a fairly large volume of over-the-counter trades with many participants,” Central Bank Head Elvira Nabiullina said in December 2023. “The main concern is getting information on these trades, so we’ll use various sources. But I don’t think this alone can seriously affect the exchange rate.” By May 2024, the share of the over-the-counter market in the total trading volume had already reached 58.1 percent.

Yes, but it likely won’t be without hurdles. Dollars and euros primarily enter Russia as payment for exports. These funds are deposited into the accounts of exporters in Russian banks that still maintain correspondent relationships with European or U.S. banks. In theory, the latest U.S. sanctions don’t change this: currency from export contracts will continue to flow into Russia and will still be used to pay for imports through banks capable of conducting such transactions, said the Russian finance professional. “This means that the number of [currency] buyers and sellers in the Russian market remains the same,” he explained.

However, Alexander Kolyandr, a non-resident senior fellow at the Center for European Policy Analysis (CEPA), told The Bell that “sanctions will complicate life for exporters, who will find it harder to sell currency, and for importers, who will face higher costs when buying it.”

This, it seems, is the main purpose behind the U.S. Treasury’s sanctions — to reduce export revenues and complicate imports. For citizens, this will mean more expensive imports, a wider gap between the exchange rates for buying and selling foreign currency, and additional costs for taking funds out of Russia and storing dollars and euros in accounts. Exchange rate volatility will also increase.

Economist Grigory Bazhenov told the Telegram channel Ostorozhno Media that “it will become more difficult and expensive to withdraw and export dollars and euros from the country.” He thinks this could further “lock Russian capital inside the country.” “This actually works in favor of stabilizing the Russian economy. If it weren’t for the sanctions on Russian capital, we’d have seen a significant flight of capital from the country. It would only have been partially possible to stop it. […] Now, even more so, capital will be locked in and reinvested within our economy.”

Some analysts don’t rule out this possibility, but it’s impossible to predict with certainty. The Russian authorities could organize currency trading on alternative platforms, but these options would come with their own risks. “There would be questions about the transparency of transactions and the potential for rate manipulation, so it’s possible that several exchange rates for the dollar and euro could emerge: the official rate, individual bank rates, and the black market rate,” commented Alexander Potavin, an analyst at the Finam financial group.

The yuan was already the dominant currency on the Russian foreign exchange market, even before the current sanctions were introduced. For instance, the share of the Chinese currency in exchange trading in May reached a record 53.6 percent, and almost 40 percent in the over-the-counter market, according to the Central Bank. For comparison, the equivalent figure for the euro is currently about 10 percent. The yuan’s share in Russia’s foreign trade payments is also approaching 40 percent.

However, there have been increasing problems with transactions in the Chinese currency as of late: Chinese banks, fearing secondary U.S. sanctions, are refusing transactions with Russian counterparts or significantly delaying them. These difficulties in settling transactions with China are likely one of the reasons why Russia’s imports have been declining since the beginning of 2024.

Margarita Lyutova