A New FX Regime for Russia? Central Bank Faces a Dilemma…

With Russian banks and corporations carrying an estimated $650 billion in foreign currency liabilities, of which more than $150 billion needs to be refinanced within the next 12 months, the central bank faces a dilemma. A sharp slide in the value of the rouble could leave debtors unable to repay foreign currency (mostly US dollar) denominated debt. However, a rapid depletion of central bank reserves in an effort to defend the rouble would carry its own risks, as Russia learned in 2009, when $200 billion worth of forex interventions led to the collapse of the money supply. With that possibility in mind, the chances that Russia might move from a managed to a free-floating currency regime by 2015, as had been proposed before the current crisis, are rapidly fading.