The Russian currency is becoming more attractive to foreign investors

The ruble is entering the arena of international trade. Europe’s leading clearing system, Euroclear, has begun settling inter-bank accounts in Russian rubles. And the world’s largest London brokerage, ICAP, has started trading rubles on its electronic trading platform, EBS. According to expert opinion, this speaks to the fact that the currency liberalization in Russia has achieved de facto international recognition.

It’s worth noting that these events took place immediately following the Group of Eight’s financial section meeting in Essen. Russia is aiming to become a full member of the G-8. For the time being, Russia is merely an observer of the "financial seven."

ICAP has begun operations to exchange rubles and dollars, and will soon provide exchange services for Russian rubles and all currencies in the G-7. Based on the fact that there are nearly 2,000 players on the EBS electronic platform, and that the daily volume of currency trade can reach 145 billion United States dollars, experts suggest that, in the near future, the Moscow Interbank Currency Exchange (MICEX), which currently has a monopoly on ruble trading, is going to feel the squeeze.

In addition, following the ruble’s liberalization in July of last year, international demand for Russian currency increased sharply, and several European banks began issuing ruble-denominated bonds. However, because of the launch of ruble trading by the London brokerage, this demand could be satisfied more easily. At the moment the daily trading on the new platform is numbering in the millions of dollars but, according to analysts’ estimates, in the coming months EBS could reach an average daily ruble-to-dollar trading volume of up to $5 billion, thereby surpassing MICEX, with its $3.8 billion volume.

However, as MICEX director Sergei Savitsky explains, "EBS and MICEX do not provide identical services for market players: Their product consists solely of revealing the best price and offering players the chance to make a deal. We, in addition to this, provide realization of accounts between players. This means that we can eliminate practically all risks of non-delivery and non-payment. In addition, traders on the MICEX, by law, can only be resident banks with a license from the Central Bank. On the EBS, most of the trading will be from foreign participants. Therefore, we have different clients. Also, the set of foreign ‘daughters’ who work on our market have limits to working on the electronic EBS system. They are already trading there, but it’s unlikely that they will switch over completely because trading on the EBS is limited. Additionally, in recent years we have developed quite a liquid market, which has the smallest straddle, and on which one can realize large deals in rubles/dollars."

At the same time, according to expert opinion, Euroclear will be rather attractive for Russians in terms of the quality and spectrum of its available services: According to its chairman, they execute accounts in more than 30 currencies. Russian issuers releasing ruble Eurobonds through Euroclear have the chance to substantially expand their group of potential clients. In addition, one month ago Euroclear’s main competitor, CEDEL, announced similar services.

Of course, foreigners’ demand to conclude deals in rubles points to the development of the Russian market, but some experts continue to maintain that the ruble liberalization was premature. As far as they’re concerned, the financial crisis in recent years has demonstrated that the liberalization of currency regulations that allows for the quick "pouring off" of large amounts of capital out of the country can easily undermine the country’s economic stability. Therefore, even countries with powerful financial-economic systems, like the U.S. and Japan, were forced to preserve elements of currency regulations to support the stability of their financial markets. True liberalization began in the late 1980s (in the U.S.), and early 1990s (in Japan), when they occupied solid positions in the global economy.

By Oleg Gladunov