By all appearances, the lower house of the Russian parliament looks set to “banish” the dollar and euro from Russia. No, Russian lawmakers do not intend to ban the use of hard currencies in this country. Many Russians have shown more respect to the greenback than to the ruble since the start of the 1990s. Parliament aims at banning price identification in dollars, euros or “U.E” (Russian acronym stands for “conventional currency unit). Legislators also plan to ban the use of the words “dollar” and “euro” in the media and official speech. Fines would be charged to punish government officials for using the above foreign words.
Last week the Duma’s committee for the state building and constitutional lawmaking recommended that the lower house of the Russian parliament pass the bill in the first reading. The proposed law says that prices of all goods and services in Russia must be identified in rubles only. According to ITAR-TASS news agency, using terms referring to foreign currencies would be prohibited for describing costs of goods and transactions values, all-level budget indicators in the media, and on information websites. The bill bans the mentioning of costs of goods and public transactions values on the domestic market in dollars, euros and other foreign currencies by top bureaucrats including civil servants, members of the upper house of the Russian parliament and the Duma deputies. The use of “almost obscene words” would entail punishment by imposing fines. For example, prices identified in a foreign currency would result in payment of a fine amounting up to one thousand minimum monthly wages.
The idea of boosting confidence in the ruble by imposing a ban on foreign currency price tags on the domestic market is not a novelty. Back in 2003, the Duma deputies filed a similar request to the government but the latter gave them the cold shoulder. The law “On protection of consumers’ rights” banning the use of foreign currency price tags came into force last year. However, the above law proved fruitless. These days you can see prices of apartments, cars, household appliances and airplane tickets indicated in U.E. In short, you can come across U.E price tags on virtually any good save food items. At times those U.E. prices are pegged to a foreign currency exchange rate set at the discretion of a seller, a rather puzzling circumstance for the customer.
About a month ago Yevgeny Velikhov, chairman of the Public Chamber and president of the Kurchatov Institute, Russian research center, demanded the move in a letter to Boris Gryzlov, the Duma speaker. Velikhov called for imposing fines on bureaucrats who use the words “dollar” and “euro”. He also demanded banning symbols of the above currencies.
“The economic policy pursued by the government to strengthen the Russian ruble encourages increasing confidence in the ruble among the Russian citizens. Yet the ruble remains a currency unjustly undervalued due to unsubstantiated and negligent attitude toward it. The situation can not but have a negative impact on the international image of Russia … It is about time we started respecting our own currency these days when the ruble is already stronger than the dollar,” says Velikhov’s letter.
President Putin’s annual state-of-the-nation address undoubtedly helped to speed up the proposed law. Putin’s address had specifically set a task ofmakingthe rublefully convertible. The backers of the bill especially enjoyed a line in the president’s address, which stated that “a real convertibility of the ruble largely depends on its attractiveness as a means used in transactions and savings.” But the backers apparently failed to get the full message. President Putin primarily referred to the ruble’s attractiveness to foreign financial markets. The proposed law is unlikely to do the trick and resolve the problem of the ruble’s convertibility.
On the other hand, the move will certainly create numerous new problems including the psychological ones for millions of Russians who will have to make necessary adjustments due to dramatic changes affecting the dollar as a major goods and services assessment criterion used by millions of Russians. One can find some comfort in the fact that not all Russians developed “dependence” on the conventional currency unit. An opinion poll conducted in April by the Levada Center shows that nearly half the Russians never saw price tags identified in U.E.
The problem is mostly relevant to Moscow and some other big cities with a high percentage of employees paid either ruble salaries (pegged to the dollar) or in dollars. Residents of megalopolises will have to endure a sort of “shock therapy” when the dollar is banished from the usual environment.
Meanwhile, the government might as well opt for a milder method of entering the “ruble zone.” Recently Russian Finance Minister said that the full convertibility of the ruble would become a reality after Russia ’s annual inflation rates dropped to 2-3%. In other words, the government believes it may happen in several years at the earliest. Would it be more logical to take certain economic steps aimed at boosting the position of the ruble at the international financial scene? The government should also bear in mind that the banning may bring about results that would be in complete contradiction to the original plan. “The prohibitive measures can only result in an opposite reaction,” says Valery Fedorov, director general of the VTSIOM, a state-controlled opinion poll agency.
Russian lawmakers should enact a law on compulsory ruble identification of all prices in the sphere of commerce and services. It would be the only rational decision that was asking to be made for quite awhile, and the decision has to be made regardless of any issues relating to the ruble convertibility. Apart from the suggested measure, there are a number of economic steps, which experts believe could make the rubles more attractive. For example, certain steps could encourage Russian companies take ruble loans from the national banks as opposed to dollar or euro loans taken from the foreign banks. Alternatively, the Duma may push for a law regarding the use of the ruble for trading in goods and services at the Russian stock exchanges.
Senior Vice President of Rosbank Mikhail Ershov cites the case of Japan, which applied two kinds of settlement norms for the purpose of achieving the yen convertibility. Japan’s central bank used soft terms for settlements in national currency along with less favorable terms for making settlements in foreign currency. At the end of the day, dollar and euro price tags will be shredded only if economic measures start to produce a result.
Translated by Guerman Grachev
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