Publication: Monitor Volume: 4 Issue: 161

Boris Fedorov, acting prime minister in charge of economic policy, said yesterday that he favors Russia’s adoption of a currency board modeled, “with certain modifications,” on that implemented in Argentina. (Financial Times, September 3) There, the introduction of a currency board enabled the country to bring inflation down from an annual rate of over 1,000 percent in 1991 to less than 2 percent today. A currency board requires the central bank to hold reserves sufficient to match the domestic money supply at a sustainable conversion rate. One problem about the application of such a mechanism in Russia is that in Russia, the required reserves would be likely to be so high as to necessitate further international borrowing, something that Russia is at present in no position to do.

The battle to support the ruble has eaten up the first tranche of the IMF’s emergency loan. Earlier this week, the IMF indicated that it may delay disbursement of the next tranche, originally expected in mid-September, until October or even later. (Financial Times, September 3) Meanwhile, the ruble has continued to plunge. On September 1, the Central Bank gave up the battle to maintain the ruble at its official upper limit of 9.5 rubles to the dollar. The ruble fell in Moscow yesterday to 12.18 to the dollar–down from 6.04 since the beginning of this year. In other Russian cities, the dollar was fetching up to 15 rubles. The Central Bank revealed that it had spent over US$9 billion from its currency reserves in July and August in order to keep the ruble within the official limit. It could no longer, it said, afford to support the ruble at this rate. (Financial Times, September 3)