Vladimir Shlyomin

T

o make the Russian ruble a freely convertible currency: this is the task set for the Russian Government and Central Bank by President Vladimir Putin in his message to the Federal Assembly.
Sergei Ignatiev, the Chairman of the Central Bank, immediately responded to the President’s call by promising to secure the full convertibility of the ruble in several years. In his opinion, to this end it would be sufficient to cancel existing restrictions on the currency’s floating as was planned for 2007. In principle, the Ministry of Finance agrees on that with the Chairman of the Central Bank. Reminding that the ruble was already being converted in the domestic market as well as in current transactions, Alexey Ulyukaev, the first deputy minister, referred to the new version of the Law on currency regulation and currency control, which is now being considered by the State Duma. Precisely this version of the Law provides for the emergence of the freely convertible ruble in 2007.
Currencies are considered convertible in those countries, which cancelled currency restrictions for at least current transactions. There are more than 60 such currencies in the world now. But less than 20 countries fully convert their currencies, including freedom of financial transactions. Russia also intends to join this prestigious club and tries to ensure the acceptance of the ruble everywhere in payments at current market rate.
As far as the world’s financial markets are concerned, a currency should be attractive as any other commodity. What does the attractiveness of this or that national currency mean? It means that it is able to ensure its owner an advantage as compared with other market players, who do not have this currency. As the world experience shows, to a considerable extent a stable demand for banknotes is formed by exporters. Acting either directly or through a bank buyers should acquire the national currency of the exporting country, which produces required products or services.
In the opinion of some financial experts, it is not that difficult to "technically" make the ruble convertible. There is one particular commodity on the list of the Russian export shipments to the European Union, which, except Russia, no country cannot offer in needed quantity. And that is natural gas.
"If all payments for gas are transferred into rubles, then, our currency will enter the European market and will be trading like any others. After 2007, when all restrictions on capital transactions in Russia are lifted and the ruble, at least legally, becomes freely convertible, such an operation will become possible", thinks Alexander Shokhin, the well-known economist and the former vice prime minister. He believes that such a move is only possible with respect to gas sales but not oil, although oil accounts for an enormous share of Russian export shipments. As Shokhin says, "oil is a stock exchange commodity and, traditionally, prices for it are established in the U.S. dollars. Even the euro can hardly make its way through to this market".
If Russia’s natural gas is indeed to be sold for rubles, then, the Russian national currency will get a good backing. But it will hardly be enough for joining such hard currencies, as dollars, yens or euros.
"In order to achieve a complete (external) convertibility of the ruble it is not sufficient to cancel administrative restrictions on the currency turnover", believes Igor Dines from the State Duma’s Committee on budget and taxes. As he sees it, "it is necessary that the ruble becomes recognized a valuable currency for international payments by other countries, above all, by the leading economic powers". In his opinion, for this purpose it is necessary to strenuously promote the development of those industries, which are characterized by high added value: automotive, aircraft, precision engineering, instrument-making.
There is an interesting historic parallel.. A century ago the imperial ruble was freely exchanged for gold and, following the British pound, was considered the second most reliable currency of the world. The foundation of the Russian export shipment consisted of the agricultural sector’s products, such as cotton, oil, honey, wax and, above all, grain. The whole of Europe was buying the Russian bread and was paying for it in rubles. However, in 1909 the European market was taken over by the Canadian wheat, which was cheaper than the Russian one. Positions of the Russian ruble were shaken.
Some financial experts believe that transferring to a freely convertible currency may give a strong impetus to the growth of investments in the country’s economy. At the same time China with its inconvertible yuan is attracting no less investments than countries, which have been converting their currencies for decades. Besides advantages of this or that currency, investors’ behavior is influenced by the whole number of no less significant factors: the level of internal political stability, dynamics of the domestic market growth, cost of basic resources, including the labor force, tax privileges, extent of bureaucratization and corruptness of the economy, etc.
The President’s message did not mention the specific date of achieving the full convertibility. But it is not difficult to figure it out, if one is take into account that for President Putin himself it is, above all, a political task. In 2006 Russia will be chairing G-7 (G-8) and it is quite possible that the country will become a full-fledged member of the club of the world’s most influential states. And such a status is full of many obligations, including the need for a strong currency and economic system. As President Putin stressed, "By becoming a full-fledged member of the world’s eight most developed countries Russia is, of course, obliged to accomplish this task".