The Moscow Times
Thursday, September 3, 1998
By Sujata Rao, Staff Writer
Russia's Central Bank on Wednesday ordered six top commercial banks to surrender individual depositors' savings accounts to state-owned Sberbank, hours before setting an official exchange rate that admits that the ruble has devalued by 100 percent in just over two weeks.
The Central Bank-fixed ruble rate for Thursday was set at 12.8 rubles to the dollar -- more than twice the 6.2 it was trading at before the government announced its devaluation Aug. 17, and far in excess of the
9.5 rubles to the dollar that the Central Bank had projected as the outer limit through the end of 1998.
Analysts held out little hope for the ruble as long as political instability and the lack of a clear economic policy continue to undermine it, and they said it would probably continue to drop to 15 or even 20 against the dollar when trading reopens Thursday at the Moscow Interbank Currency Exchange.
The Central Bank froze MICEX trading Aug. 26 in an admission that it no longer had the hard currency reserves to defend the ruble.
But the ruble has continued to slide in other exchange venues, including on a suddenly revived street market, continuing a downward spiral begun when the government announced two weeks ago that it
would not pay its short-term creditors -- those holding T-bills and other short-term securities -- and would give up on a four-year policy of defending the ruble.
It was a major turnabout for the government that earlier this year was so confident in the ruble that it redenominated the bills to drop three zeroes added by the hyperinflation of the early 1990s. Russia's
banks were among those surprised and were caught heavily invested in T-bills. Unable to access those investments, the banks have been turning away even individual depositors, who have lined up outside the
branches across Moscow, St. Petersburg and other major cities to demand back their savings.
In response, the Central Bank first suggested, and on Wednesday ordered, troubled commercial banks to surrender individuals' savings accounts to Sberbank, which is state-owned and state-insured. The
Central Bank order named Bank Menatep, Inkombank, MOST-Bank, SBS-Agro, Mosbizness Bank and Promstroi Bank of Russia.
Those individuals who do not want their accounts transferred to Sberbank can opt to stay with their original bank, said Irina Yasina, a Central Bank spokeswoman, in remarks reported by Interfax.
Poul Larsen, head of research at Rye Man & Gor Securities, said that the transfer of accounts to Sberbank offered a welcome measure of security to depositors, but also set a bad longer-term precedent
for the Russian banking system.
"Sberbank already has 80 percent of the retail deposits in Russia while SBS-Agro and Inkombank between them have about 10 percent," Larsen said. "If a large chunk of that goes to Sberbank, that
leaves just one retail bank in Russia -- hardly a good thing in the longer term."
SBS-Agro, the country's largest private retail bank, had already been taken under Central Bank administration, and Central Bank chairman Dubinin said Wednesday the bank was in effect bankrupt.
Some analysts questioned how the Central Bank would be able to guarantee all of those individual deposits, the estimated value of which is $21 billion, when its own hard currency resources are a little more than $13 billion. They warned that the bank would be tempted to print rubles instead.
That specter prompted Boris Fyodorov, the acting deputy prime minister, to call Wednesday for establishing a currency board -- a system under which a harsh yet simple mathematical equation, and
not the Central Bank, determines how many rubles the state can put into circulation.
Printing lots of rubles would let the Central Bank make easy loans to Russia's commercial banks, and would also mean rubles to spare for the state to give to industry and to pay off millions of unpaid workers.
The political temptation to whir up the printing presses is thus obviously great, and even more so in a country where leading bankers are often described as an oligarchy with enough clout to lean on even
President Boris Yeltsin.
But printing more rubles also weakens the currency further and could kick off another round of raging inflation.
Financier George Soros first publicly suggested instituting a currency board in Russia last month, and his advocacy of such a punishingly tight policy was cited by some Russian media as one reason already shaky confidence in the ruble finally collapsed. But Fyodorov's statement Wednesday marked the first time a top-ranking government official had openly expressed approval of the measure.
Under a currency board, every ruble in circulation would have to be backed up by a certain amount of hard currency held in reserve at the Central Bank. The currency board approach was successfully adopted in Argentina in 1991 to battle the hyperinflation of the 1980s, and the Russian government has sought the advice of Domingo Cavallo, the former Argentinian finance minister who supervised the board.
"The Argentinian variant, with modifications, is the only radical way out of the crisis which has gripped the Russian economy," Fyodorov said at a news conference.
"Now the Central Bank must announce a floating exchange rate and allow it to slowly move to the actual level," he said. "The market must be freed if we are to understand what the actual exchange rate is."
Though Fyodorov estimated that $10 billion in Central Bank reserves would suffice to form a currency board here, other economists said at least $25 billion would be needed.
Equities markets remained mostly a sideshow Wednesday, as flat volumes and scanty trading prevailed. The Moscow Times Index of 50 leading shares crept up 0.33 percent to finish at 48.72, almost an 85
percent drop since the start of the year.
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