Robbing Foreigners by Manipulating Ruble Exchange Rate
Washington Post
Wednesday, September 16, 1998; Page A36
The latest lurch in international financial markets occurred yesterday in Moscow, where the value of Russia's battered ruble climbed just long enough to avert the loss of hundreds of millions of dollars by Russian banks and firms with obligations on maturing currency contracts. The value of the ruble then abruptly plunged by about 40 percent.
International bankers and economists say the ruble roller coaster ride was caused by manipulation of the Moscow currency market by Russian institutions eager to rescue domestic banks and businesses that essentially had made a wrong bet on the stability of the ruble several weeks ago.
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Few swings have been more violent than the one the ruble took yesterday, when the exchange rate was particularly important because of agreements -- known as dollar-forward contracts -- that many Russian banks had made with clients before the government devalued the ruble on Aug. 17. At the time, the banks had contracted to purchase from foreign firms large amounts of ruble-denominated Russian government bonds; payment was to be made in U.S. dollars on Sept. 15.
Back then, the exchange rate was 6.2 rubles to the dollar, but following devaluation and ruble's subsequent collapse, making good on those contracts became much more expensive for the Russian banks and threatened the solvency of a number of them, Western bankers said. Most of the country's major banks are already on the edge of bankruptcy because the government has frozen payments on short-term bonds that the banks had held as reserves.
According to United Financial Group, an investment house in Moscow, between $1 billion and $1.5 billion in dollar-forward contracts came due yesterday. If honored at a rate of, say, 7.5 rubles to the dollar, the Russian banks would lose $200 million, but at a rate of 12.5 rubles to the dollar, the losses would reach $480 million. At one point, the ruble strengthened to 7.3 to the dollar -- its strongest level since mid-August -- but by late in the day it had fallen back to more than 12 to the dollar.
International bankers and economists say they believe the Russian Central Bank or some other influential institution, such as Gazprom, the Russian natural gas monopoly, intervened in the Moscow currency market to minimize the banks' losses, but the Central Bank denied any role in the ruble's brief strengthening. The daily ruble-dollar exchange rate is set in Moscow on an electronic trading system and in Chicago at the Mercantile Exchange. Because of the small volume on the Moscow exchange, however, propping up the currency for a short period would not have been especially costly, economists said. |
