The Bank of Russia has announced new measures to squeeze the currencies of "unfriendly" countries out of the Russian banking system. The regulator continues to insist that any transactions with the dollar, euro and pound carry increased risks, and intends to reduce their share in the Russian financial system to a minimum. This is stated in the report of the Central Bank on the development of the financial market under sanctions.
The Central Bank insists that citizens' foreign exchange assets and the use of foreign currency by businesses and banks pose risks to the stability of the country's financial system, as they can be blocked at any time. As examples, the regulator notes that even banks that have not been sanctioned are experiencing difficulties – their partners abroad close foreign currency correspondent accounts, refuse to open new ones and conduct operations.
The Central Bank recommends that businesses and citizens refuse to use the currencies of "unfriendly countries" and convert them into yuan, or set up work with partners in the currencies of other countries, the risks for which are much lower. Already blocked assets, the regulator intends to try to unblock and return, but the option of repurchasing assets is not considered, as this threatens with excessive money emission.
“In order to reduce currency risk, banks should gradually phase out the use of “toxic” currencies evenly on both sides of their balance sheets (in different currencies). Regulatory measures that discourage the use of currencies of unfriendly countries can also be applied to non-banking financial institutions,” the report says.
For the banking sector, the regulator will raise capital adequacy requirements, which will make foreign exchange instruments less profitable for banks: the Central Bank intends to tighten the system of premiums to risk ratios for foreign currency loans and securities. It is also possible to revise the required reserve ratios in the event that "toxic" currencies remain in the financial structure of organizations.
Special attention in the report is paid to increasing trade in national currencies, which should help reduce currency risks. To do this, the regulator intends to contribute to the creation of mechanisms for trading national currencies on the foreign exchange market to support liquidity.
“It is necessary to create conditions for the transition to the use of national currencies, including the Russian ruble, in cross-border settlements, which will significantly reduce the risks caused by the actions of unfriendly states – settlement risks and asset blocking risks associated with the use of payment channels in US dollars and euros through correspondent accounts in these countries,” the report says.
Since the beginning of the summer, the Bank of Russia has been systematically pursuing a policy of squeezing the currencies of “unfriendly countries” out of the Russian financial system. After the freezing of Russian assets in the National Settlement Depository (NSD), the Central Bank began to assess the risks of imposing sanctions against the National Clearing Center (NCC), through which all the country's currency transactions pass. Sanctions against the NCC may lead to the freezing of all foreign exchange assets, it was against the background of this risk that the Central Bank held meetings with representatives of banks and brokers. Since the beginning of June, banks and brokers have systematically tightened requirements for foreign currency assets of clients, as well as worsened account conditions in order to reduce foreign currency liquidity.