Russia halts dollar and euro trade on biggest bourse over US sanctions

New US sanctions against Russia have forced an immediate suspension of trading in dollars and euros on its leading financial marketplace, the Moscow Exchange (MOEX).

The exchange and the central bank rushed out statements on Wednesday — a public holiday in Russia — within an hour of Washington announcing a new round of sanctions aimed at cutting the flow of money and goods to sustain Russia’s war in Ukraine.

“Due to the introduction of restrictive measures by the US against the Moscow Exchange Group, exchange trading and settlements of deliverable instruments in US dollars and euros are suspended,” the central bank said.

The move means banks, companies and investors will no longer be able to trade either currency through a central exchange, which offers advantages in terms of liquidity, clearing and oversight.

Instead, they will have to trade over-the-counter (OTC), in which deals are conducted directly between two parties. The central bank said it would use OTC data to set official exchange rates.

Many Russians hold part of their savings in dollar or euro, mindful of periodic crises in recent decades when the rouble has crashed in value. The central bank reassured people that these deposits were secure.

“Companies and individuals can continue to buy and sell US dollars and euros through Russian banks. All funds in US dollars and euros in the accounts and deposits of citizens and companies remain safe,” it said.

One person at a large, nonsanctioned Russian commodities exporter said, “We don’t care, we have yuan. Getting dollars and euros in Russia is practically impossible.”

With Moscow pursuing closer trade and political ties with Beijing, China’s yuan has ousted the dollar to become MOEX’s most traded currency, accounting for 53.6% of all foreign currency traded in May.

Dollar-rouble trading volume on MOEX tends to be about 1-billion rouble ($11m) a day, according to LSEG data, while euro-rouble trading hovers at about 300-million rouble daily. For yuan-rouble trading, daily volumes now regularly top 8-billion rouble.

On the eve of the national holiday, the rouble closed at 89.10 to the dollar and at 95.62 against the euro. But after the sanctions news, some banks immediately jacked up their dollar rates.

Norvik Bank said it was offering to buy dollars for just 50 rouble but sell for 200 rouble, though it later adjusted the rates to 88.20/97.80. Tsifra Bank was buying dollars at 89 rouble and selling at 120.

Other major banks were quoting narrower spreads of 6-7 rouble between their buy and sell rates.

The US Treasury said it was “targeting the architecture of Russia’s financial system, which has been reoriented to facilitate investment into its defence industry and acquisition of goods needed to further its aggression against Ukraine”.

Russia’s central bank has been bracing for such sanctions for about two years. In July 2022, the bank said it was modelling various sanctions scenarios with forex market participants and infrastructure organisations.

“This is bad, but expected news,” Russian broker T-Investments said on Telegram.

Forbes Russia had reported in 2022 that the central bank was discussing a mechanism for managing the rouble-dollar exchange rate should exchange trading be halted in the event of sanctions against MOEX and its National Clearing Centre, which was also hit by the new sanctions.

MOEX said share trading and money market trades settled in dollar and euro would also cease.

The sanctions will hit the exchange’s profits by slashing trading volumes. In May, total volume on MOEX was 126.7-trillion rouble ($1.43-trillion), up more than a third on the same month of the previous year.

In 2023, MOEX recorded net profit of 60.8-billion rouble, a year-on-year increase of 67.5%.

Yevegeny Kogan, an investment banker and professor at Russia’s Higher School of Economics, urged people against panicking.

“You know, it’s genetic for us — if we’re scared, we run to buy currency. And it doesn’t matter whether it’s 100, 120 or 150. You mustn’t rush,” he warned people on Telegram, saying things could get very serious if people ignored that advice.

“Friends, it looks like tomorrow will be a very nervy day.”

Reuters