Moscow Stock Exchange suspends trading in rubles and dollars - economists on the consequences for Russia

The Moscow Stock Exchange has announced that it will stop trading in dollars and euros after the US Treasury put it on the sanctions list on Wednesday. It will be possible to sell foreign currency in Russian banks as before, the Central Bank assures, but economists interviewed by the BBC's Russian service explain that it is not that simple.

The Moscow Exchange is an important part of Russia's financial infrastructure. It is where banks, businesses and investors buy and sell currency – dollars, euros and yuan. The Russian Central Bank used to set the ruble exchange rate depending on the course of trading in the morning.

The new sanctions have effectively broken this system. The Central Bank will now calculate the exchange rate based on the data from financial statements and OTC funds, which will make the exchange rate formation non-transparent.

"The main consequence will be a structural increase in the volatility of the ruble exchange rate," Alexander Isakov, chief economist for Russia and Central and Eastern Europe at Bloomberg Economics, told the BBC.

"Volatility means that the ruble's fluctuations will be much stronger. After the start of Russia's war against Ukraine, many foreign investors left the Russian market, there was less money on the market, and because of this, the ruble's fluctuations became much stronger. Now the ruble will become even less stable.

Financier Sergey Romanchuk writes about the growth of spreads. This means that the difference between the selling and buying rates will be higher, and banks can make good money on this. He also expects the volume of currency trading to shrink even further.

"For the market as a whole, these sanctions are not a very big deal, for an ordinary Russian it is even a small event. But for the Moscow Exchange itself, it is a significant event," the expert believes.

The Central Bank assured that nothing will change for the public: they will still be able to buy and sell foreign currency, and their bank accounts will remain intact. Banks also said that nothing would change.

However, the main consequence is that the Russian financial system has lost a convenient and safe currency exchange tool. And this has wider implications for the economy, which has been sinking ever since the war began.

Alexander Isakov believes that a currency shortage is unlikely to occur. "Most likely, the main effect will not be a shortage of currency, but rather an increase in transaction costs for exporters and importers – the cost of currency exchange, transfers, and so on," he said. In the long run, he believes this will lead to capital outflows and a weaker ruble.

That is, companies and investors will be able to buy and sell currency, but no longer on the Moscow Exchange, which was a convenient and safe tool for such transactions.

Background. As it became known today, the United States – unexpectedly for Russia – imposed sanctions against 300 companies and individuals from Russia and other countries at once. Experts call it "a really strong blow to Russia's financial system".