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Dollar Slide Leads To Currency Conundrum

Published: May 12, 2006 (Issue # 1168)


MOSCOW The Central Bank has a money problem most people would die for: too many dollars.

Its sort of caught between a rock and a hard place, said Peter Westin, chief economist at MDM Bank, referring to the delicate balance Russia faces in investing what this last week became the worlds fourth-largest foreign currency reserves.

Finance Minister Alexei Kudrin said Wednesday that he expected large trading partners such as China and India to include rubles in their own foreign currency reserves, but the more pressing problem for the Finance Ministry is what to do with its own $226 billion in international reserves, most of which is in dollars and euros.

In the last month, the dollar has dropped 2.5 percent against the ruble, and since December the greenback has slid almost 7 percent, representing a drop of several billion dollars in the value of the Russian foreign currency reserves, in ruble terms.

The dollar problem heated up when Swedens central bank announced last month that it would decrease its dollar holdings from 37 percent to 20 percent. The same day as the Swedish announcement, Kudrin told a New York meeting of the International Monetary Fund that the dollar was losing its position as the worlds stable reserve currency, and the greenback immediately weakened in response.

In recent months, the Central Bank has been making available less information about how much of the foreign reserves are in dollars and euros.

Markets become more sensitive when there is a lack of information, said Yevgeny Gavrilenkov, chief economist at Troika Dialog. Eventually everything that they attempt to hide will be known. If there is an unexpected change, the market could be surprised.

In the past, the Central Bank has said it would decrease the dollar ratio of foreign currency reserves to $60 for every 40 euros (from $65 for every 35 euros previously), but there have not been any more announcements along these lines in more than a year, Gavrilenkov said.

Kudrins attack on the dollar in New York was probably politically motivated, Gavrilenkov said, adding that it was a mistake because it had the effect of reducing the value of Russias dollar reserves.

Some experts say the foreign reserve, which has doubled to $226 billion since November 2004, is simply too large: Some of the money could be invested more profitably, or it could be spent on government programs such as education. Russia and other emerging economies are not getting the best deal on investments in their huge currency reserves, and they may be putting too much in the bank, Lawrence Summers, former U.S. Treasury Secretary, said in a March speech at the Reserve Bank of India.

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ALL ABOUT TOWN

Friday, Oct. 31


Put your grammar and logical thinking to the test in a fun and friendly environment during the British Book Centers Board Game Evening starting at 5 p.m. today. The event is free and all are welcome to attend.



Saturday, Nov. 1


The men and women who dedicate their lives to fitness get their chance to compete for the title of best body in Russia at todays Grand Prix Fitness House PRO, the nations premier bodybuilding competition. Not only will men and women be competing for thousands of dollars in prizes and a trip to represent their nation at Mr. Olympia but sporting goods and nutritional supplements will also be available for sale. Learn more about the culture of the Indian subcontinent during Diwali, the annual festival of lights that will be celebrated in St. Petersburg this weekend at the Culture Palace on Tambovskaya Ul. For 100 rubles ($2.40), festival-goers listen to Indian music, try on traditional Indian outfits and sample dishes highlighting the culinary diversity of the billion-plus people in the South Asian superpower.



Sunday, Nov. 2


Check out the latest video and interactive games at the Gaming Festival at the Mayakovsky Library ending today. Meet with the developers of the popular and learn more about their work, or learn how to play one of their creations with the opportunity to ask the creators themselves about the exact rules.



Monday, Nov. 3


Non-athletes can get feed their need for competition without breaking a sweat at the Rock-Paper-Scissors tournament this evening at the Cube Bar at Lomonosova 1. Referees will judge the validity of each matchup award points to winners while the citys elite fight for the chance to be called the best of the best. Those hoping to play must arrange a team beforehand and pay 200 rubles ($4.80) to enter.



Tuesday, Nov. 4


Attend the premiere of Canadian director Xavier Dolans latest film Mommy at the Avrora theater this evening. The fifth picture from the 25-year-old, it is the story of an unruly teenager but the most alluring (or unappealing) aspect is the way the film was shot: in a 1:1 format that is more reminiscent of Instagram videos than cinematic art. Tickets cost 400 rubles ($9.60) and snacks and drinks will be available.



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