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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

Thursday, July 31


Develop your leadership abilities during a lecture by famous Russian author and coach Radislav Gandapas. The event starts at 9 a.m. at 5 Lodeinopolskaya Ulitsa. The price for entry is 20,500 rubles ($570).


Relax and enjoy a Parisian atmosphere with some romantic and laidback jazz tunes during the Night of French Music at Lenny Jam Cafe, 63 Ligovsky Prospekt. The entrance fee is 250 rubles ($7).


The Womens Business Club is hosting a Beauty Brunch where participants are invited to discuss the latest news in the beauty industry and listen to lectures by professional stylists in the business.



Friday, Aug. 1


Bikers from all around the world will gather to take part in a parade, extreme shows and rock concerts during the International Biker Festival that revs its engines today and runs through Aug. 3 near Olgino Hotel, 4/2 Primorskogo Shosse.


The Peter and Paul Fortress will be turned into an open-air cinema today and tomorrow as part of the 5th International Short and Animation Film Festival. A huge screen across the fortress walls will air short films non-stop with board games, photo sessions and other activities also on offer for visitors. For more information, visit www.opencinemafest.ru



Saturday, Aug. 2


Gatchina Palace Park Museum will host its second annual Night of Light, an impressive audio-visual show across the night sky. Tickets are 600 rubles ($16).


If graphic design is more your thing then check out Illustration Day, where you will be able to visit an exhibition, attend lectures by professionals and even show experts some of your own work. The event starts at noon at Zona Deystvia, 73 Ligovsky Prospekt. The entrance fee is 350 rubles ($10).



Sunday, Aug. 3


History lovers shouldnt miss the chance to see reenactments of World War I battles in Pushkin at noon. Besides exciting war scenes, visitors can enjoy live music, historical costumes, an equestrian show and a fancy-dress parade starting from the Moscow gates.


Garage Sale, the popular and growing flea market where nothing is priced over 500 rubles ($14.11), starts today at noon in Loft-Project Etagi, 74 Ligovsky Prospekt. Be sure to get in early to score a bargain. Entry costs 50 rubles ($1.40)



Monday, Aug. 4


Continue the working week with a calm and steady mind with a free yoga lesson at 7 p.m. in the Bukvoyed store at 23A Vladimirsky Prospekt.



Tuesday, Aug. 5


Visit The Romanov Dynasty doll exhibition today, where more than fifty porcelain dolls depicting Russian rulers, and made by Olina Ventzel, will be on show. The exhibition continues through Aug. 31 in Sheremetyev Palace, 34 Fontanka Naberezhnaya.



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