Further Liberalization of Currency Regulation is Required

In the past few decades, the world has been moving towards greater freedom of capital movement. After the global financial crisis, the IMF revised somewhat that approach approving introduction of currency limitations during the crisis period when countries encountered a dramatic capital outflow. However, the IMF believes that such limitations should be temporary.

Russia still has serious currency operation restrictions in force, including the foreign currency proceeds repatriation requirement to legal entities and the exhaustive list of permitted operations with foreign accounts for the country’s foreign currency residents. It is to be noted that developed counties and a large number of the leading developing countries do not use such foreign currency restrictions.

After the switchover of the RF Central Bank to the floating exchange rate, those restrictions have no longer any point in macroeconomic terms in Russia, too. If one remembers the history of the Russian economic crises in 2008–2009 and 2014 when the country faced a dramatic capital flight and depreciation of the rouble, the Russian authorities refrained from introducing foreign currency restrictions and won the investors’ confidence. During the 1998 crisis, Russia had a tougher foreign currency regulation in force, but it failed to prevent a large-scale capital outflow.

The existing foreign currency overregulation creates considerable costs for the business, thus reducing its competitiveness and impeding normal economic activities. It is feasible to achieve other foreign currency regulation goals, including control over foreign currency proceeds and prevention of money laundering by means of alternative instruments, in particularly, through the international cooperation and automatic exchange of tax information.

Pavel Trunin, PhD, Head of the Center for Macroeconomics and Finances