It is Impossible to Guarantee that the Freedom of Tran-Border Movement of Capital is Preserved

The Central Bank of Russia has rejected the information on limitation of capital movement. However, the Russian public is traditionally quite skeptical about such statements made by the authorities. In addition to the above, in the current complicated economic situation the issue of independence of the Central Bank of Russia is being discussed.

In our view, introduction of any restrictions on capital movement or return to norms of mandatory sale of foreign currency proceeds would be useless now in economic terms and definitely cause damage to the image of Russia in the world. In the 2000s, liberalization of foreign currency relations was justly regarded as an achievement of the economic policy.


In combination with the expected preservation of the surplus of the balance of payments, both the absence of interventions by the Central Bank of Russia to buy foreign currency and growth in government authorities' external borrowings predetermine the negative balance of capital transactions of the non-public sector with the outside world.


In such conditions, any efforts to limit the outflow will sooner result in growth in "grey" current account operations which were widespread 10-15 years ago (the reduction of their number was an achievement of the economic policy of the 2000s). What is meant here is a non-return of export proceeds and use of fictitious import contracts and other operations which reduce the official value of the current account surplus of the balance of payments. In a situation where there is no regulator on the foreign exchange market, in the long-term prospect the formal outflow of capital becomes inevitable until positive surplus of current operations is preserved. Limitation of one or several categories of operations which result in growth in the net outflow will inevitably prompt growth in other operations which are not yet in the focus of the attention of the regulator and/or legislators.


That instrument of control over the foreign exchange market would be useful if the Central Bank of Russia could buy any volumes of foreign currency. If there are no interventions by the regulator, the foreign currency which is sold by exporters will be bought out by other private players and that situation has no effect on the index of the net capital outflow from the non-public sector, but it is that index which is closely monitored both by the government and the expert community.


Let's sum it up. It is impossible to guarantee that the freedom of trans-border capital flow remains in future. That topic has been rather actively discussed in the information media and, at the first glance, it may be regarded as a simple way to slow down objective economic processes. However, the economic effect of those measures is close to nil though they perfectly fit the process of economic isolation of Russia from the outside world which process is currently gaining momentum.


Mikhail Khromov, Leading Expert of the Structural Research Center