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Ruble Gets ‘X Factor’ as Symbol Heralds Freer Market: Currencies

December 20, 2013

Ruble Symbol

A member of a pro-Vladimir Putin social network group carries a poster with an official symbol for the ruble used as a letter “P,” the Cyrillic letter for “R,” with a bar through it, top left, during their action in support of Russia's currency in central Moscow. The poster reads: "Rule, Rouble!" Photographer: Alexander Nemenov/AFP/Getty Images

Russia began its drive to liberalize the ruble with an Internet campaign more commonly used on television talent shows such as “The X Factor.” After 280,000 votes were cast, the ruble had a new design: “P,” the Cyrillic letter for “R,” with a bar through it.

“We need a symbol to boost the prestige of the ruble,” Dmitry Sergeev, a 36-year-old Moscow resident who took part in the poll, said by phone yesterday.

The makeover for the currency is part of President Vladimir Putin’s effort to remove controls in place for more than a decade and let the ruble trade freely by 2015. Russia’s currency has jumped four places since 2010 to become the 12th most-traded tender globally, according to the Bank for International Settlements. Policy makers are counting on the change to further boost its use in international commerce.

The ruble, whose new symbol is already on official documents, has dropped 7 percent versus the dollar this year, the biggest slide since a 16 percent retreat in 2008. OAO Alfa Bank and Morgan Stanley predict more losses once restrictions are lifted, helping boost the competitiveness of the world’s biggest energy exporter.

Targeting Inflation

The ruble slipped to 33.285 per dollar on Dec. 3, close to the weakest level in 1 1/2 years, and was little changed at 33 as of 2:49 p.m. in Moscow today, according to Moscow Exchange prices.

Bank Rossii has managed the currency since 1999, the year after the government defaulted on $40 billion of domestic debt, by buying or selling reserves to curb its gains or declines.

These currency market interventions have also been the way policy makers have controlled inflation. Under the new system, they’ll switch to using interest rates to temper consumer-price increases, which accelerated to 6.5 percent in November, above the 5 percent to 6 percent target.

“A free float should increase turnover even more,” increasing the ruble’s international appeal, Dmitry Dorofeev, a fixed-income strategist at BCS Financial Group, the biggest ruble trader on the Moscow Exchange, said in an interview.

Ruble Bears

A freely traded ruble will tumble as the U.S. Federal Reserve reduces the money it pumps into the global economy, according to Alfa Bank, Russia’s biggest privately owned lender, and New York-based Morgan Stanley. They’re among the most bearish forecasters on the ruble, predicting a 6 percent slide to 35 per dollar by end-2014, compared with the 33.43 median estimate in a Bloomberg survey of strategists.

A weaker currency may also boost the economy, after it expanded 1.2 percent in the third quarter, the slowest pace since a contraction in 2009.

“This policy change is key for Russia’s resilience to commodity price volatility,” Vladimir Osakovskiy, the chief economist for Russia at Bank of America Corp. in Moscow, said in a phone interview yesterday.

The prospect of less involvement by the central bank has prompted traders to bet currency price swings will increase longer term. The spread between three-month and one-year implied volatility on the ruble rose to a seven-month high of 1.92 percentage points on Oct. 25, and was at 1.77 yesterday, data compiled by Bloomberg show.

Miniature Coffins

Companies and investors will have to review their hedging strategies as the ruble “yo-yos at the start of the free float,” Vladimir Miklashevsky, a trading desk strategist at Danske Bank A/S in Helsinki, said yesterday in an interview.

Russian officials are counting on the ruble’s symbol to help banish memories of the hyperinflation that followed the Soviet Union’s collapse in 1991, and which currency market intervention aimed to curb. The central bank lopped three zeros off ruble banknotes at the start of 1998, speculating a redenomination would inspire confidence. That August, the government defaulted.

The currency lost more than half its value over the next six months. Banks locked their doors to depositors and demonstrators carrying rubles in miniature coffins marched past the central bank’s headquarters.

A decade later, Russia drained $200 billion from its foreign-currency reserves to slow the ruble’s slide and avoid a run on banks when the 2008 bankruptcy of Lehman Brothers Holdings Inc. triggered a slump in world commodity prices.

Russia’s Risk

Moving to a free float is a risk because the central bank will no longer be able to intervene to that extent, said Danske Bank’s Miklashevsky. “If the central bank lets the ruble go, it would have no choice but to stand by that decision,” he said.

Willem Buiter, the chief global economist at Citigroup Inc., the second-biggest currency trader, disagrees.

“The U.S. has intervened, the euro area has intervened when there was a very sharp depreciation,” he said in a presentation in Moscow on Dec. 17. “The temptation to try and cap extreme fluctuations will be hard to resist. The exchange rate is just too important to leave to the market. Nobody does it. So, expect a gradual change, but don’t expect that you suddenly move to a complete market exchange rate.”

Sergeev, who took part in the Internet survey, said he is happy Russia’s currency has a new symbol to help it gain international recognition.

“Above all, the ruble needs freedom,” said Sergeev, who works in public relations at a Moscow-based meat producer. “That’s the only way it can find its place in the world.”

To contact the reporter on this story: Vladimir Kuznetsov in Moscow at

To contact the editor responsible for this story: Wojciech Moskwa at

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