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Last Updated: Friday, 30 June 2006, 06:28 GMT 07:28 UK
Russian rouble faces world market
By Damian Grammaticas
BBC News, Moscow

Currency exchange board
Many Russians want their salaries in roubles
It's not long since the Russian rouble was seen as a basket-case currency. Even in Russia itself, people have shunned it preferring US dollars.

Now times are changing. This weekend Russia is lifting all currency controls. The rouble will become fully convertible, free for you or I to buy and sell.

The Kremlin wants to establish it as a strong international currency. Supported by high oil prices, the rouble looks like being an attractive proposition.

But removing currency controls also brings significant new risks for Russia.

Dollars versus roubles

Flying off the printing presses in Moscow are sheets of perfect new rouble notes as Russia prepares to float its currency.

The rouble will be freely tradeable, joining the world of fully-fledged international currencies.

Liberalising capital and currency controls will encourage investment into Russia
Alexei Kudrin, Russia's Finance Minister

"It won't be a quick process to gain trust. Step by step it will come," says Russia's Finance Minister Alexei Kudrin.

"Liberalising capital and currency controls will encourage investment into Russia. Allowing free movement of money is an important part of our new market economy."

Back in the 1990s, though, nobody wanted the rouble. It was a decade of inflation, debt default, devaluation, and poverty.

Russians literally tore up their roubles.

How things have changed. Today, Moscow is awash with money, expensive shops and neon lights, its consumers driving a booming economy.

Everybody wants their salary in roubles... and me also, I want to have my salary in roubles now... because the dollar became cheaper
Anya Artamanova, Russian resident

Many still prefer to use the dollar. Everywhere on Russia's streets are exchange kiosks displaying today's rates for the greenback and the euro.

But as the rouble has prepared to float it has strengthened, and the dollar has weakened.

From dollars to roubles

A trip to the bank is a regular part of Anya Artamanova's routine. She gets her salary in dollars - then swaps them for roubles.

Today Anya is enjoying an espresso in one of Moscow's smart cafes. She works for an internet company. Her clients are billed in dollars, her staff paid in dollars. But all believe it's time to switch.

"Everybody wants their salary in roubles and they came to me and say, 'Oh, maybe we change it,'" she says.

"Me also, I want to have my salary in roubles now, because the dollar became cheaper. I saw it."

Stronger competition

Russia's businesses - like Europe's biggest dairy products factory in Moscow, which churns out yoghurt, milk and drinks - will also feel the change.

Russian roubles
A floated rouble will bring risks and rewards

The company, Wimm Bill Dann, has modernised an outdated production line.

As the rouble strengthens, everything it imports will be cheaper - each gleaming new machine that costs millions of dollars, not to mention its raw materials like sugar, fruit, packaging.

But Russia will face stronger competition from abroad, and inefficient companies will struggle, says Wimm Bill Dann's Marina Kagan.

"In Russia usually production sites are not very efficient," she says.

"You have a lot of people working there. Now we are all moving, we have all our plants automated so you don't need so many people to service those lines.

"Traditionally it was impossible to lay people off. Now more and more companies are doing it, gradually, offering very good termination packages. They are doing it because there is no other way."

'Strategic raw materials'

It is oil and gas that's making Russia, the world's second biggest exporter, increasingly wealthy. The country has built up huge currency reserves.

The rouble should become a more universal means for international transactions and expand its zone of influence
President Putin

And to make the rouble even more attractive internationally, President Putin now has plans to charge foreign buyers of oil and gas in roubles, not dollars.

"The rouble should become a more universal means for international transactions and expand its zone of influence," Mr Putin said in his recent State of the Nation address.

"We need a stock exchange where oil and gas can be traded in roubles. Our goods are being traded on world markets so why not here - in Russia?"

Russian pipeline
Oil and gas has boosted Russia's wealth

It all means that the rouble may prove a very attractive prospect. Traders, investors, even central banks may start to buy up the currency.

Yaroslav Lissovolik, a Moscow-based economist, says it all comes down to Russia's increasing strategic importance in supplying vital strategic commodities such as oil.

"I think it increasingly makes sense for the central banks of the world to start thinking about re-allocating part of their reserves from currencies such as the dollar into the rouble," he says.

So television advertisements are exhorting Russians to know their currency. But the danger is that the rouble looks cheap against other international currencies. If speculators buy it up in huge quantities, Russia may not be able to prevent the rouble strengthening too fast.

The economy could overheat and Russia would face new economic problems - not from an economy in meltdown, but from a buoyant currency.




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