2ND UPDATE: Russia Mulling Tax On Cross-Border Forex Trades
By IRA IOSEBASHVILI, Of DOW JONES NEWSWIRES
(Recasts, adds central bank chairman comments)
MOSCOW -(Dow Jones)- Russia is considering ways to discourage speculative
currency traders from driving up the ruble exchange rate, including a tax on
cross-border currency transactions, a central bank official said Thursday.
Such a plan, which hasn't yet been approved, would put Russia in league with
other commodity-exporting economies including Brazil and Indonesia.
Both also have been seeking to discourage the inflow of speculative money,
which boosts the local currency and reduces the profitability of their raw-
material exporters.
"We need to develop an effective way of controlling cross-border transactions,
something similar to the Tobin tax," said First Deputy Central Bank Chairman
Alexei Ulyukayev. Russia would only enact such measures after extensive
discussions, Ulyukayev said at a conference on the ruble in Moscow.
Nobel-winning economist James Tobin proposed a tax on foreign currency
transactions in order to reduce exchange-rate volatility after the 1971 collapse
of the Bretton Woods exchange-rate system.
Since then, Tobin's original intent has been broadened in policy debate to
include wider taxes on financial transactions of other types.
The broader definition of the levy was aired at a summit of the world's 20
leading economies earlier this month, when Russian Finance Minister Alexei
Kudrin criticized British Prime Minister Gordon Brown for proposing that leading
economies apply a global financial transactions tax.
To slow the ruble's appreciation, the central bank has bought around $21
billion of foreign currency in October and the first half of November, and it
has also lowered the country's refinancing rate by 350 basis points this year to
an all-time low of 9.5% - still many times the level seen developed economies.
But the measures have done little to stop the ruble, which has risen by 10%
against the dollar since September.
Brazil last month imposed a 2% tax on foreign portfolio investments into
fixed-income and equity accounts, reducing upward pressure on the local
currency.
An Indonesian central banker said this month that the country would consider
similar controls. Taiwan in November banned foreign funds from investing in time
deposits in an effort to deter currency speculation.
In September, Prime Minister Vladimir Putin, hoping to encourage investment,
said the country wouldn't reintroduce capital controls, which were abandoned in
2006.
Officials and economists have warned that such tools come with their own set
of dangers.
"Measures designed to limit risk are necessary, but there is no need to go
overboard, because then you risk distorting the pricing mechanism," said
Konstantin Korishchenko, the head of Micex, the country's largest stock
exchange, speaking at the same conference.
It's improbable that any country would unilaterally introduce a Tobin tax, as
financial transactions would simply migrate to another tax jurisdiction, said
Rory MacFarquhar, chief economist at Goldman Sachs in Moscow.
"But the CBR [Central Bank of Russia] does have the tools to make it more
expensive for banks to borrow abroad, which might well be a good idea over the
longer term."
On Wednesday, Central Bank Chairman Sergei Ignatyev discussed several "soft"
strategies for dealing with speculative capital, including limiting foreign
borowing by state-owned companies.
But capital is unlikely to stop flowing into Russia anytime soon, as
investors' concerns about oil prices and Kremlin policy dissipate, said Uralsib
chief strategist Chris Weafer.
"Russia is now in a favorable position, and funds are moving to increase their
exposure to a more substantial overweight," he said.
Additional reporting by Katie Martin and Will Mauldin.
Company Web site: www.cbr.ru
-By Ira Iosebashvili, Dow Jones Newswires; +7 495 937 8445; ira.iosebashvili@
dowjones.com
(END) Dow Jones Newswires
11-19-090934ET
Copyright (c) 2009 Dow Jones & Company, Inc.
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