Russia losing fight against dropping ruble; Putin cancels South Stream pipeline

A man walks past a currency exchange booth with the Ministry of Foreign Affairs of the Russian Federation in the background in Moscow. (AP Photo/Scanpix)
12/3/2014 12:57 PM
Category: International

The Bank of Russia has spent $700 million on the foreign exchange markets in December trying to prop up a dropping ruble – the equivalent of 36.87 billion of the Russian currency.

It was the central bank’s first currency intervention in the exchange rate of the ruble since the currency was allowed to freely float on November 10, reported Kommersant.

However, the currency has fallen to a new low against the dollar and euro. This morning, a dollar and euro bought 54.86 rubles and 67.90 rubles, respectively.

The Russian central bank warned that its transition to a free exchange rate does not mean a complete departure from intervening in the currency market if there is a risk of financial instability. Monday there was such a need, as the dollar change rose to 53 rubles to the dollar, and the euro bought 66 rubles. Later, the rate declined sharply, which made analysts suspect that the central bank had intervened.

According to the official records, the Bank of Russia has sold 73 billion dollars in currency reserves this year, 30 billion in October.

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Russian President Vladimir Putin announced Tuesday that the country is cancelling its planned 40-billion-euro South Stream gas pipeline, the BBC reported.

Europe’s demand for gas has been dropping, and the Russian government has judged the 63 billion cubic meters a year that South Stream would supply to Southern and Central Europe superflouous. The North Stream pipeline is only filled to a fraction of its similar capacity, and runs at a loss.

However, the BBC said that Bulgaria has recently suspended work at the Varna sea port on the Black Sea coast where the pipeline would have come ashore, making the project untenable.

The pipeline would have run to the Central European Gas Hub at Baumgarten in Austria, which is partly Russian owned. Other losers in the announcement include the governments in Hungary and Serbia, among the strongest backers of the project, and the gas companies OMV in Austria and ENI in Italy.


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