Memories of Russia's default on $40bn of domestic debt eight years ago, when people queued outside banks to withdraw roubles that were plummeting in value, have barely faded from the national psyche.
Yet, remarkably, with coffers swollen by oil selling at $70 a barrel, Russia will tomorrow lift all currency controls on the rouble and make it fully convertible. Everyone will be able to move roubles freely out of and into the country, foreign and offshore investors will be able to open rouble bank accounts, and restrictions on rouble fixed-income investments will disappear.
It is a highly political and symbolic step. Brought forward by six months from the original deadline, it comes two weeks before Russia hosts the Group of Eight summit in St Petersburg, and days after the country reached agreement to pay off, ahead of time, its remaining $22bn (€17.5bn, £12.2bn) debt to the Paris Club of creditor nations.
The move will announce "that Russia is a serious global player," says Al Breach, research director at UBS in Moscow. "It has now graduated to being a normal, if not developed, at least upwardly developing, country."
Russia is saying "it is stable, it is open, and ready for money coming in".
The lifting of currency controls is also part of a campaign to burnish the rouble's once shattered image and challenge the dollar's supremacy - an economic parallel to Moscow's efforts to counterbalanceUS dominance in foreign policy.
Senior officials including President Vladimir Putin have even called for the rouble to become a reserve currency, to the surprise of international investors.
Russia's lower house of parliament has given preliminary approval to a bill slapping instant fines - their size not yet determined - on ministers and senior officials who quote figures in dollars that could be quoted in roubles. It would also stiffen fines on businesses displaying prices in foreign currencies, as many started to do during the hyperinflation in the 1990s that followed Russia's initial liberal reforms.
Resurgent Russia prepares for convertible rouble
Neil Buckley, Financial Times, June 30 2006
I don't know how economically promising this latest initiative is but there is no reason for Russia to at least not try and float rouble. And while in general the fact that Russia can run so successfully just on mineral exports is likely to the country's detriment as it stagnates technological progress it is certainly true that those same deposits of oil and gas serve as a powerful stability fund for the country's economy.
If the US that is now very light on exports can still offer the US dollar as an international currency, the Russian rouble definitely qualifies as a candidate.
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