Oil-Rich Russia Makes Ruble Convertible

For years it was the changeable currency of defaults, declines and dodgy wheeler-dealing. But the Russian rouble, riding high on Moscow's burgeoning status as an energy superpower, becomes fully convertible from tomorrow as the petrodollar giant unleashes on the world a currency to match its growing economic clout.

The move, which will take practical effect when markets open on Monday, follows a series of measures and statements by the Kremlin that show its desire for the currency's renewed international status.

The central bank has recently launched a campaign to find a new "catchy" symbol for the rouble, with initial polling suggesting that a Latin "R" with two Euro-esque horizontal lines across the upper-left vertical line is a favourite. A 5,000 rouble (£100) note is also planned to slim down Russian wallets, as the largest bill now is 1,000 roubles.

The rouble's full convertibility will lessen the government's ability to influence the 800-year-old currency's exchange rate, said Alexei Moisseev, head of fixed income research at Renaissance Capital bank. He said the infrastructure would not yet allow Russians to exchange their roubles for euros abroad but the move was a "PR event" for the Russian economy.

"A practical consequence will be a significant increase in overseas investment into Russian rouble securities," he said. He added that up until now the Russian central bank had often intervened to secure an exchange rate favourable to it but that pressure would now grow for it to stop this practice, opening up the currency to speculators.

The Kremlin, keen to bolster Russia's international financial profile prior to the G8 summit it will chair in St Petersburg on July 15, has also put its mouth where its money is. Dmitri Medvedev, the first deputy prime minister and chairman of state gas giant Gazprom - touted as a possible successor to President Vladimir Putin - said recently that fluctuations in exchange rates, namely of the dollar, were damaging to economic stability and that new stable currencies may increase in prominence on the world financial stage.

"It is for future generations to decide whether or not a new international currency will be created," he told Itar-Tass. "Along with the growth of the demand for roubles, our currency could be one of the reserve currencies."

Increased oil revenue from Russia's position as the world's largest exporter of oil after Saudi Arabia has led to the creation of a "stabilisation fund", which has swollen in size to £125bn, designed to fund social welfare projects and act as a cushion for future economic crises. Today, Russia signed a deal to pay off the entire Soviet-era debt of about £12.5bn to the Paris Club of sovereign lenders.

The rouble has recently become more costly against the dollar, falling in the past five years from an exchange rate of 32 to the dollar to 26.5 today. The dollar is expected to be worth 25 roubles by the end of the year, persuading more and more Russians to keep their money in the more patriotic currency.

Reflecting a growing fervour among the political and business elite to promote one of the nation's oldest symbols, the Duma has given initial approval to a law that forbids references to dollars, yen, sterling or euros in official documents or on television broadcasts. Only the rouble can be mentioned under this draconian measure. Transgressors may be fined.

Critics have pointed out that the law would make life impossible for some. The finance minister, Alexei Kudrin, told Interfax news agency recently: "Russian journalists cannot report information from global markets recalculating it into roubles. How much would the global GDP equal? One quadro-trillion or quadro-billion roubles?"