The currency corridor is considered one of the methods of control of the Central Bank. The control is aimed at the exchange rate of the national currency.
It is the limits of its fluctuation that enable the Central Bank to most effectively use all reserves in order to maintain the course and create a predictable situation for other market participants: banks, importers and exporters.
The currency corridor was introduced in Russia on July 8, 1995. Since 2006, a sloping currency corridor has been in effect. It consisted depending on the dollar exchange rate of America and current inflation. Since the end of 2008, due to the liquidity crisis, a dual-currency corridor was created, in which the ruble exchange rate was tied not only to the dollar, but also to the euro. In addition, the dollar and the euro currency were limited in certain proportions.
As is already known, the Russian bank fulfilled its obligations, and the boundaries of the corridor remained intact (except for the crisis in 1998). As a result, the exchange rate of the ruble during the policy of currency bands always remained predictable for all members of the foreign exchange market. This enabled them to plan the development of their business.
A currency band is a kind of way to forcefully limit the ruble exchange rate againstdollar exchange rate. The goal is to overcome inflation. But an undervalued exchange rate unequivocally entails an increase in imports, a reduction in domestic production and, of course, exports. For imports, additional currency can be taken exclusively from previously created reserves or through loans. In the case of a long-term preservation of the currency corridor, it happens that the economy simply enters a special stationary regime with an additional high demand for foreign currency. When long-term guaranteed sources of currency are available, then such a regime is, of course, feasible. If these sources are not available, then the chosen policy will inevitably lead to devastating consequences.
The key issue of economic policy is to determine how the demand for money still grows. After all, a change in the money base is equated to a change in the volume of loans (internal) with a subsequent change in foreign exchange reserves. Therefore, the government has two ways to help meet the increased demand: increase lending to the (domestic) public sector, and increase lending to the private sector.
The Central Bank of Russia announced a resolute attitude to actions that will be carried out exclusively within the framework of the previously announced rules and agreements that must be observed with a floating currency corridor. And this is reported to everyone by the special press service of the Russian Government following the results of the meeting on the situation in the financial world markets. It was held in 2012Dmitry Medvedev is the Prime Minister of the Russian Federation. Sergei Ignatiev, the head of the Bank of Russia, said that the general situation in the foreign exchange market in the country is not simple, but nevertheless understandable. The reason for what is happening is the aggravation of the crisis in Europe and the rapid fall in prices for raw materials on world markets, including oil. Ignatiev claims that the Central Bank conducts all kinds of currency interventions and acts in accordance with the rules that the 2012 currency corridor established.
