The rouble in reserves The National Bank of Belarus (NBB) will include rouble assets in its reserves

Last week, the NBB announced that it would include rouble assets in its international reserves from 1 September 2006. The Russian CBR has expected that CIS countries would convert the part of their reserves in roubles. The CBR has referred to the liberalisation of capital accounts operation, which made the rouble convertible and the high share of roubles in CIS trade (up to 10%). Nevertheless, we consider the Belarusian move as a political gesture. Negotiations on the union of Russia and Belarus remain slow - the creation of a currency union has been postponed to the uncertain future and the Kremlin is growing cool towards President Lukashenko and his regime. The friendly gesture to put the rouble in the same line as the strongest currencies of the world may greatly please the Kremlin. In any case, the dollar is much more common for CIS trade (up to 90%) and the rouble remains a soft currency of a country with a BBB rating. Whatever the current strength of oil prices suggests for the rouble''s mid- and long-term stability, we expect that other CIS countries are unlikely to immediately follow Belarus'' idea. Investment implications: Although 20-30% of Belarus trade accounts for roubles, we consider its decision to convert part of its reserves into rouble assets as politically driven. Other CIS countries are unlikely to follow the NBB, although the CBR believes that this is a likely scenario. Julia Tsepliaeva Moscow (7 495) 755 5489 <<06.09.04-1.pdf>>