Fending off the great Russian BearWhale Back in March, when one US dollar still bought you 36 Russian roubles, we noted how the Kremlin's attempt to publicly trash-talk the dollar by threatening to drop it as a reserve currency if and when the US was to impose sanctions was largely a propaganda tactic deployed to confuse the economically ignorant about the reality of who was really dependent on whom. (As if Russia's dependence on dollar reserves was ever a US Achilles heel. Quite the contrary, it's always been Russia's.) From our point of view it was all a desperate measure to stave off a currency crises in the making, and obscure the fact that Russia's CBR was losing control (given that even rate hikes were proving ineffective at curbing the rouble's slide). Here we are eight months later, with one dollar worth 45 roubles, and what have we learned? Namely, that once a currency crisis starts, trying to suppress, ban or rubbish the superior asset that everyone is flocking to (a.k.a the dollar) isn't usually a winning strategy. So here come the Russian authorities with a new strategy, known in some quarters as the Spanish defence, namely blame evil "speculators" for the demise of your currency and your economy. As Louise Valentin, head of Emerging Markets advisory and structuring at SEB, explains regarding the latest desperate measures the Bank of Russia is taking: Yesterday, Bank of Russia announced that it will adjust its intervention policy to stop, or at least minimize "speculative strategies" against the RUB, adding that it would sell unlimited amounts of USD to defend the RUB on a discretionary basis. If the upper level (or lower) of the corridor is breached, the daily intervention will now amount to a maximum of $350mn. After that amount has been spent, the corridor will be shifted by 5 kopeks and the RUB will float freely determined by market factors (unless CBR chose to intervene ad-hoc). Problem is, of course, Russia doesn't have unlimited amounts of USD. What this strategy really evokes is the recent slaughtering of the Bitcoin Bearwhale, which saw the community defend the Bitcoin price by effectively shovelling loads of dollars at it. As Valentin notes it is not consequently a winning strategy. If anything it only buys time: Our take on this is the following: the only way to restore confidence in a currency is to hike interest rates aggressively, which the CBR failed to do last week. At best, intervention can only slow depreciation. The CBR has made the correct assessment that the RUB has been overvalued for a long time and now they are allowing it to depreciate. In addition, by not hiking more aggressively, they hope not to strangle virtually the only source of growth in Russia, namely consumption. Meanwhile, if the following is true, what happens next is potentially going to be hyperinflationary, if not outright Diocletian-esque: Moscow. Farid Akbarov - APA. Russia may ban the circulation of the United States dollar. The State Duma has already been submitted a relevant bill banning and terminating the circulation of USD in Russia, APA's Moscow correspondent reports. If the bill is approved, Russian citizens will have to close their dollar accounts in Russian banks within a year and exchange their dollars in cash to Russian ruble or other countries" currencies. Otherwise their accounts will be frozen and cash dollars levied by police, customs, tax, border, and migration services confiscated. After the law enters into force, it will be impossible to obtain cash dollar in Russia. The ban or termination of the US dollar will not apply to the exchange operations carried out by Russian Central Bank, the Russian government, ministries of foreign affairs and defense, the Foreign Intelligence Service and the Federal Security Service. Related links: IAMA G8 leader contemplating invasion. Ask me anything - FT Alphaville A "bearwhale" slideshow - CNBC