Just days after Ukraine began discussing capital controls, and Russian lawmakers passed a bill enabling asset freezes, it appears Russia has reached its limit.
  • *RUSSIA SAID TO WEIGH CAPITAL CONTROLS IF NET OUTFLOWS INTENSIFY
The Ruble is plunging towards 40 to the USD (CB intervention levels), US equity futures gapped lower, and European stocks are sliding.
As Bloomberg reports,
Russia’s central bank is weighing the introduction of temporary capital controls if the flow of money out of the country intensifies, according to two officials with direct knowledge of the discussions.

Such measures would be preventative and used only if net outflows rise significantly, the people said, who asked not to be identified because no decision has been made. They didn’t give a timeline or a level that may force such a move, saying they are looking at all possible scenarios.

The discussions are the latest sign that U.S. and European sanctions are hurting Russia and rethink policies the central bank has sought to avoid. The Economy Ministry last week raised its estimate for this year’s outflows to $100 billion from $90 billion. Russia hasn’t had a net inflow of private capital since 2007, the year after lifted restrictions.

Central bank Chairman Elvira Nabiullina, a former economic aide to President Vladimir Putin, said in an address to the government on Sept. 25 that “introducing capital controls doesn’t make sense.”

Still, if trades restrictions -- such as the U.S. and EU sanctions and Russia’s retaliatory measures -- are prolonged and the tax burden rises, capital outflows will intensify. That will push the regulator to shift its focus more toward ensuring financial stability from fighting inflation and use various instruments “including non-standard” means, Nabiullina said.

The central bank’s press service declined to comment. The Finance Ministry isn’t discussing such measures, Svetlana Nikitina, a spokeswoman, said by text message.
US equities gapped lower...

And the Ruble plunged...
  • *RUBLE WEAKENS TO BOUNDARY OF RUSSIA CENTRAL BANK'S TRADING BAND
  • *RUBLE WEAKENS TO LEVEL WHERE CENTRAL BANK SAYS WILL INTERVENE

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China will start direct trading between the yuan and the euro tomorrow as the world’s second-largest economy seeks to spur global use of its currency.
The move will lower transaction costs and so make yuan and euros more attractive to conduct bilateral trade and investment, the People’s Bank of China said today in a statement on its website. HSBC Holdings Plc said separately it has received regulatory approval to be one of the first market makers when trading begins in China’s domestic market.
The euro will become the sixth major currency to be exchangeable directly for yuan in Shanghai, joining the U.S., Australian and New Zealand dollars, the British pound and the Japanese yen. The yuan ranked seventh for global payments in August and more than one-third of the world’s financial institutions have used it for transfers to China and Hong Kong, the Society for Worldwide International Financial Telecommunications said last week.
“It’s a fresh step forward in China’s yuan internationalization,” said Liu Dongliang, an analyst with China Merchants Bank Co. in Shenzhen. “However, the real impact on foreign exchange rates and companies may be limited as onshore trading volumes between yuan and non-dollars are still too small to gain real pricing power.”
Transactions exchanging yuan for dollars totaled 12.2 trillion yuan in the first half of 2014, dwarfing the 110.4 billion yuan worth of trades for euros and the 251.7 billion yuan for yen, the PBOC said in a monetary policy report last month.

Trading Ties

China’s trade with European Union nations grew 12 percent from a year earlier to $404 billion in the first eight months of 2014, according to data from the Asian nation’s customs department. That compares with just $354 billion with the U.S. during the period.
French and German companies lead among countries outside of greater China in the use of the yuan, according to a July report by HSBC that was based on a survey of 1,304 businesses in 11 major economies that have ties with mainland China. Some 26 percent of French corporates and 23 percent of German companies were using the currency to settle trade, the highest proportions apart from mainland China, Hong Kong and Taiwan.

Last One

China appointed yuan clearing banks this year in Frankfurt, Paris and Luxembourg, and Germany’s financial capital as well as Paris were awarded quotas under the Renminbi Qualified Foreign Institutional Investor program to invest the currency raised offshore in China’s domestic capital markets.
“Given the appointments of renminbi clearing banks in Frankfurt and Paris, today’s announcement is largely expected,” Australia & New Zealand Banking Group Ltd.’s economists led by Liu Li-gang wrote in a research note today. The agreement marks a “significant milestone” in yuan internationalization as the euro is the only G3 currency that has not had direct conversion with the yuan, Liu said.
The European Central Bank is able to draw on a maximum 350 billion yuan ($57 billion) swap line from the People’s Bank of China under the terms of an agreement signed in October 2013. The PBOC can access 45 billion euros ($57 billion) under the terms of the currency swap.

Russia and ex Soviet States Kazakhstan, Kyrgyz Republic and Azerbaijan continued to accumulate significant gold reserves in August in a trend that we highlighted last month.
Latest official gold reserve data from the International Monetary Fund (IMF) shows that Russia again added to its gold reserves in August, with the Central bank of the Russian Federation purchasing  232,510 ozs (7.23 tonnes) and bringing its total gold reserves to 35.769 million ozs or 1,112.5 tonnes. 
Likewise, the National Bank of Kazakhstan purchased a massive 795,213 ozs or 24.7 tonnes in August bringing its total gold reserves to 5.848 million ozs (181.9 tonnes).
Turkey was also a gold buyer in August and the Turkish central bank adding 96,783 ozs (3 tonnes) to bring its total official gold reserves to 16.45 million ozs (511.6 tonnes), which is the world's 12th largest official gold holding.
According to the IMF data, other countries which added to their gold reserves in August included the central banks of Azerbaijan and Ukraine. 
With the ongoing conflict in Ukraine, its not clear where the official Ukrainian are now stored. There had been reports in March that the Ukrainian gold was flown out of Kiev to the Federal Reserve Bank of New York, but neither central bank would comment on this issue at the time.
Kazakhstan now has the world's 23rd largest holdings, just behind the Philippines which has 194.4 tonnes of gold reserves. 
With 1,112.5 tonnes, Russia remains the world's 6th largest official gold holder, ahead of China (1,054.1 tonnes) and Switzerland (1,040 tonnes).
The Swiss National Bank (SNB) has not been a gold buyer recently but this may change if a Swiss gold referendum to be held in November goes through, which would force the SNB to maintain 20% of its reserves in gold and to repatriate all gold held abroad back to Switzerland.    It is widely believed that China's gold reserves are understated and as David Marsh of the Official Monetary and Financial Institutions Forum (OMFIF) said last week "over the past six or seven years the Chinese authorities probably have been adding to their holdings in different ways."
As we pointed out last month, as well as being a reserve diversification strategy, the ongoing gold accumulation trend by both Russia and Kazakhstan could be part of a coordinated monetary policy since the two countries are members of the Eurasian Customs Union along with Belarus.
Next year the three countries plan to turn this Eurasian Customs Union into a more formal Eurasian Economic Union. Coordinated accumulation of gold reserves would make sense in this context. 
Russia, Kazakhstan and Belarus are also members of larger regional cooperation organisations, namely the Eurasian Economic Community and the Shanghai Cooperation Organisation (SCO). It will be interesting to see what a pooled gold holdings total for Russia, China, Kazakhstan, and other SCO members will look like when China finally does provide the world with an update on its official gold holdings.
UK Treasury plans to criminalise benchmark manipulation
Yesterday, the UK Treasury announced a consultation review into widening UK financial benchmark legislation and make manipulation of key currency, precious metals, and interest rate benchmarks a criminal offence. The only benchmark that is currently regulated is the interest rate LIBOR benchmark. HM Treasury plan to add a further seven key benchmarks to the legislation. 
These benchmarks are the WM/Reuters 4pm London fix (currency), ISDAFix (interest rate), the London Gold Fixing benchmark, the new LBMA Silver Price benchmark, the ICE Brent futures contract (crude oil), and two index swap benchmarks called the Sterling Overnight Index Average (SONIA) and the Repurchase Overnight Index Average (RONIA).
The London Gold Fixing process is in disarray after multiple claims of manipulation and the prosecution of Barclays by the Financial Conduct Authority (FCA) last May for manipulating the gold price in the fixing auction. The London Gold Market Fixing Company (LGMFL) and the London Bullion Market Association (LBMA) are now attempting to 'circle the wagons' on regulatory compliance and investor litigation by moving to a new LBMA Gold Price process modelled on the recently introduced LBMA Silver Price. 
The LBMA Silver Price auction has not really evolved in any way since being introduced on August 15, and its current 'phase 2' stage, by design, only allows bullion banks and brokers to participate due to the lack of a central clearing counterparty and limitations on bi-lateral credit lines for auction participants. 
However, this has not stopped the LBMA ploughing ahead with a similar plan for the gold fixing process which still has the CME Group and Thomson Reuters as the leading contender.
Following up today on the news of the Treasury's benchmark consultation, Bloomberg contacted the four London Gold Fixing banks and the LBMA seeking comment, but reported this morning that "Representatives of the banks that contribute to the London gold fixing declined to comment or didn't immediately return calls and emails seeking comment. The LBMA wasn't immediately available."
With the London gold fixing process being so central to the determination of the world gold price, any moves by the UK authorities to criminalise manipulation of the gold fixing price are welcome.
MARKET UPDATE Today’s AM fix was USD 1,210.50, EUR 950.61 and GBP 742.05 per ounce.  Yesterday’s AM fix was USD 1,224.00, EUR 952.87 and GBP 746.11 per ounce.
Gold fell $5.70 or 0.47% to $1,217.20 per ounce and silver slipped $0.10 or 0.56% to $17.70 per ounce yesterday.
Spot bullion in Singapore slipped 0.3% to $1,213.60 an ounce by 0043 GMT, after losing 0.5% in the earlier session. Gold is close to an 8 1/2 month low of $1,208.36 reached earlier in the week.
U.S. Mint September American Eagle gold coin sales are almost 50,000 ounces, nearly twice its sales in August, with heightened  geopolitical risk and a cheaper bullion price contributing to the interest from investors. 
If further bullish U.S. economic data comes out this week it will strengthen the U.S. dollar and weaken gold’s appeal, as investors think the U.S. Fed will react with an earlier than expected interest rate hike.
by Ronan Manly , Edited by Mark O’Byrne

few days ago we showed how when Obama said there would be "costs" for Moscow in the Ukraine-Russian conflict, he got the recipient country of said costs woefully wrong, as confirmed by the economic data released by Ukraine which showed its Industrial Production crater at a pace on par with the Lehman collapse, confirming the Ukraine economy was on the verge of a spectacular implosion just in time for the harsh, Gazprom-free winter to finish off what little economic activity is left.
The resulting selloff in the Hryvnia and Ukraine bonds, was therefore, hardly surprising.
Which probably means the news reported by Bloomberg moments ago, which cites Ukraine's Unian news service, that the Ukraine central bank just instituted restrictions on Hryvnia use, i.e., capital controls, should also not come as a surprise, yet for all those expecting Russia to crater first under the weight of western sanctions, to see said cratering take place in western-backed (and IMF guaranteed) Ukraine is probably just a little unpleasant.
The details:
Central Bank forbids companies completing FX payments on import contracts if they don’t actually bring goods into Ukraine, Unian reports, citing Central Bank decree that comes into effect tomorrow.
  • FX payments on imports also prohibited if customs registration of goods takes more than 180 days
  • Foreign investors forbidden to receive investment return from selling Ukraine securities beyond stock exchange, except govt bonds
  • Foreign investors forbidden to receive dividend return on Ukrainian shares not traded in stock exchanges
  • Central bank also forbids FX transactions using individual FX licenses, except placing money by cos. on accounts in foreign banks
In other words, the money concentration into a select few government-approved (and controlled) asset classes has begun. For those who are unsure what happens next, please google "Cyprus and March 2013."

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