The bi-currency basket was introduced by the Central Bank of Russia in 2005 with the aim to outline the operational benchmark of the bank’s exchange policy. At the moment the bi-currency basket was put into action, it consisted of 0.1 Euros and 0.9 US dollars.
Starting from February 2007 the figures have been changed, and presently the bi-currency basket contains 0.45 Euros and 0.55 US dollars. In order to balance the bi-currency basket the rate of the ruble was fixed on the level of 34 Rubles. However, the Bank of Russia did not imply the strict pegging to this level in order to make the exchange rate more flexible. That was suppose to allow the bi-currency basket to move within the admissible band of fluctuations.
Till the middle of 2008, the Central Bank, managing the exchange rates, had intervened the trading very rarely. The Central Bank interfered in the exchange policy only in cases when the supply of the currency was extremely high and it was impolitic to admit the intense strengthening of the ruble, or vice versa, the demand for the currency was strong and it was no advantage to allow the ruble to fall strongly. In first case the Central Bank bought back the currency from the market and emitted the rubles, in the second case, the bank repurchased the rubles, giving back the foreign currency from reserves.
Starting from May 14, 2008 the Bank of Russia has been holding the interventions within the range. Initially, the current basket was moving within the range +- 10 kopecks. However, in June 2007 the Central Bank widened the range by 0.5%, having strengthened the ruble against the bi-currency basket from the 29.93 level to 29.78. The next enlargement of the band took place in August 2007, when the basket rose from 29.76 to 29.67. Since September 2007 the lowest limit of the basket was near 29.6, and the range was +- 40 kopecks. In June 2008 the Bank of Russia expanded the exchange rate band several times, each time by 10 kopecks, which led to the strengthening of the ruble.
Nevertheless, when in September-October 2008 against the background of the financial crisis the balance of the supply and demand of the currency on the market shifted towards the considerable advance of the demand for the currency, and the ruble started to weaken against the basket, the Central bank had chosen the rate of 30.70 as a support level and not the rate of 30.40. In November-December 2008 the band was widened several times by 30 kopecks to each side. January 2009 had also started with the extension of the band, the upper limit of the band moved to 41 Rubles; the floor was placed at the level of 26 Rubles.
According to the official rates, the lowest level of the basket was fixed on August 5, 2008, and it was equal to 29.27. The highest level was recorded on February 6, 2009 – 40.93. In summer 2009 the bi-currency basket fluctuation range was set at 3 Rubles level and at present the bounds of the band are 35-37 Rubles. The Bank of Russia buys and sells the currency within the limits of the band, the volume of deals is 700 billion dollars, in this case the bands moves by 5 kopecks. In such a manner, the strengthening of the basket by 1 Ruble increases the volume of foreign reserves by approximately 14 billion dollars.