We’ve seen this pattern before. Countries with exchange controls begin to burn through their foreign reserves as they defend their weak domestic currencies so they widen their trading bands as a first line of defense. After that doesn’t work they then devalue the currency and halt the defense of the currency. This looks to be the case in Russia where they just announced wider trading bands in an attempt to create “greater exchange rate flexibility” according to the central bank.
The upshot of this move, if it is successful, which I doubt it will be, is that Russia may need to intervene less in USD/RUB and this will have less EUR/USD to sell to maintain its 55/45 USD/EURO basket.
Here is some background.
