In other words, the sale of dollar oil revenues ought to make the ruble stronger. However, through much of 2000, the Central Bank has kept the ruble price of the dollar from falling by buying dollars itself, pushing demand for the dollar, and thus its price, back up. It is what to do with these newly created rubles that is the main policy dilemma posed by high oil prices. The authorities could just ignore the monetary side effects of their exchange rate policy. Importantly, inflation undermines the goal of keeping the ruble weak.
Inflation makes ruble prices higher.
But since the exchange rate does not change, inflation makes dollar prices higher too, undermining the competitiveness of Russian firms. If inflation and real appreciation are to be avoided, then, rubles must be sucked back out of the economy. Arrows 2 and 3 on the figure illustrate the main options for sterilization under consideration. The Ministry can also borrow funds in rubles. By returning some of these rubles to the Central Bank, sterilization would be achieved.