What lies ahead for the ruble in the new macroeconomic landscape? Should we anticipate a decrease in the volatility of the national currency? Can the Russian ruble increase its share in international payments, potentially displacing leading currencies? And most importantly, what digital instruments will take the place of fiat currencies in cross-border transactions? These and other issues were discussed by participants at the conference titled The Russian Ruble and the Financial Market in the New Macroeconomic Reality. The event, dedicated to Russian Ruble Day, was held at the Congress Center of the Russian Chamber of Commerce and Industry, organized by the Moscow International Monetary Association and the Commonwealth of Financial Market Professionals.
Focus on trust
Achieving stability for the Russian national currency remains a critical task, serving as the cornerstone for bolstering confidence in the ruble, both domestically and internationally. The conference participants acknowledged that addressing this issue in the near term will be challenging. Over the past decade, the ruble’s exchange rate has swung dramatically from 32 to 112 rubles per dollar, ranking it among the most volatile currencies globally, noted Garegin Tosunyan, president of the Association of Russian Banks.
“Currently, the monetary authorities are implementing a floating exchange rate policy, which essentially aims for a stable and effective exchange rate,” said Konstantin Korishchenko, professor at RANEPA.
“We have recently observed a strengthening of the ruble, but this trend is mainly due to a reduction in imports as a result of secondary sanctions,” noted Denis Solovyov, deputy director of the Department of Operations in Financial Markets at Rosselkhozbank.
The inflation situation remains challenging. A significant reduction in inflation seems doubtful, despite the high key interest rate, Garegin Tosunyan said. Denis Solovyov further suggested that the economy might be entering an inflationary spiral.
Central banks’ digital solutions
Significant challenges are also arising regarding the use of the Russian national currency for international settlements.
Konstantin Korishchenko pointed out that within the current SWIFT-based international settlement system, a revival of the ruble’s international activity is unlikely. A more feasible approach, he suggests, is to transition from a settlement system based on commercial banks’ correspondent accounts to one based on central banks’ correspondent accounts. This would technically involve the use of a central bank digital currency.
“This could be the key to transforming the current currency system,” Korishchenko believes.
In the new economic landscape, the digital ruble may indeed become a popular instrument. Economist and State Duma deputy Mikhail Delyagin notes that this tool can be used for domestic operations, such as preventing the misuse of funds at the operational level, as well as for international payments. In the latter case, it provides an opportunity to operate under sanctions. The technological infrastructure will enable the widespread use of the digital ruble for these purposes by 2026.
What will replace the dollar?
There is indeed a growing demand for new tools for cross-border settlements, especially as the role of the dollar and euro in international transactions declines. By the end of last year, the dollar’s share in international payments via SWIFT was about 47%, and around 60% when excluding intra-eurozone payments. For the euro, these figures were approximately 23% and 13%, respectively, according to statistics cited by Artem Genkin, Doctor of Economics, Professor, President of the NPO Center for Protection of Bank Clients and Investors. However, the expert points out that these statistics do not account for payments made using other financial information exchange systems such as the Chinese CIPS, Indian SFMS, and Russian SPFS.
What share of cross-border payments remains outside SWIFT statistics? Rough estimates suggest that as of January 2024, it ranged from 1% to 10%.
“I venture to suggest that by the beginning of the third quarter, this share could be between 3% and 5%,” Artem Genkin notes.
This indicates that traditional leaders in international payments are gradually yielding ground to new players, including not only the British pound or the Chinese yuan but also other national currencies.
Obviously, we are not talking about the decline of the dollar – yet, certain factors contribute to the currency losing its dominance. In June, Saudi Arabia refused to extend a Saudi-US security agreement, which obliged the former to trade raw materials solely for US dollars. The strengthening of Bitcoin, which competes with the dollar, is backed by the decision of the US Securities and Exchange Commission (SEC): in January, it approved the exchange-traded funds which were the first to invest directly in this major cryptocurrency.
“This serves as a convenient gateway for traditional investors to start putting money in cryptocurrency and a giant bridge linking the world of real assets and finance with that of crypto assets, a step towards its normalization,” Artem Genkin emphasises.
New settlement format
Since all major banks, except Gazprombank and Rosselkhozbank, were included in the SDN List, the Chinese yuan has been the main currency in international settlements between domestic companies and partners, Denis Solovyov reminds. However, following the introduction of the latest package of sanctions, it has become increasingly difficult for major currency exporters to bring foreign currency earnings to Russia and sell them.
“In our experience, Chinese banks fear secondary sanctions, with external transactions being subject to very strict compliance checks and requiring particular efforts,” Denis Solovyov notes.
For foreign economic activities to endure, instruments are required that will be more attractive in terms of commission expenses, says Yaroslav Kabakov, Director of Strategy at the Finam investment company. Those could include stablecoins backed by the Central Bank’s blocked assets, which could also be used for compensating transaction costs. Kabakov also reminds about the risks of secondary sanctions, adding that the country’s entire banking system could end up on the SDN list, which will result in the sharply limited ‘transaction window.’
Igor Pilipenko, Director of the Institute for Competitiveness and Integration, mentions several alternative options for organizing cross-border payments. Along with the use of the central banks’ digital currencies, they could also involve settlements in national currencies, as well as the efforts to introduce clearing or mutual offsets of claims and obligations without using reserves of gold and foreign exchange.
Via third parties’ third party
Despite the changing global landscape, businesses are not going to put cross-border transactions on hold. Currently, many options are considered that would allow Russia to participate in international settlements. Those include the digital ruble and tokenized bank account balances, as well as a common BRICS currency and the Faster Payments System. These are proper initiatives, which, however, will be in discussion for years to come, according to Vladimir Kozinets, President of the Russian Association of Corporate Treasurers. In order to conduct cross-border settlements, companies expansively use payment agents, although the number of transactions that involve them is decreasing while transaction amounts and commission fees are showing impressive growth, the expert clarifies.
Small banks that so far remain unaffected by sanctions are still operating in the market, providing Russian companies with opportunities for conducting payments. And, obviously, exporters and importers are making increasing attempts to negotiate directly with each other on transactions and building P2P payment chains.
Prospectively, the use of cryptocurrency opens up major opportunities for cross-border transactions. The lack of trust in traditional currencies will serve as a key driver.
“Cryptocurrencies are associated with the distrust in the government, unlike the traditional trust-backed currency,” Mikhail Delyagin explains.
This is not about payments in Bitcoin and Ethereum, but about stablecoins that are pegged to the market value of commodities such as gold.
“We might see gold stocks forming, including in offshore zones, with gold-backed stablecoins issued. Currently, this is not yet a widespread practice, but I believe it to become common further down the line, given the drastically changing terrain of cross-border payments as well as the systemic destruction of correspondent relations,” Vladimir Kozinets concludes.