During the past five years, we have been able to observe serious shifts in the global economy. It started with a lockdown that stalled the development of several industries across countries and changed the operation of financial institutions. Subsequently, consequences of the pandemic also affected financial and monetary relations.
The same period saw a rapid boost of the cryptocurrency market. There are countries that accepted the new realities and started using cryptocurrencies as a payment method while the others, on the contrary, imposed strictest restrictions on cryptocurrency transactions. Meanwhile, Bitcoin, for example, that cost $4,000 as of early 2019 grew in value to over $25,000, occasionally exceeding $40,000. Commonly accepted financial and monetary relations gradually changed and economies found themselves in new conditions.
Russia is currently discussing the digital ruble that seems to become a widely used tool in financial relations. There have been other noteworthy changes that started to manifest after the launch of the special military operation and the imposition of sanctions on Russia by other countries.
These factors have contributed to the implementation of an initiative to create the Greater Eurasian Partnership, which President of Russia Vladimir Putin spoke about at the Eurasian Economic Forum in Bishkek this May. Since the introduction of Western sanctions against Russia, the country has expanded trade and monetary relations with other states in the Eurasian space. More attention is being paid to the need to expand the use of national currencies and conduct settlements in the currencies of partner countries. Focus has been placed on the strengthening of national currencies, as well as on bringing the currencies of partner countries to the Russian exchange and increasing the share of Eurasian currencies in Russian settlements. Moreover, after SWIFT refused to work with Russia, the country suggested creating a common payment system with its partner states. In the span of a year, trade and economic relations with a series of states were severely damaged, which called for the need to change monetary relations between countries that are willing to continue cooperation.
Development of an alternative international monetary and financial system that would prove highly competitive in the current conditions has become particularly relevant as part of establishing the Greater Eurasian Partnership. Discussions are currently underway on the specifics of such system and ways of its implementation to ensure the nations’ economic growth. The focus is being made on strengthening the national currencies of participants in the system. Furthermore, due to operations by the EAEU, whose members already include certain states in the Eurasian space and which has shown its efficient interaction, creating an alternative international monetary and financial system looks increasingly promising. Such a system will allow for a larger share of national currencies in settlements by the example of the EAEU, which has expanded this amount to 75%. Major players such as China, which has strong ties with many world economies, plus taking efforts to boost cooperation with it will allow for building a more efficient system. Eventually, this structure could involve not only the closest neighbors in the Eurasian space but other friendly states as well.
Following the abandonment of SWIFT, transition to settlements through correspondent banks of friendly countries should boost cooperation in the Greater Eurasia. There is also the Financial Messaging System of the Bank of Russia, an alternative to SWIFT that could bring general positive impact on the system. Particularly important is the fact that such a structure can be developed with an eye toward strengthening of national currencies and expanding their share in international settlements, which will have positive effect on the member countries’ economies, making them stronger.
To sum it up, I should note that the issue of creating an alternative international monetary and financial system has long been relevant for a sufficient number of states, particularly in the context of the efforts to shrink the influence of the US dollar. By now, due to various factors such as the effects of the pandemic, the special military operation the sanctions imposed against Russia, this issue has become increasingly urgent. The strong ties between Russia and Eurasian states, as well as countries’ participation in international associations, allows us to begin actively implementing this initiative that could eventually involve even more countries – particularly given that Russia is among the few countries that have recovered relatively quickly after the lockdown. General integration processes in Eurasia contribute to the strengthening and development of the economies of its countries. The efforts to build a new international monetary and financial system require uniform laws in its prospective members, including in the organizational part, as well as certain principles for operation of the system, which should include stronger national currencies and prevention of a monopolistic monetary system to avoid situations similar to the dollar’s current hegemonic position.
By Maria Yermilova, Associate Professor, Department of Finance for Sustainable Development, Plekhanov Russian University of Economics