Terminating use of US dollars for international settlements has in fact become a declared concept of Russian authorities. At least, the idea has been voiced at the top political level.
Deputy Foreign Minister Sergei Ryabkov, for instance, in an interview to International Affairs journal was quire straightforward saying that:
“Time has come for us to move from mere words to deeds and abandon dollars as means of mutual settlements. It’s time to look for other mechanisms”.
Denis Manturov, Russia’s Industry and Trade Minister, also made a public statement noting that a response to the new US sanctions will be employing national currencies for mutual settlements.
Government owned VTB bank has prepared a package of suggestions on broader use of Russian rubles in international settlements, as VTB President and Chairman Andrey Kostin noted at a July meeting with Vladimir Putin. A bit earlier, in June, at the International Financial Congress, Kostin put forward the idea of a global dedollarization of the economy. Regrettably, the core of the VTB’s suggestions has not been explained yet. Still, some financial regulation measures intended to stimulate lower demand for dollars are known. Alexey Moiseev, Deputy Finance Minister, stated that a shift to the settlements in the Russian national currency will be stimulated by a liberalized currency control and higher reserves of hard currency assets for banks. Besides, another incentive for settlements in rubles will be lifting the requirement of foreign currency revenues repatriation. Earlier, Finance Ministry made public a draft law which is to be submitted to the government by the end of September. Russian Central Bank has already increased the foreign currency reserve requirements to the national banks by one percentage point since August 1, 2018.
If, presumably, Russia starts selling oil or arms to Turkey for Turkish liras, it should expect to spend the liras on purchases of Turkish goods in the foreseeable future. It is most likely, the two countries should have an agreement preventing a situation when an exporter accumulates the currency of the importer country and then has no idea of the ways to use it or has to sell it with sizeable discounts. That means, a mutual trade should strive to have a neutral or zero balance.
When using national currencies, there is also a risk of a greater volatility of currency exchange rates if compared to the US dollar. The instability of the Turkish lira exchange rate, for example, is well known. As Igor Shestakov, senior expert of FinExpertiza, notes, even loans to Belarus are denominated in dollars.
Nevertheless, use of alternative currencies for settlements with long-standing partners of Russia are possible, and such projects are considered to be applied to weaponry exports.
Dmitry Shugaev, Director of the Federal Service for Military Technical Cooperation, in an interview to Iterfax news agency said that Russia’s partners are ready to use national currencies instead of dollars in settlements for armament contracts. India, Turkey and China were named among the possible partners for non-dollar deals.
That option was confirmed by Alexander Mikheev, Director General of Rosoboronexport weaponry exporter.
“We review a possibility of settlements in national currencies such as Indian rupee, Chinese yuan, Arab Emirates Dirham, and Russian ruble. Our partners understand the sanctions are not aimed at Russian entities only, including Rosoboronexport, but at them as well”, he said.
“Russia keeps making steps to reduce reliance on dollar. That can be observed in trade with China and India, where a growing number of transactions does not involve dollar settlements”, Maxim Timoshenko, Director of Financial Markets Transactions at Russian Standard bank, told Invest Foresight.
It is noteworthy, Leonid Mikhelson, Chairman of Management Board of NOVATEK natural gas producer, once said that Russia’s major trade partners including Arab countries, start thinking about settlements in national currencies. Yet it is hard to say how far-reaching the thoughts of Russia’s partners are.
Lowering the share of dollar assets in gold and hard currency reserves of the Central Bank of Russia is simpler in technical terms. But there immediately appears a question what is a substitute for the US bonds. There is not enough gold in the global market for that, even though national and international media discuss Russia’s gold reserves growth. According to the July IMF report, Russian Central Bank’s gold reserves went up by 26.1 tons and reached 2,170 tons. The golds’ share in the reserves grew from 3% in 2008 to nearly 20% in 2018. Nevertheless, the Bank of Russia is unwilling and unable to completely reject US bonds altogether.
According to Professor Konstatin Korishchenko of the Russian Presidential Academy of National Economy and Public Administration:
“There are just three or four currencies in the world which by the volume of their trade and by availability of their infrastructure can be used as Russia’s currency reserves. Regretfully, gold has insufficient liquidity and is not available at the scope required for accumulation in Russia’s reserves”.
Still, the trend is quite evident. Since 2013/2014, the number of dollar denominated loans requested by private businesses is decreasing, while sale of the US treasury bonds by the Central Bank of Russia is growing.
By Konstantin Frumkin