FINANCE, Interviews

Russian ruble reaches stable share in Russia’s foreign trade

For the first time, the Russian ruble has become the main currency in the country’s international transactions: according to the Central Bank, in February, its share in payments for Russian goods reached 41.6%, the highest level since August 2023. In imports, the national currency’s share has also increased to 38.1%. Invest Foresight asked Nikita Maslennikov, Director of Economics and Finance at the Institute of Modern Development, how profitable and strategically wise it is to use Russian rubles in foreign trade transactions.

Nikita Maslennikov, Director of Economics and Finance at the Institute of Modern Development

– The ruble now accounts for 40% of payments for Russia’s exports and 38% of imports – is this a large share?

– It is an upwards trend. It was 36% of exports only recently. Clearly, the ruble has ousted friendly countries’ currencies. The share of unfriendly countries’ currencies has declined, too, but only by a small margin – by about 0.6% from 26.9%.

– Is this a small margin?

– Well, this is really not much, given that the US dollar has slowly recouped its prior decline in global markets. The US currency now accounts for about 47% of Russia’s trade operations; the euro has 21%, the pound sterling, about 6%, and the yuan is approaching 5%.

As a matter of fact, with the ruble, the current trend is a natural reaction to the overall situation. But whether this is actually good for Russia is still a question. While this remains a local picture, it is not very favorable for the ruble exchange rate.

– In general, how efficient is it to get paid in the national currency for exports, or to use it to pay for imports?

– This is just a transitional trend. The global monetary system began to move towards polycentricity even before the pandemic. The dollar’s role is obviously excessive, and this is causing a variety of problems for many economies. When the dollar strengthens due to the current Fed rates, it pushes up the cost of dollar-denominated debt as well as the cost of dollar transactions.

This has, in fact, prompted the current expansion of operations in national currencies. If the countries have reached an agreement, and if this option is really more efficient and beneficial for all parties, why not? This is a normal and natural practice in the modern monetary world. This trend was also enhanced by digital currency considerations and related actions. Digital currencies may be convenient because they use the distributed ledger technology, and tokens can be issued with various types of collateral. The possibility of digitizing national currencies provides an additional motive to reduce the dollar’s share in trade operations.

– How serious is this trend?

– The global monetary system has entered a lengthy reorganization period. Yes, the dollar has a very solid standing, but that of other currencies will also continue to improve. Moreover, the center is gradually shifting to the Asia-Pacific Region, and this is definitely serious. This trend is here to stay.

On the other hand, everyone understands that the status of the global reserve asset is too serious. Let’s say, the yuan becomes the world’s reserve currency. What happens then? This burden may break the Chinese economy’s back. Even now, China’s public debt is growing three times faster than in the United States (6% versus 2%).

– What are the pros and cons of paying in rubles internationally?

– I believe that using the national currency in foreign trade is a least-evil solution for Russia today. We need time to adapt, and we are adapting. We certainly need to support our exports and imports, but there are also circumstances that absolutely need to be considered.

– Which circumstances, for example?

– First of all, paying for imports in your national currency limits the range of goods other countries agree to sell. We won’t be able to import what’s not available for rubles. Many manufacturers are not quite happy with Chinese products, except for their price. What other choice do they have?

The second issue to consider is the ruble’s exchange rate. If buyers pay for Russia’s exports in rubles, how will this affect the ruble? We actually encountered a paradox in March 2024, when Russia’s foreign trade balance as well as the balance of payments accounts increased significantly in annual terms, but the ruble is showing no signs of strengthening yet.

Judge for yourself: today, unfriendly currencies account for 26.3%, but in 2022, their share was on top of 90%. That’s a very steep drop in those currencies’ supply in the market, which definitely influences the ruble’s “weight.” This issue is very important. So, yes, it was an undeniable necessity, and in many respects, we had no choice, but we need to understand that there are associated risks.

– There seems to be a partial solution.

– Yes, we responded to the risk of lower currency supply by making it mandatory for exporters to sell their foreign-currency revenues. I believe this measure will be extended until the end of the year because with the current rate, we should keep extending it as necessary. Although it is absolutely clear that we are reducing the window of opportunity for our exporters since foreign currency conversion costs are growing.

– Will the share of Russian ruble payments grow further and how will this affect the Russian economy in the long term?

– I think we will need to watch the developments in the next two months. For now, the share is fluctuating, of course, but it is rather moderate. The ruble’s share in payments for exports is still somewhere between 30% and 40%. For the past six months, it has remained between 35% and 40% on average. This means there is certain saturation. No, we can’t call these proportions perfect but they are acceptable. It is equally important to prevent the Russian ruble from having an excessive share.

– Why?

– Because otherwise, our foreign currency supply will drop even further, which is not what we want. If the ruble tends to weaken, this weakening will affect our domestic prices, stopping the inflation rate from going down to 4%. At the same time, we know that we won’t be able to achieve 4% this year. The question is, how close can we get to this goal?

– What annual inflation rate can we expect?

– I believe we can expect 5% at best. The World Bank, for example, does not agree and forecasts 6.9%. Of course, that is not a bad result but if the pricing pressure persists, the Central Bank should hold the inflation down. The current inflation rate is not benefiting businesses. Therefore, despite the fact that the IMF “drew” a GDP growth of 3.2% for Russia, we saw a certain slowdown in April. The business climate has also been uncertain, going down to 10.1%. Whether it is a trend overturn or a local hitch, it is hard to say.

If the ruble’s high share in payments for exports and imports prevents the ruble from strengthening, the Central Bank should push back the effects of this situation on domestic prices and ruble weakening. That will force the Central Bank to maintain a high key rate. It is already clear that the key rate will remain as high as 16% for the entire first six months of 2024, and it may be reduced to 14.9% later in the year – which is still rather high.

We have achieved this structure of payments for exports and imports due to the lack of other options. However, there are no reasons to be too happy about it. This is my conclusion.

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