WHY IS US DOLLAR LOSING ITS GRIP OVER RUSSIA

HomeNewsWHY IS US DOLLAR LOSING ITS GRIP OVER RUSSIA

Over the past five years, Russia has managed to reduce the share of the US dollar in its international settlements. The share of the euro and the Rouble, on the other hand, have grown significantly, as well as that of the Yuan. Is there a prospect of Russia getting rid of all the settlements in USD? On the other hand, why does the Yuan so far let down the Russian economy?

As a response to Western sanctions, Russia took a number of measures, such as reducing its dependence on the dollar for all international settlements. The analysts gave their estimates of the structural dynamics of Russia's settlements under foreign trade agreements from 2013 to 2018. Over the years of sanctions, Russia has reduced the settlements in dollars by 12.6% in its foreign trade transactions while increasing the settlements in Euros and Roubles (by 26.6% and 14% respectively), as measured by the international auditors firm.

The US dollar still holds the leading position in the structure of foreign trade with 56.1% of transactions, or USD 388 billion. The second spot is taken by the Euro: its share is 21.9% or 151 billion in dollar equivalent. The third place is occupied by the Rouble with a 20-% share (USD 136 billion). The fourth place is occupied by other currencies, which, combined, account for an insignificant 2.4%.

“The trend to abandon the dollar and switch to Rouble settlements in foreign trade is obvious. This is a way to make the Russian economy more robust and protect it from sanctions. This concerns – to a greater extent – the exports, since the sale of goods for the currency of the vendor is a natural thing to do,” experts comment.

However, experts believe that it is not possible to get rid of the USD entirely, and no one sets this as a goal. The task is to significantly reduce dependence on the dollar. “This will take at least 10 years, provided the continued growth of the Russian economy and its trade turnover, in particular, as well as some appropriate measures in this field. The major task is not getting rid of the dollar, but rather forging a strong and independent Rouble. As the Russian currency stands strong, any dependence on the dollar will cease to be an alarming call,” experts believe.

The EU is the main trading partner of Russia. The growing share of the euro in trade with Russia is explained by the consistent aim of Europe. “The EU intends to increase the volume of payments in euro and to strengthen the role of its currency, this is understandable. This, certainly, is in Russia's best interest,” economists comment.

At the end of last year, the European Commission suggested settlements for oil and gas in euros as well. This remains the main export line from Russia to Europe. However, historically the sales of oil (and gas) are made in US dollars, as with any commodity exchange. On top of this, exports of mechanical engineering products from Russia are on the rise, and might also be settled in euros. Last year, the volume of EU–Russia trade increased to EUR 254 billion, despite the sanctions and the food embargo.

Another important trade partner for Russia is Asia. “The share of the Rouble in the payments with China (for the Russian exports) has grown 5.2 times, while the share of the Yuan in settlements for the Chinese imports has increased 8.8 times, – both due to a reduction in dollar's share.

The proportion of Yuan in the overall foreign trade structure of Russia remains, however, insignificant: the Chinese currency is not even singled out in the stats, but rather included in the group of “other currencies”. As it turns out, despite the clear diversification of trade from the Western to the Eastern vector, the Chinese currency still remains rather exotic.

"Transactions in Yuan are complicated by the fact that so far they are mostly available to the large players. There are few banks in Russia that work with Yuan. The Chinese partners neither are inclined to change anything in the usual practice of settlements. There are also technical difficulties: the time difference limits the volume of transactions in Chinese currency within Russia. Yuan, however, is the third most traded currency on the Moscow Exchange, and the demand is steady. In 18 months, the average daily volume of Yuan trading has almost doubled.

Although the IMF has officially included the Chinese legal tender in its reserve currency basket, Yuan is still far from its competitors. “In spite of the success of the Chinese economy, Yuan remains an unreliable currency for settlements. Even the euro, albeit its high economic potential, was not able to beat the hegemony of the dollar over the past 20 years,” comment the experts.