A recent report from the research department of the Bank of Russia suggests that the country may find it difficult to abandon the use of the U.S. dollar for foreign trade settlements. The report, titled “Review of the Russian Financial Sector and Financial Instruments,” examines the risks that Russia still faces due to U.S. sanctions. According to the report, contracts are typically denominated in U.S. dollars or euros, and most providers still prefer to receive payments in currencies of friendly countries. This means that Russia will still be subject to the availability of the currencies of non-friendly countries, like the U.S. dollar, through forex markets. The study concludes that it will hardly be possible to abandon the use of U.S. dollars or euros without import contracts being shifted to payments in rubles or friendly countries’ currencies.
The report recognizes that even exporters from countries friendly to Russia prefer to be paid in U.S. dollars and euros, increasing the demand for these currencies. However, the report believes that the push for import substitution actions could lead to lower demand for unfriendly foreign currency in the mid-to long-term. This vision is consistent with the prediction of several economists on the currency issue.
Nouriel Roubini, an economist known as “Dr. Doom,” has predicted that the global economy will shift into a “bipolar” reserve currency system, featuring the Chinese yuan as an alternative to the U.S. dollar. Russia has been seeking alternatives to its current trading woes, partnering with China to rely on the Chinese yuan to settle part of its payments in Chinese currency. In the same way, President Vladimir Putin has declared he will support the usage of the Chinese yuan to settle transactions with countries in Latin America, Africa, and Asia.
The report highlights that Russia’s economy is still vulnerable to U.S. sanctions, and that the country will have to rely on conversions of rubles to yuan to purchase dollars through Chinese banks, which can also be affected by secondary sanctions. The study concludes that the country will have to continue to rely on the U.S. dollar and euro for foreign trade settlements for the foreseeable future.
In conclusion, the report from the Bank of Russia suggests that Russia may find it difficult to abandon the use of the U.S. dollar for foreign trade settlements due to the structure of trading contracts. While Russia has been seeking alternatives to its current trading woes, such as partnering with China to rely on the Chinese yuan, the report highlights that the country’s economy is still vulnerable to U.S. sanctions. Therefore, the country will have to continue to rely on the U.S. dollar and euro for foreign trade settlements for the foreseeable future.
