Shuvalov Says Russia May Ditch the Ruble

Russia may scrap the ruble and introduce a common currency with Belarus and Kazakhstan as the nations broaden their alliance and seek to reduce their dependence on the dollar, First Deputy Prime Minister Igor Shuvalov said Friday.

“I won’t rule out a transition to a common currency union with these countries in the future,” Shuvalov said. The currency alliance will be modeled on the European Union, which created a new unit rather than using an existing one, he said, though no talks have been held.

Russia and two former Soviet neighbors plan to create a single economic market by 2012 after their customs union took effect on Jan. 1. A new currency is “the next logical step” after an economic union, Shuvalov said without giving a time frame.

Russia has sought to promote regional currencies in trade and diversify its reserves, the world’s third-largest stockpile, to reduce risks posed by the dominance of the dollar. President Dmitry Medvedev last year questioned the dollar’s future as a reserve currency and called for a mix of regional currencies to make the world economy more stable. He said a new supranational currency could reduce vulnerability to movements in the dollar.

The world’s biggest energy supplier may eventually begin selling oil in rubles, Finance Minister Alexei Kudrin said Jan. 22.  

The ruble strengthened 0.2 percent to 34.61, a 14-month high, against the Central Bank’s target euro-dollar basket in Friday trading. The currency gained 0.6 percent to 40.45 per euro, the strongest since Dec. 25, 2008, while slipping 0.3 percent to 29.84 against the dollar.

The three countries will need gradually to increase trade in national currencies before switching to a common exchange unit, Andrei Kostin, head of VTB Group, said at Friday’s conference to mark Russia assuming the rotating chairmanship of the Commonwealth of Independent States.

“This will be a natural step to take since the three countries don’t need visas and share the same language — capital movement would remain the only factor in the way of economic integration,” said Alexei Moisseyev, senior economist at Renaissance Capital in Moscow. “Forming a new currency would take at least five years, assuming they go ahead with it.”

Vneshekonombank has begun settling accounts with Ukrainian companies in Russian rubles, CEO Vladimir Dmitriyev said at the conference.  

Russia has agreements that allow the use of the ruble and the yuan in cross-border trade, First Deputy Central Bank Chairman Alexei Ulyukayev said in October. It is also in talks with India and Brazil to use their currencies in trade, he said.

Belarus and China agreed in March 2009 to a $2.9 billion currency swap to facilitate trade between the two countries. The three-year accord is worth 20 billion yuan, or 8 trillion Belarussian rubles, and may be prolonged by mutual consent.

Russia’s Central Bank isn’t considering similar currency swaps because the yuan is too “insular” for swaps, Sergei Shvetsov, head of financial operations at the Central Bank, said in an interview Dec. 10.

The world will probably have “five or six currency unions” similar to the euro region over the next decade to challenge the dollar and help facilitate trade and reduce exchange-rate volatility, Arkady Dvorkovich, President Dmitry Medvedev’s senior economic adviser, said in a speech last year.

Four Persian Gulf states are working toward a single currency, which may see them step away from a dollar peg. The board of the monetary council that will determine the new system is made up of the central bank governors of Kuwait, Saudi Arabia, Bahrain and Qatar. Oman and the United Arab Emirates have opted out.  

For the ruble to gain wider acceptance, Russia will have to sell more sovereign domestic debt and more of its main exports, oil and natural gas, in its own currency, Dvorkovich said.