5 October 201840

De-dollarization in Russia

The main goal of de-dollarization is to prepare Russia for new sanctions, which are preparing to introduce by the United States, which may lead to a full ban on Russian banks with state participation in any operations in US dollars. This has long been talked about and as the highest measure, it is quite possible, since all US dollar transactions are going through American correspondent banks. That is, any transactions from the Russian side can be “suspended until clarification of circumstances”, meaning, for a very long, if not forever.

Theoretically, almost 60-70% of foreign trade can be rid of US dollars. However, the transition to alternative currencies is associated with significant costs, for example, the rate of the yuan is largely dependent on the ruling party of China. It is extremely unprofitable to keep money in euros due to the extremely low rate of the ECB. In September, the deposit rate remained at the level of -0.4%. In other words, if you want to store in euros – you pay for it. Accordingly, domestic exporters will have to make discounts to consumers in order to persuade them to switch to calculations in euros.

Euro because of its high cost, and yuan because of the provision of control over the financial system to China, which is ready to pursue an extremely aggressive export policy and destroy any foreign competitors, are not a panacea and a full-fledged alternative to dollarization, which has already become a world standard. The process of abandoning the US dollar for Russia will definitely be difficult and will affect everyone. But it is inevitable. It is impossible to transfer everyone to the ruble with its low liquidity and instability. Its impossible to sustain without foreign currency. The most important thing, in that case, is only to keep balance.

Eldiyar Muratov - CEO of Singapore Castle Family Office