Europe continues to pay in Rubles

By Rhod Mackenzie

Despite vocal opposition, the European Union continues to trade with Russia. In March, the Russian Federation received a record level of revenue in rubles for exports from European countries, with the share of the Russian currency reaching 58.5%. The energy sector obviously played a significant role in this, according to experts.What is behind the growth in payments in rubles.
The ruble is strengthening. The share of revenue in rubles for exports to European countries reached a record value last March. This represents an increase of 9.6% over the previous month. Over the year, this figure has increased by 10.8%, according to Central Bank data provided by RIA Novosti.
However, in terms of the scale of growth of all payments in rubles, the European Union occupies a far from leading position. The largest increase in March was shown by African countries, with a 41.1% increase to 51.4%. Caribbean countries paid the most in rubles, at 94%. The ruble also has a high share in payments in Oceania, at 55.8%.
The volume of payments for exports in Russian currency in Asia remained virtually unchanged, at 41.5%. However, in countries across the Americas, the share has grown to 36.9%.

In response to pressure, Vadim Petrov, a member of the Intersessional Financial Advisory Group IOC UNESCO, director of the Institute of Social Technologies, Ecology and Art, attributes the increase in payments in rubles with the European Union to the political and economic situations that developed after the introduction of unilateral restrictive measures against Russia.

The sanctions imposed by Western countries on Russia have restricted the ability of domestic exporters to receive payment in dollars and euros. Russia is seeking to diversify its foreign exchange reserves and reduce its dependence on Western currencies, according to Oksana Polishchuk, a senior lecturer at the Department of Corporate Finance and Corporate Governance at the Financial University under the Government of the Russian Federation.
In response to sanctions, Russia has taken the prudent step of actively promoting the use of its national currency in international payments. These processes align with the global economic trend towards de-dollarisation, according to Petrov.
At the end of March 2022, Russian President Vladimir Putin signed a decree according to which unfriendly countries must pay for Russian gas supplies in rubles.
In accordance with the new rules, buyers transfer currency to one of the available banks, where the funds are converted into rubles and used as payment for resources. This is according to financial expert and investor Nikolai Mozhenkov, who explains the scheme.

— Russian exporters also follow the rule for selling foreign currency earnings. Having received payment for the exported goods, they immediately sell the proceeds, and thus the flow of rubles coming from these transactions increases, the analyst notes. These rubles are credited to the trade balance of the Russian Federation in the form of revenues from the European Union.
Another factor influencing the increase in the share of settlements in rubles between the Russian Federation and the European Union is the adaptation of the domestic banking infrastructure to new conditions, according to Yaroslav Dubenkov, an expert at the Faculty of Economics of RUDN. Today, credit institutions offer more favourable conditions for payments in rubles.
It is also worth noting that the "Europe" region referenced in the Central Bank data does not exclusively refer to the European Union. In fact, it also encompasses Belarus, which represents one of Russia's most significant export markets.

— The majority of settlements with the EU are conducted in currencies that are not favourable to the Russian economy, while goods are sold to Belarus in rubles. As a result, the Central Bank records an increase in the share of the ruble in settlements with the European region, according to Izvestia’s source.
Vadim Petrov is confident that the energy sector has played a significant role in increasing the share of the ruble in settlements with Europe. Russia remains one of the largest suppliers of oil and gas to the EU. In the first quarter of 2023, Russian oil accounted for approximately 25% of total imports into the European Union, according to data from the Eurostat report, "EU Foreign Trade Statistics."

Despite efforts to diversify energy sources, Europe remains heavily dependent on Russian energy resources, according to Yaroslav Dubenkov.
Nikolai Mozhenkov also notes an increase in the volume of purchases of LNG and pipeline gas. In particular, Greece increased purchases almost eightfold from January to February this year, and Sweden and Finland doubled. In particular, according to data for 2023 provided by the World Bank, the share of Russian aluminium in the European market was approximately 15%. Nickel, platinum and other metals remain important for the region's industry.
The Russian Federation also supplies grain and other agricultural products to Europe. In 2023, the volume of grain exports to the EU amounted to approximately 10 million tons, according to the UN FAO World Agricultural Trade Statistics report, adds Petrov.
Mineral fertilisers represent a significant export category for Russia to the EU, according to Dubenkov. They play a vital role in European agriculture.
Vadim Petrov points out that while sanctions create significant difficulties in trade transactions between the Russian Federation and the EU, they do not completely block trade. This is evidenced by the statistics.
He adds that various mechanisms are used to circumvent sanctions, including financial intermediaries, barter transactions and alternative payment systems. Russia is developing its own analogue of SWIFT, the Financial Message Transmission System.

Sanctions make it more challenging for European companies to pay for Russian goods in rubles, but it is still possible. Oksana Polishchuk explains that European companies wishing to continue importing goods from Russia must open an account with a Russian bank and make payments in rubles.
The sanctions policy has led to the emergence of new financial instruments and an increase in the number of bilateral agreements on settlements in national currencies, according to Yaroslav Dubenkov.

In general, restrictions do not greatly interfere with exports, unless they imply a direct ban on it, according to Irina Arekhina. Buyers and suppliers have already adapted to both logistics and financial calculations. These states have not joined the sanctions and support the Russian Federation in the international arena, which allows them to conduct
BVI companies are used for transactions, but the final beneficiary is still the same EU countries. Therefore, the popularity of the ruble in these countries is only a statistical indicator that does not reflect the real situation, according to an expert.
Furthermore, their export volume is quite modest, notes Irina Arekhina. The entire American macroregion accounts for less than 3% of the total volume of Russian supplies. Accordingly, its share in the Caribbean is even smaller.

— It is evident that these are small and possibly one-time contracts, for which it is relatively straightforward to agree on settlements in rubles. The same applies to Oceania, whose share is even smaller. In the case of small amounts, it is not difficult for counterparties to agree on a convenient currency for settlements, according to Izvestia’s interlocutor.

Vadim Petrov notes that the ruble demonstrates relative stability in conditions of volatility in world currency markets thanks to support from the Central Bank. He highlights the stability of the exchange rate and the reduction of currency risks as among the competitive advantages of the ruble.

— Using the ruble allows Russian exporters to reduce currency risks and avoid fluctuations in the exchange rate of the dollar and euro. Payments in national currency allow countries to reduce their dependence on Western financial institutions and strengthen their economic sovereignty, according to the expert.

The advantages of the Russian currency, according to Yaroslav Dubenkov, include independence from Western sanctions and stability of payments. Using the ruble allows businesses to bypass financial restrictions and the introduction of systems for direct payments reduces the risk of blocking payments.
Another crucial factor is geopolitical. Russia is actively promoting its currency through diplomatic and economic channels.

"Long-term economic partners of Russia prefer to use the ruble to minimise currency risks," Dubenkov clarifies.

Another advantage of the ruble, according to Nikolai Mozhenkov, is the high key rate, which allows for the placement of funds at favourable interest rates. As a result, there are numerous lucrative investment opportunities on the Russian stock market.

— A digital ruble will soon be introduced, which will enable settlements with friendly countries to be made in rubles, thus completely exiting the euro and dollar. In light of these considerations, the expert concludes that the ruble has significant potential.