Ruble gains a record share in both imports and exports

For the first time, the ruble accounted for more than 40% of both exports and imports of Russia. Furthermore, prior to the Ukrainian crisis in 2022, the share of the ruble in exports was approximately half that of imports. However, it proved more challenging for importers to switch to the national currency than for exporters, for which there are valid reasons. What implications does this have for the Russian ruble and the Russian economy?
In March, the ruble reached record levels in Russia’s foreign trade, accounting for 43.9% in exports and 40.8% in imports. This resulted in the first simultaneous exceedance of 40% in both indicators, according to Central Bank data. A month ago, the share of transactions in rubles was 39.1% in export revenue and 38.2% in import payments.

In exports, the share of the ruble reached 40% for the first time, surpassing the previous maximum of 43.6% in June 2023. However, in imports, the Russian currency has never managed to take a share above 40%. In March 2024, this was the first time this had been done.

Prior to the Ukrainian events of 2022, less than 15% of Russian exports were paid in rubles, while the share of ruble payments in imports was 30%, according to Alexander Potavin, an analyst at Finam Financial Group. However, it proved more straightforward to exceed the 40% share in exports than in imports.
A sharp increase in the share of the ruble in exports began in 2022, primarily due to the transfer of Russian gas supplies to rubles. The second round came with the introduction of sanctions by the West against Russian oil and petroleum products, which led to the redirection of hydrocarbon exports to the east, primarily to China and India. Further, the growth of payments in rubles was spurred by the tightening of financial sanctions, which made payments in dollars and euros unsafe.

It was easier to exceed the share of payments in rubles of 40% in exports, since its volumes are almost one and a half times greater than imports,

says Vladimir Chernov, analyst at Freedom Finance Global. According to the Federal Customs Service, for the period from January to March, exports from Russia amounted to the equivalent of $101.2 billion, and imports to the Russian Federation were only $62.9 billion.

“As a rule, it is easier for exporters to dictate their terms regarding the parameters of payments for supplies. It is not difficult for counterparties from friendly economies to buy rubles for settlements with Russia. Importers prefer to receive revenue either in national currencies or in hard currencies, so the transition to settlements in rubles is less dynamic here,” says Vladimir Evstifeev, head of the analytical department of Zenit Bank.
The transition to a national currency for payments was not as challenging as it may appear at first glance. The share of the ruble in settlements increased as a result of the export of oil and petroleum products by major Asian companies. The majority of importers purchased from smaller companies that were accustomed to working in dollars and euros and were not immediately able to adapt to the transition to payments in rubles. However, economic considerations ultimately prevailed, and payments began to be made in rubles. Given the similar volumes of imports and exports to China, using any chosen currency for settlement is not a significant risk. "The ruble revenue received by Chinese exporters is sold for yuan to Chinese importers and returned in the same volume to Russia," says Denis Perepelitsa, director of the Federal Methodological Center for Financial Literacy, associate professor of the Department of Global Financial Markets and Fintech at the Russian Economic University. Plekhanov.

The recent tightening of American sanctions against banks financing trade in goods with Russia has significantly complicated cross-border payments. According to the Central Bank of the Russian Federation, difficulties in exchanging rubles for dollars and euros are prompting Russian importers and exporters to increasingly transact in rubles. Meanwhile, the use of Chinese, Turkish and UAE currencies is declining. He believes that to circumvent the restrictions, it is necessary to establish an extensive network of intermediary firms, which may complicate checks by EU and US regulators. However, this will inevitably result in increased commissions and costs for currency conversion.

Consequently, the rise in the proportion of the ruble in trade transactions not only facilitates the transition away from dollar-based transactions, but also enables the circumvention of Western restrictions.
"Increasing the share of the ruble in such calculations reduces the risks of new restrictions on supplies, but reduces the influx of foreign currency into the country. However, taking into account the reduction of the Russian Federation’s debt in foreign currency, this process appears to be neutral," says Vladimir Evstifeev.
A further increase in the share of the ruble in trade could help both the Russian ruble and our economy as a whole.

"In the long term, with a further increase in the share of payments in rubles for exports and imports, the value of the Russian national currency should strengthen, as demand for it from importers will increase. In turn, the strengthening of the Russian national currency is a powerful disinflationary factor, as imported goods in ruble equivalent become cheaper." This should result in a slowdown in the growth rate of consumer prices, which will lead to a reduction in the key refinancing rate by the Russian Central Bank and, as a result, will accelerate the rate of economic growth in the country.
Experts are confident that the share of the ruble in exports and imports will continue to grow, but at a slower pace due to the high base effect. “The most promising avenues for such growth in the largest volumes of foreign trade relations have already been exploited, primarily with China. Russia continues to expand the volume of trade turnover with the Celestial Empire, which implies that the share of the ruble in payments for the export of Russian goods and services will also grow. We anticipate reaching a share of 50% in approximately 3–5 years,” says Chernov.

With regard to the ruble exchange rate, a number of factors are currently in place to support it. For instance, at the beginning of May, the conversion of currency into rubles from the Lukoil company for the payment of annual dividends helped to stabilise the rate.
Furthermore, in recent weeks, the inflow of foreign currency into the country has increased, as proceeds from the sale of oil at increased prices began to arrive with a time lag. In early April, the price of Brent crude oil exceeded $90 per barrel. Following the results of the latest meeting of the regulator, the head of the Bank of Russia, Elvira Nabiullina, explained why the ruble exchange rate reacts with a lag to changes in trade flows. The time frame between the registration of exports and the actual receipt of foreign exchange earnings has increased to one or two months, according to Alexander Potavin.

The strengthening of the ruble is also supported by the Ministry of Finance’s expectation of additional oil and gas revenues in May, the continuation of a tight monetary policy by the Russian Central Bank and the authorities’ extension of the requirement for the mandatory sale of foreign currency earnings by the largest exporters until April 2025. In such a situation, speculators who were determined to see the dollar rise after the presidential elections in Russia were forced to reduce their foreign exchange positions, according to Potavin.

However, there are also factors that could potentially weaken the ruble. The demand for currency from importers, which has significantly decreased in recent weeks, is now becoming an important factor in the ruble exchange rate. It is clear that the threat of American sanctions against banks financing trade in goods with Russia has made it much more difficult to move money in and out of the country. Moscow’s trade volumes with key partners such as Turkey and China declined significantly in the first quarter of this year, according to Potavin.

"To date, the ruble has remained relatively stable." However, there are numerous uncertainty factors, and the forecast of the Ministry of Economic Development points to a devaluation scenario. – notes Lyudmila Rokotyanskaya, stock market expert at BCS World of Investments.
The demand for currency remains, including for those that are not particularly friendly towards their own citizens. It is necessary to settle outstanding debts, make payments for business acquisitions from non-residents, and cover import costs. There has been a discrepancy between the date of the export transaction and the date of receipt of payment for it. The principle of trade is that goods are exchanged for money. Conversely, with imports, the opposite is true: trading partners from other countries demand payment for the transaction in advance. This is a typical business practice whereby payment is made in advance for goods or services, with the goods or services being delivered later. According to media reports, foreign banks are implementing enhanced compliance procedures for transactions with Russia. This could potentially lead to instability in the national currency. "The extent to which this will impact the market will depend on the discipline of exporters in complying with the requirement to sell export proceeds," notes Rokotyanskaya.