Ruble share in foreign trade hits new high

By Rhod Mackenzie

The share of the Russian currency,the ruble in its foreign trade has changed dramatically in recent years. The Central Bank reported new records for the ruble and friendly currencies in foreign trade.
This spring, they have been setting new records almost every month. At the same time, the share ofso called toxic currencies in foreign trade has remained at the lowest level for the last three spring months.
What does trade look like now and why have other countries begun to trust the ruble more?

The currency structure of foreign trade settlements continues to change in favor of the ruble. Currently Russia pays for record 41.8% of imports for rubles (Central Bank data for May 2024). For comparison: in 2021, it paid for imports mainly in dollars and euros, in 2022 the share of the ruble increased to 28.1%, and in 2023 - to 30%. This year, import purchases for rubles can easily reach more than 50% or even higher.

The share of the ruble is especially growing when paying for imports from Asian countries: here it reached a new maximum of 37.7%. In 2023, the share of the ruble reached 22.3%. At the same time, the share of currencies of unfriendly countries (dollar and euro) in imports fell to a new minimum of 25.6%.

New records were also set for export contracts. Thus, the share of friendly currencies in exports increased to 45.4%, and the share of toxic currencies set a new anti-record, falling to 17.6%. Looking back, the currencies of friendly countries were generally almost invisible in Russia's foreign trade until 2022. In 2021, their share was only 1-1.3%. In 2022, their share grew to 8.6%, and in 2023 there was a colossal increase: almost 3.5 times - to 29.4%, and already in the first half of 2024 - to 45.4%.
Asian countries are actively purchasing Russian exports in the currencies of their respective trading partners. The results for May 2024 show that for the first time, over half of the payments received from Asia were made in the currencies of friendly countries, accounting for 52.9% of the total. European countries are increasingly paying in rubles for Russian exports. The highest proportion of rubles in the total payments was 62.7%. This represents a significant increase over the previous figure of over half.

A comparison of the figures for 2021 with those for the current year reveals a significant increase in the share of the ruble. For context, in 2021 the share of the ruble for the export of goods and services from Russia was 14.3%. This grew to 27.8% in 2022, 39% in 2023 and this year the growth trend continues.

The proportion of the dollar and the euro in exports is continuing to decline. In 2021, the figure reached 84.6%. In 2022, it was 63.6%. In 2023, it fell by over half, to 31.5%. The proportion of payments in toxic currencies in foreign trade remained at its lowest level across all three spring months, at below 21%.

"Until the spring of 2022, the share of the ruble and currencies of friendly economies in Russia's foreign trade was indeed extremely low. The ruble's share for imports did not exceed 10%, while for exports it was between 5% and 7%. The yuan was not a significant factor in Russian export settlements, with a maximum share of 5% in import settlements.

However, as new trade relations are established, the share of currencies of friendly countries is also growing, according to Vladimir Evstifeev, head of the analytical department of Zenit Bank.
However, he identifies the growth of the ruble share in settlements for both exports and imports as the most significant indicator. "By settling in rubles, we can partially offset the impact of external restrictions and the negative effect on mutual trade, while also reducing our reliance on currencies from economies that are not aligned with our interests," says Yevstifeyev. He identifies the country-specific characteristics of a number of currencies as a significant challenge, citing the constant devaluation of the Turkish lira and the weak convertibility of the Indian rupee as examples.

What factors contributed to the ruble's record-setting share in trade settlements abroad in the spring of 2024?

"This spring, demand for ruble settlements increased, likely due to US sanctions against Russian banks and financial infrastructure, which caused difficulties in paying for imports even in the national currencies of Russian counterparties. "This is the reason for the even higher demand for rubles, since payments in rubles are more difficult to track from the US and Europe," states Natalia Milchakova, leading analyst at Freedom Finance Global.
She identifies three key reasons why other countries have agreed to accept ruble payments for their goods. Firstly, there is interest in supplying goods to the Russian market. Secondly, there is the opportunity to export goods from unfriendly countries. Thirdly, and most importantly, countries friendly to Russia, primarily the EAEU and BRICS, have significantly increased their trust in the ruble. Russia is the fourth largest economy in the world, and it also demonstrates growth rates higher than the global economy. While inflation is on the rise, it remains relatively manageable, in contrast to the situation in Turkey. Consequently, BRICS partners and other friendly countries have confidence in the ruble," says Natalia Milchakova.
Conversely, there is a growing lack of confidence in the US dollar globally, which also drives up demand for settlements in rubles and national currencies. "The decline in global confidence in the US dollar is largely attributable to restrictions, coupled with concerns about the mounting US government debt and the potential for a default, which could ultimately lead to a collapse in the dollar's value," states Milchakova.

Experts are confident that the trend towards an increase in the share of the ruble and other currencies in foreign trade will continue. "The primary countries with which the Russian Federation conducts foreign trade have indicated their intention to replace the dollar with local currencies in their transactions. "This indicates that there is still potential for setting new records," states Yevstifeyev.

"As long as restrictions remain in place, we believe there will be a definite increase in demand for settlements in rubles between the BRICS and EAEU countries. However, in the near future, alternative forms of settlement may emerge, including digital currencies, including state-backed digital currencies.

At the very least, the BRICS countries are already working on a common platform for cross-border settlements. It is quite possible that, in time, this could become the basis for fundamentally new forms of settlement between countries engaged in mutual trade.
Russia is keen to develop a digital currency that can help bypass the financial restrictions of the West. At a meeting on the economy on 17 July, President Vladimir Putin gave instructions to "seize the moment, promptly adjust the legal framework and regulation, develop infrastructure, create conditions for the circulation of digital assets, both within the country and in relations with foreign partners." A pilot project has already been initiated in Russia, with the participation of 13 banks, 600 individuals, and 30 legal entities across 11 cities in the country. To date, over 27,000 transfers and 7,000 payments for services have been made using the digital ruble. In September, the decision was taken to expand the pilot project, with the participation of additional banks.