Ruble share in Russia's global trade rises

By Rhod Mackenzie

The proportion of payments made in rubles for exports from the Russian Federation to Europe has set a new record, as revealed by by a report from the Central Bank. In September 2023, over half - 54% - of payments were made in the national currency according to statistics from the Central Bank. The data can be attributed to the cumulative impact of various factors, such as requirements to sell gas in rubles, sanctions imposed on Russian banks causing disconnection from SWIFT, and the establishment of new trade relationships, including with Turkey. Nevertheless, the orientation toward the domestic currency is an essential driver for the currency depreciation, leading to the necessity of regulating the exchange rate through non-market means.

Why is the ruble's share in European trade increasing?
According to Bank of Russia statistics, in September 2023, European countries predominantly used the ruble while paying Russia for its exports. Its share increased to 53.6% from August's 51.5%. The currencies of unfriendly nations, particularly the dollar and the euro, represent 35.6% of these transactions, with other monetary units accounting for 10.8%.

The proportion of settlements in rubles with Europe has reached a record high since at least January 2022, as the statistics are only available from this period. Since then, the figure has surged by five times, up from 10.7%.

According to Antonina Levashenko, the head of the Russian Center for Competence and Analysis of OECD Standards at RANEPA, the domestic currency has become a dominant medium of payment for Russian exports to Europe, owing to the decree that unfriendly countries must pay for gas in rubles. This decree was enacted in April 2022.
The trading of energy resources is a significant component in international business transactions, as affirmed by Associate Professor Tamara Safonova from the Faculty of Marketing and International Cooperation at the Institute of Management and Regional Development.

Despite the clear shift in the geography of foreign economic activity, the Russian Federation remains committed to cooperating with European nations, as emphasised by Associate Professor Elena Voronkova of the Department of State and Municipal Finance at the Russian Economic University. Moreover, this shift has presented new prospects for utilising the ruble within this continent.
For instance, Russia is actively broadening the use of national currencies in payments with Turkey, who is currently ranked among the top trade partners of the Russian Federation. The proportion of ruble usage in transactions with Turkey surged by over two and a half times at the conclusion of 2022, as reported by the expert.

Over the last half-year, Alexander Potavin, an analyst at Finam Financial Group, observed that performing currency transfers to and from Russia has become challenging. This is due to the Russian bank accounts being blocked and disconnected from the SWIFT system. According to him, only a handful of significant financial institutions can still send and receive these transfers, but at a high cost.
In which currencies do other nations pay for exports from the Russian Federation?
Despite the ruble's strong trade performance with Europe, its share in transactions with countries outside of Europe declined in September compared to August. For instance, with Asia, the figure dropped from 39% to 37%, with America - from 21% to 20%, with Oceania - from 58% to 45%.

This was also demonstrated in the overall trends: upon considering trade with all countries, there was a marginal decline in the proportion of the ruble in calculations - from 40.9 to 40.5%. Izvestia forwarded an inquiry to the Central Bank.
The modifications are elucidated by the trade volumes in respective national currencies, as observed by Antonina Levashenko of RANEPA. Specifically, 75% of all trade turnover between Russia and China comprises the yuan. This makes it advantageous for the Russian Federation to execute export payments in not only rubles, but also yuan, so as to instantly cover import expenses, as per her explanation.

Furthermore, the currency of the People's Republic of China is employed in foreign trade deals between Russia and other nations including Mongolia, Taiwan, the Philippines and Malaysia. Accordingly, a minor reduction in the proportion of the ruble in export payments with amicable countries cannot be deemed an indicator of adverse developments, as per her conclusion.

Will foreign buyers still choose to pay for Russian exports in rubles?
Although the declining value of the Russian currency makes it more appealing to do so, Alexander Potavin of Finam warns that converting payments for exports into rubles could adversely affect the exchange rate due to a significant outflow of foreign currency from the country.

The ruble has been consistently depreciating since the start of 2023. In January, the value of the dollar was approximately 67 rubles. By August, it exceeded 100 rubles. In October, a decree was released, which mandates individual Russian exporters to deposit at least 80% of all foreign currency received for their goods abroad into their accounts in Russian banks. The authorities were then compelled to utilize non-market tactics to regulate the exchange rate. This move helped to rally the exchange rate, with the dollar exchange rate resting at around 92 rubles on December 5th.
The Ministry of Economy informed Izvestia that to enhance the efficiency of the settlement mechanism in national currencies and promote market growth, foreign banks and brokers from friendly countries can now be directly admitted to organized trading in foreign monetary units. This facilitates the conversion of friendly and neutral countries' national currencies and generates direct quotes to the ruble.

The department has identified three approaches to boost settlements in national currencies of EAEU nations: enlargement of the independent payment infrastructure within the union, organised trade, and increased cooperation with the business community on the expansion of the use of national currencies.
Russia will undoubtedly pursue the trend towards internationalising the ruble, including with Europe, according to Elena Voronkova from the Russian Economic University. This desire stems, in part, from the need to mitigate the country and currency risks that the Russian Federation has recently experienced.

Voronkova explained that a new export trade mechanism for Russian agricultural products is being implemented, which involves settlements in rubles. It is clear that its share will increase within the EAEU and BRICS, as confirmed by the analysts opinion.

However, whether there will be a sustained trend in payments in the national currency will be dependent on the EU's decision regarding the imposition of an embargo on Russian gas or not, according to Antonina Levashenko from RANEPA. She highlighted that, at present, only six out of the 27 member states of the union have opted against individually buying fuel from the Russian Federation, as of September 2023.