The ruble has become the main foreign trade currency of Russia

In February 2024, the ruble became the leading currency in foreign trade settlements of the Russian Federation, with a share of 41.6% in payments for exports and 38.1% for imports. This article explores the advantages of paying in rubles for Russia and its trading partners, as well as the industries in which payments in the national currency are expected to expand. With whom and for what purposes are rubles used in foreign trade settlements.

The confidence of counterparties is crucial in this process.
In February, the share of ruble transactions in payments for Russian exports increased to 41.6%, the highest since August of last year. In payments for imports, it reached a record 38.1%, according to data from the Bank of Russia. Meanwhile, the share of the Chinese currency decreased.

In February, amidst declining export and import volumes, the yuan's share of export revenues decreased to 30.2% (down from 40.7% in January), and its share of payments for imports decreased to 32.3% (down from 38.5% in January), according to the regulator.

Analysts attribute this significant change to three main factors.
Firstly, it reduces currency risks in settlements compared to settlements in the currency of unfriendly countries. Secondly, there is a liquid foreign exchange market: the yuan-ruble pair has become the main one for Russia. Additionally, high rates on ruble deposits are a contributing factor, according to Nikolai Nazarov, project director at Arthur Consulting.
The increasing use of the ruble in settlements is a clear result of foreign counterparties' growing confidence in the Russian currency.

According to the analyst, 'Russian exporters are willing to accept payment in rubles, and the trade balance of the Russian Federation consistently remains in surplus.' This means that domestic commodity exports paid in rubles provide the necessary liquidity and attractiveness of the ruble for external counterparties.

'Yuan in action.'
The increase in the ruble's share is linked to the expansion of trade between Russia and China, which is currently Russia's largest partner. Settlements in yuan have decreased, likely due to the growing share of the ruble, according to Natalya Milchakova, a leading analyst at Freedom Finance Global. Additionally, Russia primarily settles payments in yuan with China alone, while using rubles with numerous countries and counterparties.
Nikolai Nazarov points out that exporters may choose to use the domestic currency if they are confident in their ability to safely sell received rubles and buy yuan through the exchange, taking into account the risks involved in the calculations.

The expansion of ruble payments in foreign trade transactions will depend on the trade balance between Russia and China, as well as the efficiency of the foreign exchange market. This is due to the relatively balanced flow of foreign trade transactions between the two countries and the potential to use the yuan as a savings currency.
Simultaneously, several major Chinese banks ceased accepting yuan payments from Russia at the start of 2024 due to concerns over secondary sanctions and US pressure. This also impacted the volume of yuan payments.

The primary sectors utilising the ruble in foreign trade payments are those that comprise the foundation of Russia's export structure: energy, raw materials industry, and agriculture.

The Bank of Russia reports that Moscow primarily uses rubles to make payments with countries in Europe, Asia, the Caribbean, and Oceania. In 2022, Russia began paying for pipeline gas supplies in rubles with Europe.
It is probable that the Central Bank of the Russian Federation and Russian exporters and importers also classify Turkey as part of Europe. According to Natalya Milchakova, Russia has been using rubles to pay for hydrocarbon supplies from Turkey and for importing Turkish goods.

This approach helps to avoid restrictions, potential payment blockages in currencies of hostile nations, and unprofitable cooperation with SWIFT. Furthermore, in countries with unstable national currencies, such as Turkey, payments in rubles may be perceived as more reliable due to the ruble's relative stability compared to the Turkish lira.

It is worth noting that an increasing proportion of the Russian Federation's international reserves are now held in gold, which further supports the ruble's value as a currency backed by gold. The analyst adds that the authority of the ruble as the currency of a reliable partner is growing, which is also important for foreign partners.
Artem Golubev, associate professor of the economics department of the Presidential Academy in St. Petersburg, emphasizes that although calculations may not be in rubles, the contracts themselves are not necessarily concluded in rubles.

The contract currency is typically a more stable monetary unit such as the dollar, euro, or yuan, while the payment currency can be the ruble or potentially any other currency.

An increase in the share of settlements in rubles, as well as other national currencies, partially solves the problem of sanctions restrictions. However, it also carries objective risks. KSP Capital analyst Mikhail Bespalov points out that this creates additional costs due to limited liquidity.

The sales of foreign currency on the market by exporters are now one of the main factors influencing exchange rates. In March, the ruble was supported by a 16% increase in net sales of foreign currency from the 29 largest Russian exporters, amounting to $12.1 billion. However, during the same period, the population increased their net purchases of foreign currency by over 50% compared to February, reaching 155.5 billion rubles.

The restrictions imposed on the largest Russian banks have also slowed down payments. Moreover, there is a risk of a shortage of currencies from unfriendly countries, such as dollars and euros. The reliance on the yuan as a transit currency is also increasing.
However, experts believe that using national currencies for settlements between Russian companies and friendly countries will reduce the risks associated with using traditional currencies like the dollar and euro.
According to Denis Astafiev, founder of investment company SharesPro, the prospects for national currencies depend on the development of financial infrastructure, including ruble payment systems and financial instruments.

In the future, ruble payments may expand into new industries such as technology, transport, and services. The updated BRICS rate and the shift towards national currencies will likely be a strong incentive for this. It is important to note that any modifications made to the original text were solely for the purpose of improving clarity, conciseness, and formality without altering the core message.