Russia: International Monetary Reform and Currency Internationalization

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Russia International Monetary Reform and
Currency Internationalization

• Juliet Johnson
• McGill University
• December 2012
• ADB/CIGI/HKIMR Conference, Hong Kong
• The BRICS Asia, Currency Internationalization,
  and International Monetary Reform

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• Fundamentally, what the world is facing today
  is a serious systemic crisis, a tectonic process
  of global transformation. . . . This period will
  be long and painful. No illusions should be
  cherished.
• - Vladimir Putin, January 2012

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Key Questions

• How and why do Russian leaders want to reform the
  international monetary system?
• What is the potential role of the ruble in an
  emerging multicurrency world?
• What is the relationship between ruble and RMB
  internationalization?

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Russia and the Global Financial Crisis

• Russia was hit hard by the crisis
• GDP growth fell from 8.5 in 2007 to -7.9 in
  2009
• Blame placed on US policy and the international
  monetary systems over-reliance on the US dollar
• Key demands reform the international financial
  architecture and diversify the international
  monetary system
• Work through G-20 and BRICS

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Russian Frustrations

• There is a feeling that the G20 is following in
  the footsteps of the G8 there is more and more
  noise, but less and less concrete results . . .
  Soon there may be a new legitimacy crisis of the
  G20, like the one that hit the G8.
• - Russian policy expert Sergei Karaganov, 2012

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BRICS Alternatives

• Promote multiple state-based reserve currencies
• Exchange credit in BRICS currencies through their
  national development banks
• Create a common BRICS development bank
• Develop a regional crisis fund involving currency
  swap arrangements among BRICS states.

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The Ruble in a Multicurrency World

• Russia today is a global player. We must
  recognize its responsibility for the destiny of
  the world and we want to participate in shaping
  the new rules of the game . . . The
  transformation of Moscow into a powerful global
  financial center and the transformation of the
  ruble into one of the leading regional reserve
  currencies are the key ingredients to ensure the
  competitiveness of our financial system.
• - President Dmitrii Medvedev, 2008

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Economic Challenges to Ruble Internationalization

• Energy resources were 65 of Russia's total
  exports in 2011
• Russia ranked 39th of 62 countries in the 2012
  World Economic Forum Financial Development Report
• Russia ranked 9th internationally in merchandise
  exports, 17th in merchandise imports, 22nd in
  commercial services exports, and 15th in
  commercial services imports in 2011
• Russia ranked 133 of 174 countries in the 2012
  Transparency International Corruption Perception
  Index, the lowest of the G-20 and BRICS
• Russia ranked 120 out of the 183 economies
  assessed in the Doing Business 2012 report
• Inflation in 2012 is running at 6.5-7 percent

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Source Maziad et al, "Internationalization of
Emerging Market Currencies," IMF Staff Discussion
Note SDN/11/17, 19 October 2011
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The Ruble as a Regional Currency

• Before the crisis, the idea that prevailed was
  that we needed three or four global currencies,
  namely the dollar, the euro, the pound sterling,
  the yen, and that was it. Now it is clear that
  even these four currencies are not up to the
  task, that we need regional reserves. The ruble
  is an absolutely perfect candidate for this
  purpose . . . . Our partners such as Belarus and
  Kazakhstan are saying yes, we would like to carry
  out transactions in rubles.
• - President Dmitrii Medvedev, 2009

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From EurAsEC to Eurasian Union?

• EurAsEC (2000) Russia, Belarus, Kazakhstan,
  Kyrgyzstan, and Tajikistan
• Eurasian Development Bank (2006) Russia,
  Kazakhstan, Armenia, Tajikistan, Belarus, and
  Kyrgyzstan
• Customs Union (2010) Kazakhstan and Belarus
• Common Economic Space in the Customs Union (2012)
• Eurasian Economic Union - with a common currency?

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No to a Currency Union

• We decided that each country would use its
  national currency. On the one hand, this is bad
  because it does not let the ruble strengthen its
  position, but at the same time it is good,
  because each country can implement its own
  economic policy. When it comes to this area we
  need to take the European Unions failures into
  account . . . . before we ever contemplate
  introducing a common currency between Russia,
  Kazakhstan, and Belarus, we would first need to
  harmonize our macroeconomic and financial
  policy. 
• - President Vladimir Putin, 2012

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Russia and the RMB

• Russian turn towards Asia under Putin 2.0
• Expanding trade in RMB on the Moscow Exchange
• VTB accepts RMB deposits as of 2011
• VTB issued dim sum bonds in 2010 and 2012
• Ruble-RMB use in bilateral trade increasing

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The Ruble vs. the RMB?
Source Cooley (2012), derived from IMF and
Direction of Trade Statistics (DOTS), 2001-2010
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Central Asian Challenges

• Russia is setting an ambitious goal to turn its
  national currency into a global reserve currency.
  However, even the Chinese renminbi is not yet
  fully ready for that. If we talk of some reserve
  currency in our region, it should be a basket of
  the Chinese renminbi, the Russian ruble, and the
  Kazakh tenge. We should not politicize the
  issue.
• - Kairat Kelimbetov, Kazakh Minister of
  Economic Trade and Development, 2011

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