After years of U.S. sanctions, Moscow says it can de-dollarise its economy. But its rhetoric may be easier than reality.
President Vladimir Putin's government says it is working on plans to de-dollarise Russia's $1.6tn economy and wean its biggest industries off the U.S. currency, following four years of U.S. sanctions against the country and its expectation of new restrictions, according to the Financial Times.
The U.S. Senate is considering proposals, aimed at penalising Russia for alleged U.S. election interference and international aggression that would in essence cut off Russia's biggest banks from the dollar and deny Moscow access to foreign debt markets.
U.S. sanctions have in effect barred Russia's defence industry and some of its largest corporate groups from using the greenback, and have dramatically reduced the ability of the country's big oil and gas players to borrow in dollars.
A plan by Andrei Kostin, the head of Russian bank VTB, for banks and companies to convert dollar settlements into other currencies, has the backing of the finance ministry, central bank, and — Mr. Kostin said this week— Mr. Putin.
In addition, the Kremlin has sought to strike deals with major trading partners to use the Russian rouble for imports and exports.
That push has been welcomed in countries such as China and Turkey where relations with the U.S. are similarly strained.
"More and more countries, not only in the east but also in Europe, are beginning to think about how to minimise dependence on the U.S. dollar," said Dmitry Peskov, Mr. Putin's spokesperson. "And they suddenly realise that a) it is possible, b) it needs to be done and c) you can save yourself if you do it sooner."
But rhetoric may be easier than reality. Russia relies heavily on exports of commodities and energy — markets where the dollar is overwhelmingly the currency of choice. And the Kremlin is unlikely to convince its western partners to trade in the volatile Russian currency.
Analysts are divided over just how painful four years of sanctions have been for Russia's economy, but the impact on its currency and bond markets has been significant.
After the U.S. Treasury announced its strongest-ever measures in April — which cut off major businesses, including the country's aluminium industry, from the dollar and from doing business with U.S. citizens — the rouble fell as much as 18 per cent against the U.S. currency.
Threats from Washington to extend similar curbs to the country's state-run banks and to ban purchases of Russian sovereign debt have also sparked a $7.5bn sell-off by foreigners of the country's bonds, known as OFZs.
Russia is a major exporter, with a trade surplus of $115bn last year. Its metals, grain, oil and gas are consumed around the world, and remain in high demand in the west, despite the souring of relations between Moscow and many western capitals.
Increased trade with China and other Asian partners in recent years has helped reduce the overall contribution of the dollar to its currency settlements, but the greenback still accounted for 68 per cent of inflow settlements last year.
"I support the direction of increasing payments in the national currency, certainly," said Elvira Nabiullina, Russia's central bank chief. "It should continue according to economic expediency and taking into account the interests of our exporting companies, but nevertheless the direction of travel is promising."
From 68 per cent of Russia's total external debt in December 2015, to 53 per cent in March of this year, the push to de-dollarise Russia's obligations has been a modest success.
Though the Russian central bank has increased its dollar debt exposure — that's the exception. The government has managed to bring its exposure down to just 31 per cent, from three-quarters in 2011.
Most importantly, Russia's banks and companies — which are most likely to be hit by new sanctions — have been able to shift chunks of their debt from dollars into roubles.
But the exposure is still more than 55 per cent across the corporate sector.