Russia has said that it will sell its goods abroad in its national currency after President Vladimir Putin vowed the west must buy its natural gas with roubles.
President Putin’s spokesman Dmitry Peskov told Russian television on Sunday, “It is still a prototype system (of payments) but I’m convinced that it will cover other groups of goods and it will take up a larger role in our foreign trade.”
He argued that western gas buyers would be required to exchange roubles for euros or US dollars, effectively continuing to pay in their preferred currencies as stipulated by gas contracts with the state Russian energy company. “The final payment will go to Gazprom in roubles after these euros are converted to roubles,” Peskov explained.
Dmitry Peskov said the western sanctions policy is accelerating the process of erosion of the world reserve currency, with an increasing number of countries considering options for mutual settlements in national currencies.
“This is the erosion of confidence in the US dollar and the euro, which have always been some kind of a spine for all international settlements. More and more countries, having doubts about the reliability of dollars and euros, are inclined to develop options for mutual settlements in national currencies. This process cannot be stopped, it will go on increasing,” Peskov said.
He added that in the long term the world economy will come to a new system of monetary management, different from the Bretton Woods one.
In the aftermath of the Russian attack on Ukraine the value of the rouble fell off a cliff. It fell from about 85 to the euro last year to 110 as the tanks rolled across Ukraine’s borders.
Only an intervention by the Russian central bank it stood at 94.1 to the euro. With the rouble trading at such low levels, Russian exports were going to bring in less money to subsidise state services and fund the war than previously expected.
A higher valued rouble will not only bring in more cash, it is also a matter of pride that trading nations are prepared to pay for Russian exports in the Russian currency.
A larger pool of roubles, generated by the demand from foreign countries and companies for Russian goods, would allow Moscow to challenge the US dominance, via the dollar, of global money markets, although it is not clear why China would support such a plan.
Some analysts have also speculated that dollars and euros are less useful to Moscow while sanctions are tightening. For instance, without access to dollars and euros via international exchanges, Russia is also proposing to pay the interest on its euro-denominated debts with roubles. Which countries does Putin expect to pay for gas in roubles?
Russia’s list of “unfriendly” countries corresponds to those that have imposed sanctions. Deals with companies and individuals from those countries must be approved by a government commission.
The countries include the US, EU member states, the UK, Japan, Canada, Norway, Singapore, South Korea, Switzerland and Ukraine. Some, including the US and Norway, do not buy Russian gas.