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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
“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
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?
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 system’s 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
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
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.
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
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
Source: Maziad et al, "Internationalization of Emerging Market Currencies," IMF Staff Discussion Note SDN/11/17, 19 October 2011
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 DmitriiMedvedev, 2009
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?
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 Union’s 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
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
The Ruble vs. the RMB? Source: Cooley (2012), derived from IMF and Direction of Trade Statistics (DOTS), 2001-2010
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