The New York Times is reporting today on a curious development in Russian energy trading. The news is that Russia has been “quietly preparing” to switch its trading in Russian Ural Blend oil, its primary export, from the dollar to the ruble. Oil trading is typically done in dollar transactions, and Russia’s major trading with Europe is conducted in dollar denominations. Given this, the initiative is likely going to appear to many as another audacious move by the Kremlin, by now noted for its projects of “swagger and ambition”. It is thought that the move is partly related to the dollar’s current weak position, and Russia’s drive to strengthen the ruble, which is “a new source of national pride after gaining 30 percent against the dollar during the current oil boom.” Dmitry Medvedev, speaking on economic policy this month, said that if Russia took advantage of the unease in the global economy, “the ruble will de facto become one of the regional reserve currencies.” The article outlines the Kremlin’s tactics: “In a sign of the government’s seriousness, a new glass-and-marble high-rise home for a ruble-denominated commodity exchange is rising this spring in a prestigious district in St. Petersburg, Russia’s second-largest city after Moscow. [...] The director of the St. Petersburg exchange, Viktor V. Nikolayev, said that the intention was to move slowly and gain market acceptance.” Read the full article here.
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2 Comments
This move to denominate Russia’s oil exports in Rubles will, I predict, been seen in the future as the key inflection point in Russia’s rise to become a world economic power.It also demonstrates clearly that the top officials in Russia have a very solid grasp of global macro economic issues.Additionally, it will provide “cover” for other oil exporting countries to do the same.Interestingly, there are also rumors that after the May inauguration of Russia’s next President, the Rubles may be revalued UPWARDS. The rumored rate would be 1 Ruble = 4 US Dollars. So essentially, you would trade 100 of today’s Rubles for 1 “new” Ruble.As any follower of global economics will attest, having a country’s currency be used as a reserve currency by other countries give that country many, many benefits.The rise of US economy over the past 30 years can be directly attributed to the fact that America’s currency was the de facto resrve currency worldwide (post gold standard) and therefore, America was free to keep interest rates artificially low and run a large trade deficit.Kudos to the Russian administration for understanding this global dynamic and taking steps to position Russia strongly for the future!!
Quite an interesting development, rattling the economic order established after World War II.Like Kishore Mahbubani brilliantly noted in the L.A. Times last week: There is a 60-year-old tradition that the head of the IMF has to be a European and the head of the World Bank an American, a practice reaffirmed by the appointments in 2007. Representatives of Asian nations, which make up the majority of the world’s population, do not qualify. But Asia is now home to the world’s fastest-growing economies, which have accumulated over $3 trillion in foreign reserves. It is absurd to exclude Asians from the leadership of the IMF and the World Bank.The dollar’s role is an anachronism, too. And perhaps this is the beginning of its end, who knows.Just some more additional happenings on said subject:- Iran and Russia, as major energy suppliers, can rid the world of US dollar’s slavery by promoting oil and gas deals using different currencies, said Iran’s ambassador to Russia (2/15/08)- Dmitry Medvedev: “The current state of the economy in the United States — the issuer of the world’s sole reserve currency — raises concerns… and gives us the moral right to initiate a discussion about the need for more balanced rules in this area” (2006 World Economic Forum in Davos)Since Medvedev has made multiple remarks, years apart, on the absrud dollar monopoly, we might be able to conclude that its an issue dear to his heart and one that he feels passionately about.So maybe this is one thing we can expect from a Medvedev presidency, for those who are speculating.Just my opinion.