BUSINESS

Russia Considers Common Currency

By Maria Levitov and Paul Abelsky

Bloomberg

MOSCOW — Russia may scrap the ruble and introduce a common currency with Belarus and Kazakhstan as the nations broaden their alliance and seek to reduce their dependence on the dollar, a first deputy prime minister said.

“I won’t exclude a transition to a common currency union with these countries in the future,” Igor Shuvalov said at a Moscow conference Friday. The currency alliance will be modeled on the European Union, which created a new unit rather than using an existing one, he said, though no talks have been held.

Russia and two former Soviet neighbors plan to create a single economic market by 2012 after their customs union took effect on Jan. 1. A new currency is “the next logical step” after economic union, Shuvalov said without giving a timeframe.

Russia has sought to promote regional currencies in trade and diversify its reserves, the world’s third-largest stockpile, to reduce risks posed by the dominance of the dollar. President Dmitry Medvedev last year questioned the dollar’s future as a reserve currency and called for a mix of regional currencies to make the world economy more stable. He said a new supranational currency could reduce vulnerability to movements in the dollar.

The world’s biggest energy supplier may eventually begin selling oil in rubles, Finance Minister Alexei Kudrin said on Jan. 22.

The ruble strengthened 0.2 percent to 34.6142, a 14-month high, against the central bank’s target euro-dollar basket in Friday’s trading. The currency gained 0.6 percent to 40.4529 per euro, the strongest since Dec. 25, 2008, while slipping 0.3 percent to 29.8394 against the dollar.

The central bank steers the ruble against the basket to limit fluctuations that hurt exporters and used a floating corridor of 35 to 38 against the basket between August and February for its daily foreign-currency moves.

Investors have pared bets that the ruble will weaken, with non-deliverable forwards showing the currency at 30.10 per dollar in three months compared with an NDF of 30.21 on March 4. The contracts are a guide to expectations of currency movements as they allow foreign investors and companies to fix the exchange rate at a particular level in the future.

The three countries will need to gradually increase trade in national currencies before switching to a common exchange unit, Andrei Kostin, head of VTB Group, Russia’s second-largest lender, said at Friday’s conference to mark Russia assuming the rotating chairmanship of the Commonwealth of Independent States.

“This will be a natural step to take since the three countries don’t need visas and share the same language – capital movement would remain the only factor in the way of economic integration,” said Alexei Moisseyev, senior economist at Renaissance Capital in Moscow. “Forming a new currency would take at least five years, assuming they go ahead with it.”

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