Vladimir Shlyomin

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ddressing the International Banking Congress that held its session in Saint Petersburg chairman of the Russian Central Bank Sergei Ignatiev stated the start of the de-dollarization process in Russia. "Due to the consolidation of the ruble with respect to the dollar, preferences are changing steadily in favor of the Russian currency", he said.
Also, other new trends in Russia’s financial system connected with the strengthening of the ruble became apparent in the last two years. In analysts’ opinion, so as to assess them IMF methods can be used, which are based on the dollarization index, i.e. the ratio of foreign currency deposits in national banking system to money supply.
According to the data provided by Valery Petrov, the deputy general director of the Moscow Interbank Foreign Currency Exchange, in 2000 the dollarization level averaged 28.9 %, it was 27 % in 2001, 25.9 % in 2002 and 24 % now. As Petrov believes, the analysis will not be complete, if the dynamics of money accumulation by the population are not taken into account. By the Central Bank’s estimates, the total amount of cash being kept by Russians exceeds $37B. The following trend is obvious here. The lowest level of citizens’ foreign currency purchases, around $2B a year, took place between 1999 and 2000. In 2002 this figure amounted to $4.2 billion, as Russians’ earnings were rising. Later on, however, despite the continuing real income growth, the demand for cash in dollars fell down. In May 2003, for the first time the country’s population started selling more foreign currency than it was purchasing. As a result, commercial banks’ import of foreign currency exceeded its export by $300M only and was $700M less than last year.
Thus, Sergei Ignatiev’s assertion that Russia’s population "prefers to keep savings in rubles" is proven true.

The Central Bank’s statistics indicate that both Russian banks themselves and their customers have grown cool not only to foreign currency but to foreign investments as well. According to the data for March through May 2003, the total foreign assets of Russian credit organizations decreased $3.8 million and, on the contrary, the amount of funds that they attracted from abroad rose $1.6 billion. "If earlier there was no rush among clients to give up on dollars, now they sell them without delay", points out Alexei Akinshin, the senior vice president of Vneshtorgbank.

As Oleg Solntsev, the chief of the banking group at the Center of Macroeconomic Analyses and Short-Term Forecasts, explains, investments in foreign and other currency assets have lost attractiveness while the ruble gets stronger and the profitability of foreign financial instruments is down. In Solntsev’s words, the most noticeable is the reduction of foreign assets at banks, which have as their major clients companies of the oil-and-gas sector that keep considerable funds abroad. At present, according to Solntsev, these banks are the most dynamic in building up their ruble credit portfolios.
The decrease of interest in the American currency was in a way pushed forward by Russia’s president Vladimir Putin, as he mentioned a possibility of switching to the euro, when payments to European consumers of Russian gas and oil are made. "In fact, we do not rule it out. It would be of interest to us", said Putin.
"The European business community would be very glad, if that happened", says Frederic Lasser, the analyst with the French Bank Societe Generale. "The experience shows that making the euro a currency of international settlements turned out to be more complicated than it was assumed. Instead, an opportunity to make it a currency of international commerce emerged", he added.
However, Putin cooled these expectations down somewhat by reminding that such a decision would depend not on Russia only. Although today Russia is placed first by oil export surpassing even Saudi Arabia, it is, nevertheless, not Moscow that sets "rules of the game" in the world oil market, where all trading is still done in dollars. "It is unlikely that other producers will follow the Russian example", doubts Lasser.
By the way, representatives of oil-producing countries, except Iraq, have always distanced themselves from discussions of this kind. And not by accident.
Making the euro a currency of oil trading is as much difficult as it is easy. "There is no problem with transferring direct contracts of Russia’s oil companies and their European partners to the euro", says Frederic Lasser. But the world oil market is, above all, the futures market, which so far operates in two places only. They are Nymex in New York and IPE in London. It is potentially possible to introduce a new standard price for oil at IPE taking into account its location, believes Lasser. But it will be much easier to do that, when the stock exchange switches over to electronic trading. Representatives of IPE promise to do that by August 2004. In this case the world market will just get divided into two parts: the euro and dollar ones.
The plan of changing to the euro does not enjoy an absolute support in Russia either. "If statements of authorities and oil companies’ officials are analyzed, it becomes obvious that this idea has sprung up precisely on the government level, not in the business community", says Valery Nesterov, the analyst with Troika Dialog. In his turn, vice president of LUKoil Leonid Fedun does not see any special advantages in choosing different currency for settlements, though, in his opinion, a new way of payments will not result in particular additional expenditures. By estimates of LUKoil, expenses for transferring oil contracts to the euro will amount to just 0.08 % of their cost. "If the State decides to do it, we will support this initiative", says Fedun noting that such a decision will be purely political.
Nevertheless, some analysts regard Putin’s statement as a signal to all interested parties and they believe that Russia is capable of creating a powerful "euroalliance" of oil producers. They take into account the fact that the tension between the U.S. and large oil-producing countries has been rising lately. Also, the U.S. relations with Saudi Arabia have obviously worsened. The American support of the coup in Venezuela against president Chavez has led to the strong desire of that country’s ruling elite to redirect it to other markets. As a result, Venezuelan authorities take a favorable view of switching to the euro. Iran has also considered a possibility of replacing the dollar with the euro in international commerce: the Central Bank of this country has already accumulated considerable reserves of the European currency. The anti-American feelings that are widely spread in the Middle East can make such a trend grow.
After the EU expansion planned for 2004 is completed, Europe’s population will number 450 million people and the European Union will start purchasing more than 50 % of oil being produced by OPEC member countries. In the opinion of Javad Yarjani, who heads the department of OPEC markets’ analyses, the replacement of the dollar with the euro for settlements in oil industry is a matter of the nearest future.
However, the whole thing is not only about oil and politics. Such world economy giants as Japan and China, which just recently have been directed by the dollar, are engaged in diversifying their foreign currency reserves. And this is taking place amid talks about the end of the dollar’s global monopoly and decrease of the U.S. dominance in the world.
The same viewpoint can be found in Russia as well. Sergei Glaziev, the chairman of the State Duma’s committee on economic policy and business undertakings, states: "Now the ruble is one of the most stable currencies in terms of being really secured by the gold and foreign exchange reserves, which account for about 50 % of money supply. At the same time, the security of the U.S. dollar does not exceed 4 %. Our citizens’ main problem is not so much the devaluation of their savings because of possible default as the form (dollars), in which they are being kept. As the world financial crisis is growing, with the U.S. now becoming its focal center, precisely the dollar is getting much more vulnerable".
So, the de-dollarization of Russia’ economy continues. And what serves as the basis for such a process? In terms of macroeconomics this is the stabilization of Russia’s economic development rates at the quite high level as well as the favorable oil market conditions. Of no less importance are actions by the Central Bank, which managed to stabilize the ruble exchange rate as regards the dollar by reducing the profitability of cash keeping. The Central Bank maintained the refinancing interest rate to be positive in real terms gradually reducing it. At the same time the standard of compulsory reservation of foreign currency deposits (10 %) was higher than the one of compulsory reservation of ruble deposits by natural persons (7 %). Thus, it became more profitable for commercial banks to attract ruble deposits.
However, while supporting the ruble, the Central Bank is not doing the same thing with respect to the euro yet. The Bank’s board of directors "does not intend in the nearest future to adopt new investment directives and change the structure of the gold and foreign currency reserves in favor of the euro", says Oleg Vyugin, the first deputy chairman of the Central Bank. According to Vyugin, the dollar share in the structure of the foreign currency reserves still accounts for 70 %, the euro share amounts to 25 % and the share of other foreign currencies is equal to 5 %. "The board of directors rarely adopts investment directives, once in a few years. They provide a certain freedom with respect to the structure of the reserves for our operational department, which conducts foreign currency operations within this structure. We have some desire to diversify assets but, in principle, everything remains unchanged so far", notes Vyugin.
Nevertheless, the Ministry of Finance has a different opinion. In an interview with the Bloomberg Agency first deputy minister Alexei Ulukaev said that Russia was planning to reduce the dollar share of its reserves and increase the euro share. In his words, it is explained by the importance of the European market for the Russian economy and the depreciation of the U.S. currency in the world market. According to Ulukaev, the dollar share in the foreign currency reserves will be reduced by 3 to 5 percentage points and the euro share is to increase as much.