Alexander Firanchuk and Dmitry Kuznetsov on the causes of growth of the ruble in settlements with the EU

In March 2024, the share of the ruble in payment for exports to Europe reached record-high levels. Alexander Firanchuk and Dmitry Kuznetsov, experts of the International Trade Department of the Gaidar Institute told RBC why the share of the ruble in settlements with Europe was growing.

Alexander Firanchuk noted that the monthly data on the pattern of payments for exports were highly volatile. The March maximum ruble share (58.5%) was preceded by modest results in February (48.9%), which were close to the minimum over the past 12 months. “Nevertheless, the overall trend towards growth in the share of the ruble in settlements with the “Europe” region continues. It is to be reminded that apart from the EU, the region also includes Belarus in trade with which the ruble plays a more important role. Consequently, a decrease in volumes or value of Russian goods supplied to the EU with stable or growing supplies to Belarus will also lead to an increase in the share of the ruble in payments.”

Dmitry Kuznetsov agreed with this and added that Russia could also increase crude oil supplies to Belarus, particularly, for refining and subsequent import of petrochemicals to Russia to make up for the deficit caused by attacks on Russian oil refineries.

Another reason may be the fact that payments for gas supplied to the EU have switched over to rubles since April 2022. “However, it is important to understand that in this case the currency of settlements does not necessarily coincide (more likely does not coincide at all) with the currency of the contract under which payments from buyers are still received in Russia in euros, but then converted into rubles, credited to the exporters’ accounts and for these reasons accounted for by the RF Central Bank in its statistics as settlements in rubles,” explained Dmitry Kuznetsov.

At the same time, according to the data of the RF Federal Customs Service (FCS) exports of goods to the “Europe” region fell considerably by 44.3% by Q1 2023 and this drop is most likely caused by a reduction in supplies to the EU countries and not to Belarus, Dmitry Kuznetsov noted. “So, in this case, it is most likely structural changes which entailed a technical increase in the share of the ruble in settlements. In my opinion, it is too premature to talk about a trend here,” the expert said.

According to Alexander Firanchuk, the dynamics of the ruble’s share in settlements will depend on further changes in the geographical pattern and overall dynamics of trade, which, in turn, are influenced by geopolitical factors. Dmitry Kuznetsov does not expect a further increase in the share of the ruble in export payments as the dollar and euro still prevail in the international trade and there will always be a need for these currencies. “After 2022, for Russian companies the attractiveness of the US dollar and euro has certainly decreased, but these currencies still dominate in the global trade, which means that it is much easier to buy imports for these currencies in most markets as they are relatively stable and liquid,” the expert noted.

The ruble has historically been and, apparently, remains a popular currency in settlements with the EAEU and CIS countries which trade actively with Russia, however, as regards other groups of countries the situation is more complicated and, in most cases, companies will try to avoid relatively illiquid currencies, Alexander Firanchuk warned. “Trade with China -- the main trading partner -- will most likely be denominated mainly in yuan as this currency is more liquid and Chinese companies in many cases have an enhanced bargaining position (owing to a large share in Russian markets) and can impose settlements in their own national currency,” Dmitry Kuznetsov summed it up.