A report from the Bank of Russia’s research department shows that due to the structure of foreign trade contracts, it will be difficult to get rid of the use of the US dollar to settle payments. Analysts found that contracts are often denominated in US dollars and that most transactions are still concluded with suppliers from hostile countries.
Bank of Russia analysts find dumping US dollar could prove difficult
Analysts at the Bank of Russia have found that getting rid of the US dollar for foreign trade deals will not be easy due to the structure of trade contracts. The analysis comes from a report titled: “Review of the Russian Financial Sector and Financial Instruments,” issued by the Bank of Russia on April 11, which examines the risks the country could still face due to US sanctions.
The report state that “it will hardly be possible to abandon the use of US dollars or euros without import contracts being changed to payments in rubles or in the currencies of friendly countries.” The reason behind this is said to lie in how import contracts are priced in US dollars and euros and how most suppliers still prefer to receive payments in friendly country currencies.
This means that Russia will continue to be subject to the availability of non-friendly (relative to Russia) currencies, such as the US dollar, through the foreign exchange markets. This determines that the country will also have to rely on ruble-yuan conversions to buy dollars through Chinese banks, which may also be affected by secondary sanctions.
The US dollar and the euro remain preferable
Because of how international trade works, the report acknowledges that even exporters from Russia-friendly countries prefer to be paid in US dollars and euros, increasing demand for these currencies. However, the report believes that the momentum of import substitution actions could lead to lower demand for hostile foreign currency in the medium to long term.
This vision is consistent with the prediction of various economists on the exchange rate issue. Nouriel Roubini, an economist known as “Dr. Doom”, has predicted that the global economy will shift to a “bipolar” reserve currency system, with the Chinese yuan as an alternative to the US dollar.
Russia has been seeking alternatives to its current trade woes, partnering with China to rely on the Chinese yuan to settle part of its Chinese currency payments. Similarly, President Vladimir Putin has stated that he will support the use of the Chinese yuan to settle transactions with countries in Latin America, Africa and Asia.
What do you think about the use of the US dollar in international markets? Tell us in the comment section below.
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