Russian de-dollarisation: public-private divergence persists
Over 2014-19, the share of USD dropped by 15-20ppt in Russia’s trade and financial flows. In 2020, the push for de-dollarisation continued from the top, with MinFin catching up with the central bank on diversification of international assets. However, the politically-driven de-dollarisation of state assets and foreign debt was low-hanging fruit
Russia has been on the frontline of the de-dollarisation efforts for several years, recently supported by China. Over 2014-19, the share of USD dropped by 15-20 percentage points in Russia’s trade and financial flows. In 2020, the push for de-dollarisation continued from the top, with the Finance Ministry catching up with the Central Bank of Russia on the diversification of international assets. However, the politically driven de-dollarisation of state assets and foreign debt was low-hanging fruit. Russian households and corporates need to see a trustworthy alternative to USD before any material de-dollarisation of private sector trade and finance can be achieved.
- Russian external trade has continued to de-dollarise in 2020, in line with 2013-2019 trends, though largely a reflection of lower oil prices putting pressure on US dollar exports. Russia-China trade is the only area where de-dollarisation is more pronounced through a shift in oil contracts from US dollars to euro. Since 2019, there have been no new milestones in terms of oil exporters switching from dollars to euro or yuan but given the global trade and foreign policy challenges, China is likely to remain Russia’s ally in de-dollarisation.
- Chinese de-dollarisation means an increased role of the national currency, promoted also through the Belt and Road initiative and China’s diversified exports, making it different from Russia which is juggling various reserve currencies. At least part of China’s motivation to de-dollarise is political (to reduce US foreign policy risks), like Russia. Full or fast de-dollarisation is challenging in China due to structural obstacles, such as the non-liberalised balance of payments.
- Russian foreign debt continues to be actively de-dollarised, as maturing USD liabilities are being replaced by euro and roubles. This is seen equally at the corporate and governmental level and is unlikely to be reversed any time soon given the persistent sanctions preventing the largest entities from USD borrowing. Another area of active de-dollarisation is government’s savings, for the same reasons. This year, the Finance Ministry swapped a portion of USD collected in 2019 as a part of the fiscal rule to purchase SBER from the central bank, and called for further dilution of USD, EUR and GBP in favour of gold.
- Meanwhile, the de-dollarisation of CBR reserves stopped as - following the active post-sanction de-dollarisation of 2018 - the share of USD there is already low, at around 20% vs a stable 60% globally. It's worth noting that the share of USD in global SWIFT transactions has remained relatively unchanged at around 40% in recent years, highlighting the USD’s stable footing at the international level, so far.
- The area most challenging to de-dollarisation in Russia is private assets, as there has been no inclination to decrease USD among banks, non-financial corporates and households. It seems the Russian private sector continues to trust USD and is willing to sacrifice yield and face sanction risk in doing so. As a result, despite the drop in oil exports, USD trading volumes on the local FX market have even recovered in 2020. Increased trust in the local currency and the emergence of a sustainable alternative to USD at a global or regional level remain the pre-requisites for progress in this area. Otherwise, Russian financial stability will remain exposed to the risks related to sanctions (USD) and the euro area banking sector stability (EUR).
Role of USD in Russia: evolution as a share, 2013, 2019, and 2020, adjusted for the FX moves
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