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Putin's pledge to ditch the US dollar is slowly becoming a reality
RUSSIA is acting on a pledge by President Vladimir Putin to shrink the role of the US dollar in international trade as tensions sour between Washington and Moscow.
The shift is part of a strategy to "de-dollarise" the Russian economy and lower its vulnerability to US sanctions.
But while the central bank was able to quickly dump half of its dollar holdings last year, progress in trade has been slow due to ingrained use of the greenback for many transactions.
The share of euros in Russian exports increased for a fourth straight quarter at the expense of the US currency, according to central bank data.
The common currency has almost overtaken the dollar in trade with the European Union (EU) and China and trade in roubles with India surged.
The dollar's share in import transactions remained unchanged at about a third.
"There's been a strong incentive to change, not just for Russia but for its trading partners too," said Dmitry Dolgin, an economist at ING Bank in Moscow. "The European Union is also now facing trade pressure from the US" pushing them to try to reduce dependence on the dollar, he added.
The euro came close to replacing the dollar as the currency of choice for Russian exports to the EU, with its share climbing to 42 per cent in the first quarter from 32 per cent a year earlier.
Russia still relies on the dollar for more than half of its US$687.5 billion annual trade, though less than 5 per cent of those deals are with the US.
Part of Russia's motivation to shift is that companies suffer delays on as much as a third of international payments in dollars because Western companies have to check with the US whether the transactions are allowed, Russian Finance Minister Anton Siluanov said in December.
The euro's share also increased in Russia's US$108 billion annual trade with China, jumping to more than a third of export settlements in the first quarter from almost nothing at the start of 2018.
This shift, which covers commodity sales and big state contracts, has been accelerated by the development of payment infrastructure at the central bank and other lenders, according to Sofya Donets, an economist at Renaissance Capital in Moscow.
Trade in the yuan is difficult because of capital restrictions that limit foreigners' access to Chinese assets, Dmitry Timofeev, who heads the Finance Ministry's sanctions department, told the RBC newspaper.
"The yuan isn't completely convertable, which means it can't play a significant role in world trade," Mr Timofeev said.
The most dramatic shift is visible in Russia's US$11 billion trade with India. The rouble accounted for three quarters of total settlement in exports between the two emerging markets after they agreed on a new payment method through their national currencies for multi-billion-dollar defence deals.
"The trend is likely to continue because the infrastructure for transactions in alternative currencies is improving," Renaissance Capital's Ms Donets said. "Russia won't be able to give up using the dollar completely though, especially for trade of oil." BLOOMBERG