Even if Russia succeeds in selling energy in rubles, it cannot replicate the underlying reasons for the dollar’s impact on the pricing of trade
The currency’s surprising strength in recent days follows Mr. Putin’s announcement that he wants Europe to pay for natural gas in rubles, rather than euros and dollars.
Excluding energy exports from the sanctions has given the ruble a floor. While Russia has been frozen out of roughly $300 billion of its foreign reserves, its current-account surplus is still likely to bring in more than $20 billion every month. The European Union buys 40% of its gas and 30% of its oil from Russia.
If Mr. Putin truly wants to leverage this dependency into additional demand for his currency, gas may only be the beginning.
Roughly 40% of global trade is invoiced in dollars, even though the US share of exports is only 10%. Research by the International Monetary Fund finds that the prices of traded goods move with the greenback, even in cases where neither country uses the dollar and their bilateral exchange rate shifts in some other direction. It shows why invoicing in your own currency can give you power: Since prices are “sticky,” foreign buyers pay more when the exchange rate increases. This is what Russia could get from ruble invoicing, University of Reading Professor Alexander Mihailov argued Tuesday,
Yet, though gas is a somewhat segmented market, Russia isnt a big exporter of differentiated goods with sticky prices. Instead it is a mammoth seller of commodities, the prices of which fluctuate in real time and move to offset changes in the dollar.
Making importers use the ruble would make it more liquid, but wouldn’t necessarily bring it more buyers. When exporters get paid in foreign currencies, they convert a lot of it into domestic money anyway, to pay workers and suppliers. In Russia, the government already requires them to exchange 80% of their revenues, which serves to channel dollars and euros through unsanctioned banks to importers who need them.
Sure, forcing foreigners to buy the ruble would take the conversion rate on some trades up to 100% and perhaps give the central bank some extra control over reserve management. But Moscow could also mandate state-owned Gazprom to sell more euros.
Mr. Putin’s threats to rewrite energy contracts—which the Group of Seven have already called “not acceptable”—are likely bad for the ruble in the long run. They escalate tensions and accelerate European plans to buy gas elsewhere.
There is a mistaken belief that dollar invoicing is the cause, rather than the result, of the greenback’s “exorbitant privilege” within the monetary system, which is instead built upon the US’s hegemonic role in the global economy. Russia depends on the West for key technologies in sectors like semiconductors, aviation and even energy exploration and extraction, which will be hit hard by sanctions. In time, commodity export volumes themselves may be lower.
The ruble’s value comes from how much Russian stuff foreigners buy, not the currency in which they pay. Ultimately, the exchange rate will reflect it.
Write to Jon Sindreu at [email protected]
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