Russia will de-dollarize the economy, contemplates crypto; what can this mean?
As Russia continues to reduce its dollar assets, the country’s foreign ministry plans to replace the greenback not only with traditional fiat currencies, but also with digital assets, according to reports. Speaking on the country’s efforts to reduce the share of the US dollar in Russia’s international reserve, Aleksandr Pankin, Russian deputy foreign minister, said the country was emphasizing “de-dollarization” and limiting the use of the dollar in foreign trade transactions. Pankin was speaking to the local Interfax news agency.
CNBC reports that to this effect, the ministry may replace the greenback with “certain digital assets” alongside other long-term currencies. The move will reduce the risks posed by US sanctions, the minister said. “Payments in US dollars go through US banks and a clearing system, which allows Washington to block any transactions it deems suspicious,” Pankin said.
For decades, the US dollar has been the world’s primary reserve currency. However, in recent times a number of countries are seeking to undermine its importance by moving away from the currency. China and Russia have tried to reduce their use of the US dollar or to “de-dollarize” their economies. The main reason for de-dollarization is to protect their economies from US sanctions and to reduce the impact of US economic and monetary policy on its own economy. De-dollarization efforts have gained ground over the years, with the European Union also showing a strong motivation to de-dollarize.
Russia accelerated its de-dollarization process from 2014, following US sanctions against the country in response to its invasion of Ukraine. In an effort to insulate the Russian economy from US sanctions, President Vladimir Putin has called for de-dollarization. Russia plans to take three steps to de-dollarize its economy. First, the government will reduce its own dollar holdings. As a measure, Russia’s central bank cut the share of dollar reserves by more than half between 2013 and 2020. Second, Russia plans to reduce its share of dollar trade. The government has entered into agreements with several countries, including India, to use national currencies for bilateral trade. Third, the country has developed its payment processing capabilities to reduce its dependence on a dollar-centric payment infrastructure. So far Moscow has not encountered any challenges with the euro or other currencies and therefore does not plan to take similar action for them.
According to Pankin, for de-dollarization, an appropriate mechanism for new settlement systems must be introduced. Established models of cooperation between different jurisdictions and companies need to be reorganized and this can only be achieved through cooperation in bilateral, regional and multilateral formats.
In a recent interview with CNBC, President Vladimir Putin said that cryptocurrency could be used for settlements in the future because it is very unstable at the moment. “I think it would be premature to use it in trade, especially when it comes to energy resources,” he said. The Russian president said the United States was “cutting off the branch it was sitting on” by undermining the dollar.
Russia this year enacted a “Digital Financial Assets” law, which partially regulates cryptocurrencies and related activities. The country has yet to amend its legislation to put in place comprehensive regulations. The government recently said it was not considering banning citizens from acquiring cryptocurrencies, although they are not used as legal tender.