De-dollarization: It's possible to substitute dollar, but what can replace it?

By Vestnik Kavkaza
De-dollarization: It's possible to substitute dollar, but what can replace it?

Speaking at the 73rd session of the UN General Assembly, head of the Russian Foreign Ministry, Sergey Lavrov, said that decision on abandoning transactions in US currency would weaken the US positions in the international arena. However, Russian experts believe that replacing the dollar will be pretty difficult.

The head of the department of stock markets and financial engineering of the Faculty of Finance and the Banking Business of RANEPA, former deputy chairman of the Central Bank of Russia Konstantin Korischenko, recalled that in different historical periods, currencies of Spain, Portugal, Holland, as well as Great Britain were accepted as main currency, while the dollar became dominant after the Second World War. "Politically, economically and scientifically many countries think about abandoning the dollar as the world currency, not only because of policy pursued by the United States, but also because the dollar itself is not in a great state by all macroeconomic parameters. Another currency should replace it. Among five reserve currencies - dollar, pound, euro, yen and yuan - the euro has greatest chances. Recent events clearly demostrate it, especially recent agreement of five countries on possibility of creation of a special mechanism for trade with Iran, which was largely initiated by Europe," Konstantin Korishchenko said.

As for the ruble, according to expert, the ruble has become freely convertible currency since 2005, when the Russian Federation fulfilled all conditions stipulated in the IMF documents to recognize currency as freely convertible: "However, other characteristics of Russian economy, unfortunately, won't allow the ruble to qualify as one of the main world currencies. By the way, issue of creation of the EAEU currency was postponed to 2025. Countries of this bloc want to use national currencies within the framework of mutual trade, but national currencies were used in bilateral trade as an experiment in other countries and it hasn't led to anything good. De-dollarization means acceptance of collegial decision in favor of new currency that will come to our economic and financial world and replace the dollar."

Victoria Perskaya, director of the International Economic Relations Institute of the Financial University under Russia's government, discussed speculations that after de-dollarization, all Russian deposits will go through depreciation, and all money will be exchanged at some conditional rate: "Economists have to explain that de-dollarization doesn't mean that there will be no dollar in our economic space. The ruble is a freely convertible currency, so the dollar can easily be exchanged for the ruble, and this won't change. If citizens prefer to keep their monetary savings in dollars, then they will have such opportunity."

She doesn't believe that the euro will become an alternative to the dollar: "The euro was created within the framework of the Maastricht Agreements in order to create an alternative currency that is directly linked to the dollar. Americans helped to create it. Both the EU and the US economies are still connected." Speaking about alternatives, she noted that the BRICS countries focused on transition to transactions in national currencies, but it will be possible to increase demand for national currencies only through increasing competitiveness of national economies.

However, researcher at the International Institutions Studies Center of the RANEPA, Andrei Shelepov, doesn't believe that the BRICS countries will begin to use national currencies in trade: "Despite all agreements, so for we can see significant achievements only when it comes to the ruble/yuan pair. But if you look at the volume of transactions in these currencies, it's a drop in the bucket. BRICS has many financial initiatives that somehow involve the use of national currencies - the BRICS Development Bank, the National Currencies Bond Fund. But at the same time, the use of national currencies in the Development Bank is limited to the yuan ... When it comes to other currencies, it's not so simple. If we talk about the National Currencies Bonds Fund, there are certain difficulties. Latest declaration following the Johannesburg summit says that significant progress had been made, but it's impossible to find information about the ongoing work and what has really been created. Representatives of the Russian Finance Ministry said that Russia's participation in this mechanism is political, image-based step, an expression of support for its partners, and not an urgent need from economic point of view."