As we have noted with the proposed BRICS currency, sooner or later, the Eurasian Economic Union (EAEU) will adopt a single means of payment. The move is necessary to get around US and EU sanctions on Russia, the largest EAEU trade partner, effectively cutting it off from US dollar usage, and the fact that intra-EAEU trade is rapidly increasing.
The EAEU includes Armenia, Belarus, Kazakhstan, Kyrgyzstan and Russia, with the Russian rouble becoming increasingly trade dominant, which in turn can creating potential currency imbalances with other EAEU member states and especially those that require US Dollars and Euros in their capital accounts. Kazakhstan in particular has significant and growing EU trade volumes.
Questions therefore arise. Would such a financial unit emerge as a single, new currency, be pegged to one or more of the EAEU member currencies, or be part of a basket of sovereign money?
Unifying EAEU trade finance, which is difficult to imagine without at least a common means of payment, is currently the subject of deep negotiations. However, unnoticed steps have been taken, for example it was little remarked that at the end of last year, Russia and Belarus agreed their economic integration. However, at present there are no plans to adopt a common currency. The Belarussian Rouble and Russian Rouble remain separate sovereign currencies.
A key issue with Belarus and Russia’s economic integration remains the common currency of the two countries. It was initially planned that Belarus would switch to the Russian rouble on January 1, 2005.
That this was delayed and never actioned implies that Moscow and Minsk have different understandings of the role of a single currency. Moscow believes that this will be the Russian rouble, while Minsk is supportive of a new kind of Eurasian Euro, as recently commented upon by the Belarus President, Alexander Lukashenko. Who is right?
It is possible that the Russian-Belarusian economic collaboration will be helped by their EAEU partners and other countries open to cooperation with this association, such as the BRICS. It is also possible that both Moscow and Minsk are correct as to currency evolution. only in different scenarios. Looking at a single EAEU currency, then this the Russian rouble.
On the other hand, this is impossible: the Belarus economy is only a few percent of Russia’s and is completely tied to it. This has other implications in the context of sanctions, under which Moscow and Minsk have become tied to the same problems even though Belarus troops have not set foot in Ukraine.
Also, a separate market socialism model operates in Belarus with the dominance of the public sector, largely as was the case during the Soviet Union. In Russia, there are completely different economic subsystems, for example, in the Tatarstan Republic, where the economy is driven by a free market, entrepreneurs and innovators and making its citizens far wealthier than the Russian national average.
But in Belarus, the privatisation of key Belarusian assets in favour of Belarussian and Russian oligarchs and state-owned companies is possible only by personal decisions of President Lukashenko, and is solely driven by the upfront capital price offered by buyers, and not by sustainable investments.
Concerning the concept of a Eurasian Euro and the emergence of the Eurasian Central Bank, this is relevant only if other countries join such a monetary union. That explicitly means Kazakhstan, as the economies of Armenia and Kyrgyzstan, are too immature for meaningful integration.
The idea of a single currency was originally proposed by Nursultan Nazarbayev, the First President of Kazakhstan, back in 1994 during a lecture at Moscow State University. However, the proposed currency remained unnamed until 2012 it was proposed to call it the Altyn, by which it has been referred to ever since despite being more a concept than a development project.
It was proposed that the Altyn would unite the economic complex of the former USSR, which included Belarus, Kazakhstan, Russia and the regions that became subjects of Russia. There are also strong ties of the five EAEU nations with the South Caucasus, despite the geopolitical contradictions there, as well as with other countries in Central Asia.
For this region, regardless of how the former Soviet republics integrate, the only alternative to the EAEU is as a semi-vassal status as a junior partner to China, or possibly within an expanded BRICS grouping, which would also include China and India, a growing Iran, and potentially also supported from the Middle East – whose energy rich economies are already targeting Central Asia.
When discussing any Eurasian Euro-Altyn concept, it is necessary to consider the experience of the European Union and the Euro. The EU introduced an initial non-cash currency, and then later cash. Whether a Eurasian Euro-Altyn is required is actually a political question over an economic one.
Also, the decision as broker really depends on the position of Astana. Russia’s Pivot to the East has made a Eurasian Euro-Altyn more relevant than the transition of Belarus to the Russian Rouble.
It is no coincidence that analysts are now asking which of the proposed single currencies, such as the Argentine-Brazilian duality, a BRICS coin, or the Eurasian Euro-Altyn will gain any traction. The prospect of reducing overheads, reducing US dollar usage and using the (expensive) SWIFT system all tick the right boxes. SWIFT and US banking transactional fees may look small on an individual transactional basis, however, they remain constant, with no hope of removal within the system and are directly tied to volume turnover, which in any developing region, increases by definition. The United States banking sector in this regard is seen as somewhat parasitical.
However, it is pertinent to note that in this regard, little would change even if the US dollar was replaced by an alternative currency, such as the Chinese RMB Yuan, a practice with existing global trade momentum. In a situation where globalisation is rapidly being replaced by regionalisation and local integration, the transition of such structures as the EAEU or BRICS to a single means of internal settlements is no longer perceived by anyone as a fantasy. The question to ask is how in the future China would be tempted to monetize what should be an open system beneficial to all and not one main player.
It is also worth recalling that the BRICS group rejected as unacceptable an option for the four other members when it was proposed to pay “within” the five member states in Chinese RMB Yuan. Only two factors slowed down the process: the traditional Indian rejection of everything Chinese as not allied with its interests, as well as the unpredictability of Brazil’s currency meaning that exchange rates would have to be recalculated on a consistent basis.
However, the proposed “Common Use RMB Yuan” would, it was thought, lead to significant cost savings immediately and for all BRICS members. It was no longer so important that no-one else other than China’s Central Bank could issue RMB Yuan. But is it necessary?
Of course, obtaining support from a strong Chinese currency – the country is then world’s largest trade economy, when facing problems such as sanctions and trade wars, is inconsiderable. China, according to this scenario, could also encourage other BRICS members to switch to RMB Yuan usage, or offer some kind of incentive, specifically for non-cash payments. However, to date, any meaningful transition to China’s currency, at least within the internal framework of the BRICS, has not as yet turned out to be substantial.
Meanwhile, there are new, alternative proposals to link the BRICS and EAEU to a single currency. These include a gold or other asset backed mechanism, the huge economy of China, Russia’s military and political potential, Indian IT developments, and crypto; all together with Latin America with Africa on the sidelines as potential partners. As yet, these are concepts, but will over time one of these ideas take root?
Source: AsiaIs with additional commentary by Chris Devonshire-Ellis