‘There’s Tremendous Scope for De-Dollarization’ – Chief Economist

According to the Russian finance minister, the plan on the de-dollarization of the Russian economy has been submitted to the government. On Wednesday, Vladimir Putin said that Washington had made a mistake by undermining the dollar’s credibility as a reserve currency, adding that “they are undermining faith in it as this universal tool.”

Radio Sputnik discussed the Russian government’s plan to de-dollarize the country’s economy with Dr. Yaroslav Lissovolik, chief economist at the Eurasian Development Bank and program director of the Valdai Discussion Club.

Sputnik: Russian President Vladimir Putin has said that Washington’s sanctions policy undermines the dollar’s credibility as a reserve currency. He also said that the US was “biting the hand that feeds them.” What are your thoughts on this?

Yaroslav Lissovolik: I think that’s absolutely correct in the sense that the threat of restrictions and sanctions essentially raises the economic costs of transactions in dollars. In economic terms, there are barriers and costs to using the dollar and, accordingly, various sanctions and restrictions lead to countries looking for alternative currencies as a way to reduce these risks and the potential transaction costs associated with the use of dollar.

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Sputnik: The Russian government has been working on a draft project aimed at de-dollarization of the Russian economy based on the proposals of Russia’s VTB Bank President Andrey Kostin. In your opinion, are these proposals coming right on time?

Yaroslav Lissovolik: Quite frankly, I think that it would have been better if they came much earlier. A lot of the initiatives that we’re seeing coming from Russia over the past several years could have taken place earlier without necessarily the greater risks of sanctions or pressure coming from the West. For example, the turn to the East and greater emphasis on dealing with Asia and East Asia could have been undertaken by Russia much earlier; the same case is with de-dollarization, including the denomination of foreign trade transactions in currencies other than the dollar. There is tremendous scope for de-dollarization, in this respect, for Russia. I think it is somewhat late in the game that Russia is starting to undertake these initiatives; but, obviously, as they say, better late than never.

Sputnik: What could some of the benefits that Russia will have after switching to other currencies, such as the euro, yuan or ruble, in international trade?

Yaroslav Lissovolik: One of them is the reduced risk of restrictions associated with the use of the dollar, that’s the immediate risk that Russia is trying to deal with. The other one is that with the greater use of national currencies, including the ruble, there is greater possibility to use the ruble as the medium of exchange that could potentially lead to the ruble gaining greater weight as a regional reserve currency, at least for the immediate future, as a reserve currency for the near-abroad. Another benefit that I see, a very important one, is that if, indeed, the role of the ruble in international transactions is set to increase, that will necessitate a change in the strategy of the Russian government vis-à-vis the ruble and its stability. We have seen a series of depreciations of the ruble in the past several years, and in order to make sure that the ruble is a more secure reserve currency in the future, the government will need to abandon the weak ruble policy and place greater emphasis on ruble stability, which has its benefits for the wider strata of the population.

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Sputnik: What kind of consequences could there be in case Russia adopts its de-dollarization strategy?

Yaroslav Lissovolik: I think that for the US, in the longer term, that essentially means a lower role of the dollar in international transactions. I think that in terms of foreign trade transactions this is not very difficult for Russia in the sense that the share of the US in trade with Russia is not that high at all, and there is scope for the Chinese yuan and the euro to gain at the expense of the dollar. Globally, I think that the dollar will continue to be the key reserve currency for the long term, but its share from the very high level that we see now will decline at the expense of greater prominence of the euro, the yuan and potentially some of the other currencies of developing and developed markets.

Sputnik: We’ve also seen Iran and Turkey gradually abandoning the dollar in trade because of sanctions. In your view, could we see a domino effect?

Yaroslav Lissovolik: This is something that we’re increasingly seeing and this is not just with Iran, Russia and countries that were affected by sanctions. We’re even seeing declarations made by representatives of the EU regarding the possibility of using this tremendous reserve of de-dollarization in the world economy in order to advance the euro as a more prominent player in global financial transactions. I think that different players and different countries see the possibility and potential for de-dollarization, and once they get their share of the pie, in terms of using their currencies to undertake international transactions to occupy a greater share of the world’s financial transactions.

The views and opinions expressed in this article are solely those of the speaker and do not necessarily reflect Sputnik's position.