Kommersant: “This is final”
Dmitry Butrin
The currency issue in the President's Address is not yet convertible
A rivalry between Russia and the U.S. in the financial market, leading to the establishment of the rouble as the regional currency, has become official doctrine, underlying the development of the Russian financial market. President Dmitry Medvedev, who devoted part of his Address to this idea, announced the early steps in that direction: a speedy shift of oil and gas exports to rouble settlements.
The economic section of the President's Address set a record for brevity, as it occupied less than 10% of the total time. Instead, Mr Medvedev linked the more important economic themes (the world financial crisis, the role of the rouble in international trade, proposals on financial architecture for the G20 Summit) to Russia's foreign policy strategy. He began his speech by drawing parallels between the war in South Ossetia and the financial problems of the U.S.
The President did not reveal the actual proposals for the G20 "financial summit" in Washington on November 15, but he explained that "existing and newly created international institutions" should "develop new risk systems", harmonise the accounting and reporting systems, and control the capitalisation of financial entities.
At present, all these issues are within the jurisdiction of the national government bodies, which in Russia's case include the Government, the Finance Ministry, the Central Bank, the Federal Financial Markets Service, and Rosstrakhnadzor. The "new rules of the world financial architecture" called upon to replace "the monopoly in this sphere" (an apparent reference to the U.S.) will be formed on the basis of the proposals of the numerous participants, including Russia.
The President thus summed up Russia's proposals: "It is necessary to take practical steps toward strengthening the role of the rouble as an international settlement currency and to at long last start introducing rouble settlements, something which we have unfortunately delayed, above all in gas and oil settlements."
President Medvedev also urged the need to pass a package of laws that will "form the basis for the establishment in Russia of one of the leading world financial centres" and stimulate the issue of rouble-denominated securities "preferably in the Russian market". "The ultimate goal of all these processes is to make the rouble one of the regional currencies," Mr Medvedev explained.
None of the components of Dmitry Medvedev's projects are new. Thus, in January 2006, the Federal Financial Markets Service, which during the two preceding years had advocated an increase of the share of IPOs in Russia compared to issues in London, tightened requirements to the issuers who sell their shares to foreign investors, including through ADRs and GDRs. The popularity of IPOs in Russia peaked in late 2007, but there have been practically no IPOs from Russian companies in Russia or in London since the second half of 2008. The last attempt to boost the popularity of rouble-denominated assets was made by the Russian Government during the visit of the head of the PRC State Council, Wen Jiabao, in late October 2008, when Russia proposed a "double listing" of issuers at Russian and Chinese stock exchanges, including in Hong-Kong and Shanghai, to the Chinese partners. The results of the talks have not been revealed.
The idea of turning the rouble into a "regional currency" has been promoted by Dmitry Medvedev and Prime Minister Vladimir Putin since the beginning of 2008. Thus Vladimir Putin officially proposed adopting the rouble in mutual trade with Belarus, China and Vietnam in October (see Kommersant, October 29). In the summer of 2008 similar proposals were made to Ukraine, Moldova, Mongolia and Ukraine. Only Vietnam has so far agreed to this form of settlements in principle.
Finally, the idea of selling oil and gas for roubles was identified by Prime Minister Vladimir Putin in February-March 2008 as part of the initiative to create a financial centre in Moscow. The virtual nationalisation of the project of an alternative system of pricing Russian oil (see reference) and the creation of the Moscow Mercantile and Commodity Exchange (MTSB) have yet to produce any visible results.
Vice Premier Igor Sechin, an active advocate of rouble settlements in foreign trade in oil and gas, has also repeatedly stressed the need for Russia to have its own oil and gas policy. However, as of the beginning of November 2008, the U.S. dollar remained the main currency in the oil trade, used, among others, by the Swiss Gunvor, the main export agent of Russia's oil companies. A consistent critic of dollar oil trade in the world is Iran's President Mahmoud Ahmadinejad who, despite his criticisms, has still not been able to switch any significant number of Iran's oil export contracts to the euro.
Even so, President Medvedev in his Address on November 5 for the first time linked the topics of the Russian financial crisis, the problems of the U.S. financial system, the role of the rouble in the world financial system, and Russia's domestic economic and foreign trade strategy. The second part of the economic passage in the Address invoked the works of Russian-born American economist Wassily Leontief (1973 Nobel Prize winner), who advocated planning in the market economy and developed a theory of intersectoral balances, some of whose principles were popular in the U.S. from the 1960s through the 1980s.
