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bank of russia u.s. dollar

A report from the research department of the Bank of Russia shows that, due to the structure of foreign trade contracts, it will be difficult to ditch the usage of the U.S. dollar to settle payments. The analysts found that contracts are often denominated in U.S. dollars and that most transactions are still concluded with providers from unfriendly countries.

Bank of Russia Analysts Find Ditching U.S. Dollar Might Prove Difficult

Analysts from the Bank of Russia have found that ditching the U.S. dollar for foreign trade settlements will not be simple due the structure of trading contracts. The analysis comes from a report titled: “Review of the Russian Financial Sector and Financial Instruments,” issued by the Bank of Russia on April 11, which examines the risks that the country still might face due to U.S. sanctions.

The report states that “it will hardly be possible to abandon the use of U.S. dollars or euro without import contracts being shifted to payments in rubles or friendly countries’ currencies.” The reason behind this is said to lie in how import contract prices are formulated in U.S. dollars and euros and how most providers still prefer to receive payments in currencies of friendly countries.

This means that Russia will still be subject to the availability of the currencies of non-friendly countries (in relation to Russia), like the U.S. dollar, through forex markets. This determines that the country will have to also rely on conversions of rubles to yuan to purchase dollars through Chinese banks, which can also be affected by secondary sanctions.

U.S. Dollar and Euro Still Preferable

Due to how international trading works, the report recognizes that even exporters from countries friendly to Russia prefer to be paid in U.S. dollars and euros, increasing the demand for these currencies. However, the report believes that the push for import substitution actions could lead to lower demand for unfriendly foreign currency in the mid-to long-term.

This vision is consistent with the prediction of several economists on the currency issue. Nouriel Roubini, an economist known as “Dr. Doom,” has predicted that the global economy will shift into a “bipolar” reserve currency system, featuring the Chinese yuan as an alternative to the U.S. dollar.

Russia has been seeking alternatives to its current trading woes, partnering with China to rely on the Chinese yuan to settle part of its payments in Chinese currency. In the same way, President Vladimir Putin has declared he will support the usage of the Chinese yuan to settle transactions with countries in Latin America, Africa, and Asia.

What do you think about the usage of the U.S. dollar in international markets? Tell us in the comments section below.

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