CIS: Let’s trade in national currencies ?

/By AzerNews/

By Gulgiz Dadashova

Russia, thanks to its active political and economic policy in the CIS area, has been working to establish the ruble as the key payment currency among the member states by stimulating a transfer of payments for energy in rubles and using the currency in bilateral trade.

However, following the decrease in oil prices, economic sanctions imposed against Moscow, and the fact that the ruble lost positions in recent months, this prospect seems unrealistic at least for now.

The ruble led the decline in July, slumping 10 percent against the dollar and recording the biggest monthly drop this year among the Emerging-market currencies, according to Bloomberg. It has lost about one-fifth of its value against the euro since a 2015 peak on April 15.

Some experts claim that use of national currencies in export and import contracts among the CIS member states could be conducive to reducing transaction-related costs for business entities, lowering the national economy's demand for foreign currency, and easing pressure on the exchange rate of national currencies.

Over the past 10 years, the member-countries of the Commonwealth of Independent States increased use of national currencies in mutual trade, and the share of this use has increased more than fivefold.

Anatoly Kazakov, the chairman of the Coordination Council of Business Center for Financial and Banking Council of the CIS, told Trend while commenting on the newly adopted joint action plan of the CIS states to address pressing issues in the financial and economic sphere.

"10 years ago, the share of national currencies in the export-import operations amounted to five per cent. Today this proportion is over 25 percent, in the framework of the Eurasian Economic Union (EEC) - more than 50 percent, and in the framework of trade relations between Russia and Belarus, even higher,” Kazakov noted, adding that while these figures are very low in comparison with the integration in the EU, where the figure is over 90 percent.

However, expert Vugar Bayramov believes that use of national currencies in trade among the CIS member states will not rise in the short term.

“The national currencies of the CIS state are still weak for the wide use of them in mutual trade, especially following the developments being observed since mid 2014. They are not as stable as needed,” he told AzerNews.

Major changes being observed in the currency market of the CIS states, the devolution of a number of currencies and the strengthening position of the USD as the key international payment unit, prevents the organization of payments in the national currencies of the CIS counties.

“Some countries use national currencies in bilateral trade instead of the USD and euro. In some cases this is related to a lack of foreign exchange in these countries and in other – profitability of the national currencies. Especially, Central Asian states use the national currencies widely while trading with Russia, and also with each other,” he said, noting that however this does not mean that the trade within the CIS area may completely move to using national currencies in the short term.

Bayramov recalled that there have been discussions to use Azerbaijan’s manat widely in mutual trade, as manat was among the highest performing currencies among the emerging market currencies.

“However the fact that Azerbaijan’s main trade partner is Europe and the EU occupies about 60 percent of country’s foreign trade, as well the ongoing Nagorno-Karabakh conflict and occupation of Azerbaijani territories by Armenia leaves little room for use of the manat in this spectrum.”

Although, roughly all CIS states need foreign exchange to stabilize the domestic currency market, so they can hardly avoid using euro or USD in their trade. Most try to increase the volume of forex in the country, he said.

Kazakov also named few barriers for trade between the CIS countries.

"We have signed an agreement on a free trade zone, but there are still exemptions. Their elimination from the free trade regime and the transition to the free movement of goods, capital and human resources would seriously enhance the mutual trade. We need to decrease trade restrictions. There a few dozen types of goods, for which there are restrictions, and it prevents us, the lack of a common market of finance also obstacles this,” Kazakov argued, stressing that it is important to support export and import operations.

Although Azerbaijan was a member of the agreement on free trade signed between the CIS countries in 1994, the country did not join the new FTA, signed October 18, 2011 by eight countries – Russia, Armenia, Belarus, Kazakhstan, Kyrgyzstan, Moldova, Tajikistan, and Ukraine.

The creation of a Caspian Development Bank, which would unite the Caspian CIS countries, with the possible accession of neighboring countries would be advisable, Kazakov believes.

"This would strongly improve the process of creating an infrastructure for trade: ports, roads and, above all, the Silk Road transport corridor North-South, and East-West,” he said adding that Iran also needs to be taken into account while considering this issue.

“There are enough offers and opportunities, but there is no political solution. We will continue to offer, but the politicians should agree first,” he said.

Asked about the possibility of creating a single currency in the CIS area, Bayramov noted that this is not realistic for now.

“This issue is being discussed among the member countries of the Eurasian Customs Union, which consists of Russia, Belarus, Kazakhstan, Armenia, and Kyrgyzstan. But still it is a weak institution, so it’s not real for now. Also, Azerbaijan is not a member of this Union and there is still conflict between Armenia and Azerbaijan. So, first political problems should be resolved for better economic cooperation, and later for creation of single currency within the CIS area.”

The CIS was created in December 1991. Currently, the CIS unites Azerbaijan, Armenia, Belarus, Kazakhstan, Kyrgyzstan, Moldova, Russia, Tajikistan, Turkmenistan, Uzbekistan, and Ukraine.