The structure of foreign trade contracts makes it difficult to stop using the US dollar for settlement, according to a report by the Research Department of the Bank of Russia. Analysts found that contracts are often denominated in US dollars and that most transactions are still concluded with providers in unfriendly countries.
Analysts at the Bank of Russia noted that it may be difficult to abandon the U.S. dollar
Analysts at the Bank of Russia found that using the U.S. dollar to settle foreign trade is not easy due to the structure of trade contracts. The analysis comes from an April 11 report by the Bank of Russia titled “Review of Russia’s Financial Sector and Financial Instruments,” which examines the risks Russia could still face due to U.S. sanctions.
The reportstates that “it is almost impossible to abandon the use of US dollars or euros unless import contracts shift to payment in rubles or friendly currencies”. This is reportedly due to the fact that import contract prices are formulated in US dollars or euros, and that many providers still prefer to be paid in friendly currencies.
In other words, Russia remains in a position to use non-friendly (in relation to Russia) currencies such as the US dollar through the foreign exchange market. In other words, in order to purchase dollars through Chinese banks, it would also have to resort to converting rubles to yuan, which could also be affected by secondary sanctions.
The U.S. dollar and the euro remain preferred
The report recognizes that due to the way international trade is structured, even exporters from countries friendly to Russia prefer to pay in US dollars and euros, increasing the demand for these currencies. However, the report believes that the promotion of import substitution measures may reduce the demand for unfriendly foreign currencies in the medium to long term.
This vision is consistent with the predictions of several economists on currency issues. Nouriel Roubini, the economist known as “Dr. Doom,” predicts that the world economy will shift to a “bipolar” reserve currency system, with the Chinese yuan replacing the US dollar.
Russia is seeking alternatives to its current trade difficulties by partnering with China to make some of its payments in Chinese currency in RMB. Similarly, President Putin has declared his support for the use of the yuan for trade with countries in Latin America, Africa, and Asia.
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