Sanctions and pitfalls of settlements in national currencies
On February 8, Pakistan held early elections to the country's National Assembly, the lower house of Parliament. The election of a new, now “permanent” prime minister and, accordingly, the formation of the government of this country will depend on their results and negotiations between the main parties.
Pakistan in the Russian expert segment is usually perceived as a poor country, squeezed within the framework of military-political, or rather, even geopolitical connections, such as: “India-Pakistan” (enemies), “China-Pakistan” (pro-Chinese former Prime Minister I. Khan against “Westerners” "Sharifov) and others in a similar vein.
There are many connections, but the problem with these constructions is that the real feature of Pakistan’s political system allows Chinese, Western, and Russian companies to work closely with it. And as will be shown in the material on the results of the past elections, most of these speculative analytical connections have little to do with reality.
Their constant broadcasting only discourages those who would like to work there, and allows those who should work there but don’t really want to do anything in this country.
There are quite a few countries like Pakistan in the world, but since Russia practically includes in its official doctrine theses about the need to work with the “Global South,” then while votes are being counted (this is a process of several days) and the contours of the political configuration are being determined, one can not think only on particular bundles of narratives regarding a particular country in the Global South, but also on some fundamental issues and conditions of work in the region as a whole.
And one of the central problematic issues that is on the agenda, and every quarter is getting tougher and tougher, is the issue of settlements in national currencies.
In 2022, the author was somewhat surprised by the kind of “ease” with which we looked at payments in national currencies under sanctions. On the one hand, the Russian media and those who ordered such narratives in the ruling elite can also be understood - well, really, don’t throw ashes on your head. It is also necessary to create positivity.
Creating positivity is also part of the struggle for a place in the sun. But the creation of positive meanings should not become a “thing in itself”, replacing reality and those rather serious problems and contradictions that need to be solved and “unraveled”.
From the point of view of even economic theory, the question of such calculations in the context of the dominance of two reserve currencies (dollar-Euro) and a reserve measure of value (gold) is one of the most difficult. And why, exactly, should it be easy in this case from the point of view of real practical implementation?
You can remember how many expectations there were from past BRICS summits (now BRICS+), they say, now BRICS will issue an alternative currency and show it to the “greedy globalists.” BRICS did not show anything to the globalists, since it is impossible to issue a reserve currency outside the very “global financial system”. We must first create the system itself.
But it is indeed possible to make payments in national currencies even within the framework of sanctions and even within the framework of the current global financial model. The question is how to solve the mass of problems associated with this, and some of these problems are purely our own in nature and originality.
Solving them means that Russia can retain the opportunity to work with different countries, including the Global South, or simply the South, or the South-East; the absence of a solution will mean that we will not be able to fully work anywhere under the current conditions. Neither with friendly countries, nor with neutral ones, like Pakistan.
Recently in the material “Chinese banks and anti-Russian sanctions. Some Aspects of the Problem” examined the problem of blocking mutual settlements of Chinese financial institutions. Our countries are pursuing a friendly, and emphatically friendly, policy. However, blocks appear more and more often. Although it seems that Russia and China are already almost fully operating in national currencies.
In that material, the emphasis was placed more on the specifics of the sanctions regime within the framework of the WTO regulatory framework, but other issues cannot be written off.
In particular, we can think about the benefits for China in becoming our “hub” for parallel imports. For the Chinese manufacturer (from Beijing’s point of view), there is no particular reason for this. Yes, you can buy everything with yuan, just with a nameplate and a “Made in China” certificate, but what is the point of Beijing issuing its foreign trade currency into the financial system for resale and re-export of goods, for example, “Made in USA”?
If it were Beijing, it would be reasonable to generally send out something like an unspoken order, to formalize transactions only for Chinese goods to Russia and for Russian goods to China, reducing re-exports from the United States and Western European countries as much as possible. Even without any WTO norms. There is no question here whether it is friendly or unfriendly, it is simply rational and reasonable for one’s own economy.
Let’s assume that we are going to “purchase” parallel imports to another country, which will kindly turn a blind eye to such things. In what currencies will we complete the transaction?
All local currencies, except for a couple of examples in the world, are quoted below the pool of reserve currencies (some by several times), and of the main reserve instruments de facto, only the Chinese yuan is available to Russia. Using local currencies, you can only buy something purely on the local market and sell it purely on the local market.
You can buy parallel imports on a noticeable scale with only one of the reserve currencies. This means that when launching parallel import schemes, taking into account the current parameters of our imports in general, it will be necessary to take the Chinese yuan again and conduct transactions with it in third countries.
But, firstly, who said that Beijing is generally interested in promoting the yuan on a large scale to the international market through Russia? Yes, Moscow’s imports on the scale of China’s foreign trade transactions are small, but even just signals about the development of such trade will strengthen the yuan where and when China may not be interested in this.
Is China interested in Russia trading in yuan in Central Asia, Iran, Pakistan, Thailand, and Africa? If you read our domestic analytics, Beijing is only thinking about how to “overthrow the hegemony of the dollar from its pedestal,” but everything usually turns out similar to the situation with BRICS.
So far, the invoice of real decisions shows that China is not going to leave the corridor of 5% of world payments in the yuan. Other weight parameters work there. It cannot be ruled out that this position will not change in the future, but this will not happen before the United States and China agree on a real division of regions into cost macro-clusters and fix the rules for such work.
In San Francisco at the APEC summit last year, the parties only discussed the most basic issues and general principles, but nothing more. This is still a matter of lengthy negotiations and very intense tensions. And we, Russia, need to import and export here and now.
Yes, China, probably more than any other country, has developed the topic of new foreign trade payment instruments, as well as digital payment systems, but none of them has yet gained sufficient weight - for this it is necessary to pump up the domestic Chinese business, and it is not yet ready to “vote” for these decisions.
And secondly, who said that a particular country in the Global South has a vital need to increase the share of the yuan in its own system? Pakistan or the UAE look at this with certain concerns; the yuan is fundamentally not suitable for India at all, but this applies not only to India, for example, Algeria or Indonesia will also have difficulty making such calculations.
However, there is a third aspect to the problem. Saying that trading in national currencies is profitable, promising and safe, we lose sight of the fact that a particular economy may, by its structure, simply not be designed for additional foreign trade emission even of its own national currency.
How happy they were in the second half of 2022 that Dubai had become a whole “financial hub” for Russia, but it turned out that Dubai was not ready to issue so many of its dirhams, despite the fact that relations between our countries are at a really high level in matters of foreign policy.
So, in fact, it turns out that “settlements in national currencies” with the current structure of our foreign trade have two directions of development.
First, sooner or later the overwhelming range of our imports of goods that are at least somehow related to the attribute of “technology” will be “made in China”: from an electron microscope to a household switch. We are already moving towards this by leaps and bounds, and there is no reason for Beijing to interfere with this. On the contrary, through friendly and neighborly “help in solving problems with payments” this situation can only be consolidated.
Secondly, work with each specific country that is not China will take place only on the basis of special and even exceptional conditions. Our exports are based on oil, natural gas, fuel and some types of agricultural raw materials. Since here, too, trade will ultimately be tied to the yuan, work will be done with countries relatively close to China and with the permission of the Chinese financial authorities.
Third, when trading in purely local currencies, trade turnover will tend to a minimum value. Not because the participants are “bad partners,” but because with such calculations you are unlikely to significantly advance beyond the borders of the market of a particular country. Many trade connections simply will not be used.
And this is not alarmism, not pessimism, but realism. Because we can write a lot about how in ten years we, for example, with Iran have reached an unprecedented level of trade interaction and increased foreign trade turnover. From $1,4 billion to 4,5-5,0. The percentage is undoubtedly significant. What if not only as a percentage?
But even with Iran, with which we have finally achieved synergy in terms of payment systems, it should be understood that Iranian trade relations are again Pakistan and Iraq, and other payment and pricing mechanisms operate there.
You can, of course, for some time leave the funds received for our raw materials in national currencies in the accounts of companies abroad, through additional legal entities. persons purchase the necessary goods and send them through offsets to Russia, but even here we will be waiting for the same WTO norms, which, as was described in the previous material, bureaucratically compress space, perhaps slowly, but without stopping.
All these issues are just the tip of the problem called the global financial and trading system. For some reason, we call it “Bretton Woods,” “dollar hegemony,” although “Bretton Woods” has already changed several times, and the WTO is already much more complex than the original system of the mid-twentieth century.
Of course, we can debate for a long time about why we are still so dependent on imports, but in reality Russia needs to quickly put into circulation such an instrument that will allow for relatively unhindered transactions worth the equivalent of $180-200 billion. , and in such a way as not to completely depend on the realities and goodwill of its eastern neighbor, and to pass “between the streams” of sanctions restrictions.
And it is unlikely that we will be able to come up with anything other than introducing a second currency circuit for international payments. The Chinese practice of internal and external yuan is often taken as an example, but the catch is that with the offshore yuan you can work in different markets if you wish, but with the ruble in the current conditions this is practically exclusive. To the offshore ruble, even if it were created today according to the Chinese principle, you can try to transfer part of the exports, but not the imports.
One of the most popular topics is the golden basis. The problem is what to do, as in the past historical periods, an analogue, like the “golden ruble”, “golden chervonets”, etc., will no longer work.
This was also a temporary extraordinary measure in the 1920s, since payments in gold and payments in tickets that can be exchanged for monetary gold when financing imports would simply mean an outflow of metal from the country. In order to maintain such a system, it will be necessary to ensure a counter flow of metal from exports.
Nowadays, the Soviet transferable ruble, which had a gold peg, is often remembered with kind words (and deservedly so). However, it should still be taken into account that the transferable ruble was based on large-scale commodity offsets between participants. One way or another, the transferable ruble was precisely a clearing instrument, the functioning of which required a general system for the formation and accounting of value.
Both features of the gold basis are usually the stumbling blocks over which all recent ideas about “trading in gold” or creating a “gold currency” stumble. But it’s impossible to bypass these stones in the current conditions, otherwise sooner or later we will simply import everything from China or switch to banal direct barter on a principle like “oil in exchange for electronics.”
The gold basis looks really convincing to foreign trade operators and financiers. After all, gold has been and will be a kind of stock exchange anchor. And interest in such an instrument will definitely arise.
There is a systemic advantage to this. But if it is introduced, then its form (albeit a modern digital one) should no longer resemble a traditional currency, but rather a security like a coupon bond with a par value discounted to the weighted average exchange price for monetary gold for a certain period. This is one of those rare products that allows such operations.
Payment for deliveries in securities is not uncommon. On the plus side, this instrument, in theory, can have its value in regional markets, including financial markets; on the downside, sooner or later, you will have to pay in metal, even if it is extended over time.
All of the above is intended to show that, as with the restrictions associated with the peculiarities of WTO rules, the problem of calculations does not have simple solutions. If a simple solution is translated as a way out of a deadlock, then in one hundred percent of cases it is either short-term or an element of a “positive news agenda." And our natural Achilles heel is that in the first and second cases complacency sets in, and in vain, since we have no analogues or ready-made recipes to rely on.
Most likely, we will end up with approximately a similar hybrid tool when the situation with parallel import really starts to back us up, but it’s still better not to follow this habit and start development a little earlier.
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