Russian idea of banning dollar, euro in EEU trade dismissed

By bne IntelliNews December 3, 2014

Alexandra Jarosiewicz and Naubet Bisenov -


The executive body of the Eurasian Economic Union (EEU) and a Kazakh business lobby have dismissed the possibility of switching to national currencies in trade within the Russia-led trade bloc when it comes into being on January 1, instead of the current system of using dollars and euros in some transactions.

The slap down is another sign of division between the three members of the precursor body to the EEU, the Customs Union, whose leading member Russia wants the trade bloc to act as a instrument in its current fight against the EU and the US, while Kazakhstan and Belarus are less keen to disrupt ties and trade with the West.

The statement came in reaction to an article in Russian newspaper Izvestia, in which the chairman of the board of directors of Russia’s National Payment Council, Alexander Murychev, suggested that the dollar and euro should be banned in trade between the member states of the EEU, with Russia, Kazakhstan and Belarus switching to national currencies in mutual payments by 2025-2030.

"The creation of a single payment space of the EEU will lead to the acute need to adopt a system of multi-currency operations or to a speedy switch to a payment system of a single currency. Simultaneously, it is necessary to raise the issue of excluding the dollar and euro from interstate payments before the national banks of member states," Murychev told Izvestia.

At present around half of trade within the members of the EEU is conducted in the dollar and euro, increasing their dependence on foreign currencies, according to Murychev.

However, the Kazakh National Chamber of Entrepreneurs responded by pointing out that the agreement establishing the EEU does not include provisions providing for a ban of certain currencies in mutual trade. The document instead speaks only about how EEU states should strive to increase the role of national currencies. The Chamber has no information about any ongoing work on the mentioned ban of foreign currencies, it said.

Following the Kazakh business group's negative reaction to the Russian suggestion, the Eurasian Economic Commission, the executive body, intervened to clarify that a plan of action proposed by Russia's National Payment Council did not mean that it would be adopted because the council was a public organisation. At the same time, the Commission said that the member states of the Customs Union (the precursor to the EEU) were currently revising the provisions of the treaty on the establishment of the EEU.

The Commission, however, pointed out that a switch to transactions in national currencies has the advantage that it will reduce costs and risks. "The Eurasian Economic Commission has just started to discuss this issue, but there is no talk at the moment of a switch by EEU member states to transactions in exclusively national currencies," Tengrinews quoted the Commission's press service as saying.

The Commission said that there were no real grounds for banning foreign currencies in mutual trade. "The EEU treaty does not have such provision." It noted that member states aim to coordinate currency policy to expand economic integration, ensure free movement of goods, services and capital, and boost the role of national currencies in trade and investment, as well as ensure the mutual convertibility of national currencies.


This is another row between Kazakhstan and Russia regarding the functioning of the EEU. In recent weeks the parties have traded accusations over restrictions on the transit of meat from third countries via the Russian territory to Kazakhstan. In a separate move, Astana also banned the sale of certain types of alcohol products made in Russia.

The suggestion of banning reserve currencies in mutual trade clearly shows that Russia is eager to pursue its own interests in the EEU, disregarding Kazakh and Belarusian positions. Russia is keen to use economic integration in its backyard as a tool in pursuing its global policy objectives and is seeking to bring as many former Soviet countries as possible back into its orbit. This explains the haste with which Moscow is fast-tracking Armenian and Kyrgyz membership of the EEU. In October, Armenia signed the treaty to join the EEU in 2015, while Kyrgyzstan is expected to follow suit some time next year.

Within hours of the signing of the treaty on the establishment of the EEU in Astana in late May, Kazakh and Russian representatives clashed over Moscow's vision of the free-trade bloc, which Astana is selling to its domestic audience as purely an economic, not political union.

When Kazakh President Nursultan Nazarbayev suggested ahead of the signing that an EEU financial regulator should be set up in Kazakhstan's financial capital, Almaty, by 2025, Russia's main negotiator, First Deputy Prime Minister Igor Shuvalov, took Nazarbayev's words to suggest that the EEU would in future envisage a financial and currency union between the member states. "At some point we will need to seriously study the issue of a financial union or perhaps even currency [union]. But this… issue is not on the agenda yet," Shuvalov told a news conference.

Shuvalov's revelation of Russia's designs for the EEU horrified Kazakh negotiators, whose president and government, as well as state-owned media, have been tirelessly promoting the EEU as a purely economic entity. Kazakh Deputy Prime Minister Bakytzhan Sagintayev immediately dismissed Shuvalov's statement with irritation. "[Shuvalov] has talked about a financial and currency union. Not a single time have we discussed this issue, neither at our level nor at the level of heads of state," he said. "Today, President Nursultan Nazarbayev spoke about positioning Almaty as a financial centre as part of the creation of a supranational financial regulator. There is no talk of any currency and financial union."

With the Russian ruble plummeting amid falling oil prices and an economy collapsing under the weight of Western sanctions over its support for the insurgency in eastern Ukraine, the establishment of any currency union with an increasingly isolationist Russia would not look attractive to many Kazakhs, despite the continuing worries about the state of their economy and value of their own national currency, the tenge.

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