Russian ruble unlikely to become reserve currency soon

Russia’s economy is too small and its financial markets are too illiquid for its national currency, the ruble, to become the reserve currency the government wants it to be, analysts say.

The Russian authorities have nurtured the idea of turning the ruble into a reserve currency since the height of the global financial crisis of 2008, when President Dmitry Medvedev challenged the status of the U.S. dollar as a reserve currency and called for a fairer international financial architecture built on more than one reserve currency.

Prime Minister Vladimir Putin, who in August described the United States as a parasite on the global economy, said in April he hoped to strengthen the ruble to make it the reserve currency of the post-Soviet area.

“This is an interesting fantasy and speculation for the future,” said Sergei Moiseyev, deputy head of the financial stability department at the central bank.

Russia’s two percent share in the world’s gross domestic product is too small for its national unit to enjoy the status of a reserve currency, said Yakov Mirkin, chairman of financial markets committee at the Russian Chamber of Commerce and Industry.

“A share of five to six percent of the world’s GDP is likely to give the status of a regional currency,” he said.

Russia would also need to have a per capita GDP of $25,000-30,000 rather than the current $15,800 to aim for reserve currency status, he said. According to the International Monetary Fund Russia ranked only 52nd by GDP per capita in 2010.

Moiseyev said that the country should also boast a large and highly liquid money market, which is impossible with an unconvertible currency like the ruble.

“I do not see any prospects for the ruble to become a reserve currency in the foreseeable future,” Dmitry Miroshnichenko from the High School of Economics said.


The status of a reserve currency is enviable not only from the point of view of prestige, it also means that the country can cover its balance of payments deficit with the money it prints and can help its companies strengthen positions on international markets.

The status of reserve currency also considerable disadvantages and responsibilities, Moiseyev said.

A reserve currency country should have a large financial market which offers institutional investors, such as central banks, pension funds and insurance companies, low-risk investment instruments which inevitably means boosting sovereign debt to 100 percent of GDP from the current 10 percent, he said.

It should also have a trade deficit which would open a channel for the domestic currency to go abroad instead of Russia’s hefty trade surplus earned thanks to oil exports.

“Russia has to work on the criteria for many years if it wants to achieve the status of a reserve currency for the ruble,” Moiseyev said. “And it is not clear that it will enjoy that status, and not regret it.”

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