Greater Eurasia

Ruble, “Altyn” or Euro? Effects of de-dollarization or adopting a single currency in the EAEU.

July 8, 2020
Munich, 7 July 2020. - The hypothetical adoption of a single currency in the Eurasian Economic Union (EAEU), either a Eurasian one ("Altyn") or the Euro, would “not be worth it”, since the potential welfare effects for the EAEU from lower currency exchange transaction costs in intra-union goods trade would range at best between 0.1 and 0.3 percent. Only Kyrgyzstan and Belarus might benefit more significantly from the introduction of a single Eurasian currency in the form of an annual GDP gain between 0.7 and 1 percent. This is the result of a study by Yuri Kofner, non-residential research fellow, Skolkovo Institute for Emerging Market Studies, using a multi-industry partial-equilibrium model.Between 2013 and 2019 the share of USD and EUR in cross-country payments for intra-EAEU goods and services trade declined by 11.6 percent, but still made up 26 percent by the end of the period (28.6 percent on average over the study period). De-dollarization of this remaining part of intra-EAEU goods trade as a policy goal would not require the sharp and fundamental restrictions in monetary and fiscal policy related to a potential currency union. At the same time, the economic effect would be even less: only 0.01 percent additional GDP.The RUB is the predominant currency used for intra-union trade: between 2013 and 2019 its role increased from 61.8 to 72.4 percent (70.2 percent on average). The share of the national currencies of the other member states is negligent at 1.3 percent on average. The EUR accounted for 5.8 percent of intra-EAEU trade on average, the USD for 22.7 percent.Although the (core) EAEU member states (BLR, KAZ, RUS) achieved certain successes in the field of macroeconomic convergence, and meet a part of the traditional requirements for an optimum currency area, e.g. labor mobility and a similar business cycle, most economists agree that the problems and asymmetries in other areas make the idea of introducing a single currency premature and counterproductive. Among these problems: the lack of a common capital market, the relative instability of the national financial systems, the absence of supranational mechanisms for risk-sharing, for enforcing macroeconomic stability criteria and marcoprodudential policies, the long-standing balance-of-payments asymmetries in intra-union trade. The full study, including tables and methodology, can be read here.
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