Russia & EAEU Urge China To Help Create A New Eurasian Monetary And Financial System

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Russia is calling on its partners in the Eurasian Economic Union (EAEU) and China to limit the use of the US dollar (and the euro) within the trading block in order to reduce dependence on the monetary and financial system dominated by Western powers.

Sergei Glazyev, the EAEU’s Minister of Integration and Macroeconomics put forward the idea recently at Mondays online EAEU Ministerial meetings. “Russia and China have created their own payment systems and a system of electronic information exchange between banks, but economic activity participants are still very inactive in using these infrastructure elements and still work in foreign currencies. I believe that we should radically reverse the situation and create our own Eurasian monetary and financial system. It would insure us against risks and would be reliable, transparent, convenient and efficient, and would not be burdensome for economic activity participants.”

The EAEU includes Armenia, Belarus, Kazakhstan, Kyrgyzstan and Russia. It sits between the European Union and China, and has a GDP of about US$1.7 Trillion. China’s share in the foreign trade turnover of member-states of the Eurasian Economic Union (EAEU) increased to 20% from January to August of this year. Chinese investments into the EAEU also grew over this period and have reached US$710 million this 2020 YTD, a 7.9% year-on-year improvement. These figures are sure to grow as and when China agrees tariff reductions with the EAEU as part of the Free Trade Agreement it signed off in 2018. Negotiations on the issue are still on-going.

At the moment, about half of the payments made within the EAEU are settled in national currencies, while the share when trading with China was even lower – at 15 per cent.

Viktor Dostov, president of the Russian Electronic Money Association, explained how using the dollar incurs extra costs on EAEU members. “Now, if I want to transfer money from Russia to Kazakhstan, the payment is made using the dollar. First, the bank or payment system transfers my rubles to dollars, and then transfers them from dollars to tenge. There is a double conversion, with a high percentage taken as commission.” (by American banks).

Moscow and Beijing’s ditching of the US dollar could result in the creation of a “financial alliance” between the two nations. With two other EAEU nations – Kyrgyzstan and Kazakhstan – having a land border with China, the economic bloc’s imperative to move toward national currencies in cross-border trade is even stronger.

Glazyev also stressed the urgent need to stabilise the exchange rates of the bloc’s national currencies, to establish Eurasian exchanges and pricing mechanisms, and to offer incentives to settle in national currencies.

Both China and Russia are poised to accelerate this process by introducing digital currencies. This will enable them to bypass the American banking system and the US controlled SWIFT payment network which has been used in the past to impose financial sanctions on both Russian and Chinese nationals and companies. China has been trialing the Digital Yuan while Russia is studying the potential for the Digital Ruble.

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