The BRICS and Collective Financial Statecraft by Cynthia Roberts & Leslie Armijo & Saori Katada

Author:Cynthia Roberts & Leslie Armijo & Saori Katada
Language: eng
Format: azw3
ISBN: 9780190697532
Publisher: Oxford University Press
Published: 2017-10-06T06:00:00+00:00

Russia’s Futile Pursuit of Currency Power

Of all the BRICS, China and Russia have most strongly supported diversifying the international monetary system, calling for inclusion of emerging-market currencies in the current SDR basket. Both also favor increasing the use of the RMB and ruble in place of the U.S. dollar in their transactions for mutual settlements. Russian leaders believe that great powers have great currencies, and this belief carries over to the BRICs which have jointly advocated for a multicurrency international monetary system since the first summit in 2009. Juliet Johnson suggests that Russia’s ambitions for ruble internationalization limit the extent to which Moscow can support the Chinese yuan as an alternative to the U.S. dollar,167 but Russia may become entrapped as its dependence on China grows.

Russia faces two contradictory challenges in a currency diversification strategy. First, as a petro state, Russia needs hard-currency reserves to protect against currency and budget crises generated by oil price fluctuations. When Russia shifted to a free-floating currency in 2014, the silver lining of the declining ruble in the crisis was that it cushioned plunging oil prices. Oil production costs and government expenditures are denominated in rubles, while oil profits in dollars account for 40–50 percent of fiscal revenue. Second, Russia’s economic decline has significantly weakened its bargaining power with China and its prospects as a financial power. Meanwhile, China’s economic rise transformed global trade patterns both with the BRICS and in the former Soviet space. Thus, with the exception of Belarus, the European Union and China, not Russia, are now the dominant trading partners with the post-Soviet states.168 Currency diversification in this context is more likely to enable China’s further expansion into the region that Russia seeks to dominate rather than constrain it.

Many Russian specialists recognized this trend after the 2008 global financial crisis. In an important and widely read report, Strategy 2020 (published in March 2012), Russian experts laid out the principal external risks as the ruble and RMB become competitors. If China’s RMB becomes a regional and then a global reserve currency, the authors warned, this could limit Russia’s ability to use the ruble in international settlements and lead to “currency wars.” Equally worrisome, China’s strengthening position in Central Asia “could undermine the prospects for . . . Russia’s integration projects.” The report went on to cast the relationship in close to zero-sum terms: “The new and more active negotiating and interventionist conduct of China as a ‘wealthy newcomer’ in the ‘club of world leaders,’ the strengthening of the G2 (the United States and China) in managing global economic processes, and the growing influence of China in the IMF and WTO are to the detriment of third countries, including Russia.”169

The Kremlin perhaps could afford to be more bullish about cooperation with China when Russia’s economy was still growing and trade was rising. In 2011, when China became Russia’s leading trade partner, many Russian officials and tycoons convinced themselves that Moscow would become an international financial center and that the ruble and RMB were both advancing.

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