CIS Currency Integration Should Be Based on Common Interests

The global crisis has increased the risk of conducting settlement in third-country currencies, be it the dollar or the euro. To be sure, the transition to a single settlement currency has so far been impractical for technical and political reasons, but for the sake of convenience alone, this should be pursued.

Mikhail Delyagin:

Financial cooperation among CIS countries is a byproduct of trade and mutual investments that are important for many countries. For instance, the economic success of Georgia is to a large extent due to investments made by major Georgian entrepreneurs residing in Russia and by banks in Kazakhstan.

The global crisis has increased the risk of conducting settlement in third-country currencies, be it the dollar or the euro. To be sure, the transition to a single settlement currency has so far been impractical for technical and political reasons, but for the sake of convenience alone, this should be pursued.

The first phase would involve regular exchange trading. It should be conducted primarily in Moscow given its developed financial infrastructure and intense economic relations. Initially, the traded currency pairs should include the Russian ruble, the Ukranian hryvnia, the Kazakh tenge and the Belarusian ruble. The volume of trading with other countries has so far been inadequate for these purposes. If we successfully transition to conducting trade operations within the CIS in the currencies of the participating countries, the list of such currency pairs will expand to include the Turkmen and, probably, Azerbaijani currencies. The issue of creating a single currency will come to the fore only after this happens.

A single currency represents the highest level of economic integration. Even back in the time of the Council for Economic Assistance, the convertible ruble was just a conventional settlement unit.

Therefore, the CIS countries most actively engaged in trade will be in a position to consider adopting a single currency: these include member countries of the Customs Union and Ukraine. Here we will have to deal with the same issue that prevented Russia and Belarus from transitioning to a single currency in 2005 – the issue of guarantees. Regardless of whether it is the Russian ruble or a new currency that is chosen, Russia, due to its sheer size, will have more influence over it than any other country.

Certainly, given the global economic crisis and declining demand, the guarantee of access to Russia’s domestic market may become a sufficient trade-off for other countries. As a matter of fact, countries using the U.S. dollar for external payments don’t enjoy such guarantees from the United States.

So far, any serious plan for transitioning to a single settlement currency cannot but include a framework that would fully reflect and protect the interests of all participants in the integration effort. The experience of the European Union is very important in this respect: it shows us that the weak can blackmail the strong even better than the other way round.

Marshall I. Goldman:

One of the most challenging tasks facing any group of nations seeking closer economic and political coordination is for each of the potential members to find some way to agree on the adoption of a common currency. To do this, however, each participant must abandon the complete ownership of its existing monetary standard and adopt another that is governed jointly by a grouping of several sovereign nations. This is not easy to do. This is because there is always the fear that in the process, one of the nations will gain at another’s expense or suffer because of the misbehavior of one or more of the others. What history has shown however, is that more often than not, by joining together and availing themselves of the resulting economies of scale, they all emerge stronger economically and politically, not weaker. The first thirteen colonies of what was later to become the United States as well as the different European countries that now make up the Common Market are good examples of what can happen when small entities join together, yield some of their sovereignty and become part of a larger coordinating unit.

Joining together this way, however, takes trust and leadership. Europe has managed to do that despite a history of world wars, political conflict and distrust. After World War II, there was widespread skepticism that long time enemies, Germany and France would ever join together in a common alliance. It will be fascinating to see if the lands that once made up the Czarist Russian Empire and later the USSR can overcome a somewhat similar history of obstacles and animosities and become true economic partners. It can be done but it will not be easy.

Views expressed are of individual Members and Contributors, rather than the Club's, unless explicitly stated otherwise.