Dedollarization as a Direction of Russia’s Financial Policy in Current Conditions

Abstract—

Under financial sanctions imposed on it by the US and the EU, Russia accelerated dedollarization of the economy in order to protect its sovereignty in strategic rivalry with the US. To this end, a set of strategies has been developed, such as reducing the direct use of US dollars, cutting the share of the dollar in foreign exchange reserves, expanding nondollar funding, increasing gold reserves, as well as reserving and creating its own systems of payment and exchange of financial information. This practice is of great importance for reorganizing the dollar-dominated international monetary system and establishing a new economic and financial system.

Since the beginning of the Ukrainian crisis, Western countries led by the United States have successively imposed 10 128 sanctions against Russia in various areas.¹ For its part, Russia has taken certain antisanctions measures, among which “dedollarization” is of a fundamental character [1]. In the global trend of dedollarization, Russia’s actions are the most radical with a significant demonstration effect. On April 15, 2021, US President Biden signed a decree on the start of a new round of sanctions against Russia, prohibiting US financial institutions from participation in the primary market for ruble or euro-denominated bonds issued after June 14, 2021.

Russia reacted quickly by announcing that the US dollar would no longer be accepted into the currency basket of the Russian National Welfare Fund since May 20.² On June 3, 2021, at the St. Petersburg International Economic Forum, the Russian Ministry of Finance announced that it would adjust the asset structure of the Russian National Welfare Fund within a month to reduce the share of dollar assets to zero. On July 5, the Ministry of Finance reported that the task was completed, and dollar assets were completely removed.³ At the same time, Russia almost sold off long-term US Treasury bonds, which shows that with the deepening of the US–Russian sanctions confrontation, the dedollarization of the country enters a new stage.

Motivation for Russia’s dedollarization.

Protection of the state’s monetary sovereignty. The issue and circulation of local currency are the basis of monetary sovereignty. When a country’s basic goods and services are traded in foreign currency rather than in local currency, the country’s monetary sovereignty is violated. In the dollarized Russian economy, this violation undermines Russia’s independence in conducting its monetary policy. This is so because foreign currency does not always meet local payment needs, its use leads to fluctuations in the exchange rate of the ruble due to the rapid inflow of hot money, puts the economy under the influence of the monetary policy of the US Federal Reserve, increases inflation as a result of volatile exchange rates, forces the Russian government to hold more foreign exchange reserves to cope with financial risks, etc. In such circumstances, dedollarization is a natural choice for a state to protect its monetary sovereignty.

Strategic rivalry with the US. The Soviet Union and the United States had been rivals in global geostrategic competition. Then Russia’s position somewhat weakened. However, under Putin’s leadership, Russia has regained not only its political stability but also its commitment to the mission of continuing its strategic rivalry with the United States. The United States uses the dollar, the international currency, as a decisive argument for imposing sanctions on other countries. Thus, the hegemony of the US dollar serves as an economic basis for claiming hegemony around the world, for influencing regional or international affairs. After Russia’s launching the special operation in Ukraine, the US and the EU imposed sanctions against Russia. Therefore, dedollarization is only a natural continuation of the Russian–American strategic rivalry in the financial sector and the international monetary system.

Competition for power in oil pricing. Russia is a major energy exporter and the Russian economy is a typical energy economy that depends on exports. Since 1973, international crude oil prices have been pegged to the US dollar, making it the currency for international energy settlements. This negatively affected Russia because despite owing oil it was unable to manage its pricing. For this reason, Russia has established the Russian Oil Trading Platform⁴ and the St. Petersburg International Commodity Exchange in order to value exported crude oil in rubles. Russia also withdrew REBCO from the New York Mercantile Exchange and conducted trading on the St. Petersburg Commodity Exchange, owing to which it gained the ability to set prices for domestic petroleum products. This platform is fully supported by Russia, and 1/4 of the total volume of oil products purchased by the state is traded here. Gazprom, with its state-controlled shares, guarantees the supply of oil to large buyers such as the Russian Ministry of Defense, the Ministry of Emergency Situations, and the Ministry of Agriculture, which is crucial for the stability of Russia’s macroeconomics. In order to keep the price policy of oil exports entirely in its hands, the Russian government utterly refuses to allow US companies to join the platform. For the same purpose, Gazprom created the largest gas exchange in Europe in St. Petersburg. In order to ensure national economic security and maximize the interests of Russia’s main export, Russia needs to compete for the price of oil, which, however, is pegged to the dollar.

Combating international sanctions. At the end of 2013, the Ukrainian crisis erupted, after which, at the suggestion of the United States, Western countries began to impose sanctions against Russia. The sanctions include the following aspects:

– Inclusion of Russians in special sanctions lists. More than 400 people and over 500 legal entities in Russia have been included in the US Treasury Department’s Office of Foreign Assets Control (OFAC) sanctions list. In November 2014, the US State Department announced sanctions that included a ban on Russian state-owned banks from using US dollars for settlements, which led to the stagnation of Russian international business activity [2]. A typical case was the measures against the aluminum company RUSAL.⁵

— Threat of Russia’s disconnection from the SWIFT system. The US, UK, and other countries have repeatedly threatened to cut Russia’s connection to the SWIFT system. A policy report⁶ released by the Republican Research Committee of the US House of Representatives in June 2020 notes that the United States cannot control SWIFT but it can impose sanctions until Russia is completely excluded from the system.⁷

— A ban on the purchase of Russian bonds by the US and EU. Around 2006, the Russian government paid off its foreign debts. In recent years, most of Russia’s external debt has been corporate debt. In order to impose sanctions on Russia, the US and EU prohibit domestic or related foreign financial institutions from buying ruble and nonruble bonds issued by the Russian Central Bank, the Ministry of Finance and the National Welfare Fund in the primary market.⁸ The US and EU sanctions cut off the channels of financing for Russia and limited the economic exchanges of Russian enterprises with European and American ones. At the same time, foreign financial institutions refuse to do business with Russian companies included in the sanctions list, fearing that they will also fall under sanctions. This resembles a “financial nuclear attack” on Russian enterprises, as it is now very difficult for them to get Western loans. Even if a foreign loan is finally granted, the conditions will be tough and the interest rate will be very high. At the same time, Russia’s huge foreign exchange reserves were either invested in US Treasury bonds and securities, or deposited in Western banks, where, in fact, they functioned as low-interest loans offered to the United States. Russian enterprises then received loans from the West at the market interest rate. According to experts, Russia’s annual losses in foreign exchange reserves alone amounted to at least 25 billion US dollars.

— Extension of the US “long-arm statute.” According to the principle of “minimum contacts,” transactions carried out in dollars or through American banks automatically come under the jurisdiction of the United States. Thus, Russia falls under possible sanctions from America as soon as it sells energy or any other product in US dollars to other countries.

— Impact on the Russian stock market. Financial sanctions against Russia by the US and the EU have a huge impact on the Russian capital market, which is small in scale and vulnerable in structure. More than half of the investors in the Russian stock market were from Western countries [3]. Therefore, the US and EU financial institutions had the opportunity to put pressure on the ruble in order to depreciate it, only in 2018 the ruble rate fell by more than 30% [4].

— The possibility of freezing assets. Due to the United States’ unilateral policy, economic sanctions, and the use of the dollar as a factor in pressure on counterparties, the assets of many countries were frozen.⁹ More and more countries that have fallen under sanctions are forced to take the path of dedollarization, and among them Russia is the largest.¹⁰

The impact of the US dollar is declining due to economic problems in the US itself. In recent years, the US dollar has gradually become a high-risk asset, and this is also an important reason for Russia’s dedollarization policy.

Concerns about the medium- and long-term development of the US economy. The US economy has hit a rough patch in recent years and lacks growth potential. Due to the impact of the COVID-19 epidemic, it has shown signs of recession or even stagflation. The impact of American shale oil and alternative energy sources on the petrodollar system deepened. The total factor productivity of the United States is declining. The pretax profit of enterprises in the US registers zero growth. All these and many other factors make people pessimistic about the medium and long-term development of the US economy.

Concerns about growing US debt. Before the epidemic, the debt of the US federal government reached 23.3 trillion US dollars, and by July 2021, it exceeded 28.5 trillion, while GDP in 2020 amounted to only 20.6 trillion US dollars, and public debt amounted to 128% of GDP. The annual growth rate of US GDP was only about 3%, well below the growth rate of debt. Given the current rate of debt growth, the US government will increase its debt by at least ten trillion US dollars over the next ten years. The US Financial Supervisory Authority has warned that in 2028 US debt repayments will reach 1.05 trillion US dollars and they can only be repaid if GDP growth exceeds 7%. The US Treasury has announced plans to issue 20-year Treasury bonds or even 50-year¹¹ or 100-year treasury bonds.¹² The US Federal Reserve’s ability to buy bonds cannot keep pace with future debt growth, and the imbalance between US bonds and US Federal Reserve bond purchases would be catastrophic. In the future, the United States will not even be able to pay the yield on US bonds, let alone the principal.

Treasury bonds are only part of the US debt, corporate debt in the country also reached a record level. Together with household debt in the first quarter of 2020, America’s total debt reached 55.9 trillion US dollars and amounted to about 260% of GDP.¹³ There is a danger that the potential risks of nonpayment on US Treasury bonds will provoke a new round of the financial crisis.

Concerns about US debt losing its role as a safe haven. Countries around the world, in order to maintain and increase the value of their dollar reserves, are converting US dollars into US debt to earn meager interest income. Therefore, the large amount of US debt, together with the subsequent interest income, attracts investors from all over the world. However, in recent years, the role of US debt as a safe haven has been steadily weakening. In the first half of 2021, the US debt rate generally declined. The US debt issued by the US Treasury is likely to be useless. Many US debt holders are disposing of it. US Treasury International Capital (TIC) report shows that as of the end of April 2021, US debt held by foreign holders was 7.07 trillion US dollars, almost 50 billion US dollars less than at the beginning of the year.

Concerns about oversupply of US dollars. The US Federal Reserve announced launching an unlimited policy of quantitative easing by expanding the money supply in order to redistribute social wealth and achieve economic recovery and social stability. The US economy is increasingly dependent on financial stimulus provided by quantitative easing policies. In the 21st century, the overissuance of the US dollar has led to three major “defaults” around the world. After the 9/11 incident in 2001, the United States launched military operations in the Middle East and at the same time began to cut interest and print money. During the 2008 financial crisis, the US Federal Reserve launched three rounds of QE (quantitative easing policy). US Federal Reserve liabilities expanded from over 900 billion US dollars to 4.5 trillion US dollars. After the outbreak of the COVID-19 epidemic in 2020, on March 16, the US Federal Reserve reduced the interest rate to zero and launched a massive quantitative easing program for 700 billion US dollars. On March 23, the Fed began buying US Treasuries and mortgages to support the stock market. The US Federal Reserve printed an additional 2.5 trillion US dollars (obligations on the balance sheet expanded from 4.1 trillion US dollars to more than 6.7 trillion US dollars). The United States has invested more dollars than all reserves combined in history. Repeated defaults and excessive dollar issuance marked a historic change in confidence in the US and the US dollar.

Concerns about long-term depreciation of the US dollar. The global dollar supply is constantly declining, which is accompanied by a long-term depreciation of the US currency. In the medium and long term, the dollar will continue to decline, and its share as a reserve currency in the international monetary system will decrease. Whenever there is a crisis, the US dollar depreciates sharply to stimulate exports, employment, and a quick economic recovery when other countries are still trapped in difficulties. The US dollar, as an international reserve and safe-haven currency, is strengthening due to rising demand, making the whole world pay for the financial crisis. In fact, as long as the American currency is issued in huge quantities, the international financial crisis will occur periodically. The currencies of develo** countries are mainly pegged to the US dollar and they tend to depreciate in line with its growth. The cycle of rising and falling of the dollar, in essence, leads to an imbalance in the international economy, which will trigger the next round of the financial crisis.

Concerns about the dollar-oriented international financial system. The shortcomings of the dollar-based international financial system have caused a cyclical imbalance in the world economy and frequent financial crises. In a dollar-dominated system, the US can issue money without the obligation to maintain its stable exchange rate. There are too many derivatives in developed US finance, including more than 300 trillion of various borrowed financial assets. Bubbles in GDP have been growing there steadily for more than a decade. This, together with industrial depletion, excessive credit consumption, and zero savings, makes the country increasingly vulnerable to the financial crisis. Once the US debt crisis breaks out, it will definitely affect the whole world. In addition, the US threatens to impose sanctions at every turn, directly or indirectly affecting the economies of other countries, causing economic instability, which in turn will lead to regional and even global financial collapses. Since achieving independence, Russia has experienced many financial upheavals and it is therefore in dire need of financial and economic stability.

Diversification of the international financial system. The status of the US dollar as an international currency is based on its being pegged to oil. At present, this international monetary system has reached a point where it must be changed. On the one hand, the international community is increasingly dissatisfied with the petrodollar-pegged system. There are many problems in the international financial system centered on the US dollar, as the exchange rates of major currencies experience sharp ups and downs with increased foreign exchange risk. As a result, commodity prices fluctuate wildly around the world hindering normal international trade and investment. On the other hand, in recent years, the rapid development of new energy around the world has affected the petrodollar system, and the speedy progress of the shale oil industry in the United States has turned America from an ally into a competitor of Saudi Arabia and other energy exporting countries. The international financial system based on petrodollars was shaken. Economies around the world are actively looking for a way to break away from the hegemony of the dollar, hence the emergence of the Eurozone, the rapid development of the Asian Infrastructure Investment Bank (AIIB) and the creation of the BRICS Bank, etc. All these facts show that countries dedollarize in their own way. Dedollarization is no longer a fragmented choice of a few countries; instead, it is becoming a global trend. Russia, as a huge country with great global influence, has taken many measures in this direction, reflecting the general needs and future trends around the world.

Russia’s strategy for dedollarization.

With its long history of major power competition, Russia understands that dedollarization will be a long-term process. It includes the following measures:

Use the situation to turn the crisis into an opportunity for development. After the collapse of the Soviet Union, the Russian economy was heavily dependent on dollars. After the events in Ukraine in 2014, Western countries led by the United States introduced several stages of sanctions against Russia in the field of energy, finance, and national defense, which had an impact on the Russian economy. While in 2013 the volume of trade between Russia and Europe amounted to about 410 billion US dollars, by 2020 it has decreased to 219 billion US dollars. Under US and EU sanctions, Russia was forced to retaliate in the financial sector. In particular, its own payment system (MIR) and financial information exchange system (SPFS) were created, which became the basis of Russia’s financial infrastructure for dedollarization.

Influence public opinion. As President of Russia, Putin repeatedly expressed his position on dedollarization. At a meeting held in Astana in March 2015, the Heads of States of Russia, Belarus, and Kazakhstan discussed the creation of a monetary union aimed at getting out of dollar control. Putin emphasized the importance of dedollarization in terms of protecting Russia’s national sovereignty and that the use of the US dollar as a “weapon” for sanctions undermined its status.¹⁴

Sergei Glazyev was an economic adviser to President Putin and one of Russia’s spokespersons for dedollarization. He called for reducing dependence on US dollars in domestic economic, as well as in investment and trade activities within the Eurasian Economic Union, the Shanghai Cooperation Organization and the BRICS framework, the sale of government debt of NATO countries, reducing the purchase of government bonds from countries participating in sanctions against Russia, and reducing dollar settlements and limiting foreign exchange reserves of commercial banks to prevent speculation and capital flight.

Elvira Nabiullina has been Governor of the Central Bank of Russia for many years. Back in 2016, she made dedollarization one of the permanent missions of the Russian Central Bank.¹⁵ Over the years, on several occasions¹⁶ she has offered concrete ideas and proposals on this direction of financial activity. Russian Finance Minister Anton Siluanov had formulated specific measures: to combine dedollarization and tax incentives in 2018.¹⁷ Dmitry Peskov, Press Secretary of the President of Russia, Maxim Oreshkin, former Minister of Economic Development (currently Assistant to the President of the Russian Federation), Andrey Kostin, President of the Russian Foreign Trade Bank (VTB), and Vyacheslav Volodin, Chairman of the Russian Duma repeatedly spoke on this topic. Since June, we have observed withdrawal of dollars from the Russian National Welfare Fund.

At the St. Petersburg Economic Forum 2021, dedollarization was heatedly debated once again. In Russian government circles, a complete consensus has been reached on this issue.

Formulate a strategic plan. In April 2018, the RF Ministry of Economic Development, Ministry of Finance, and the Central Bank of Russia jointly formulated a dedollarization plan, which included¹⁸ such measures as granting preferential treatment for exports calculated in rubles, accelerating the recovery of value added tax for exports, and gradual abolition of mandatory repatriation of export earnings (in rubles). The plan also emphasized that dedollarization at that time did not mean an immediate and complete rejection of the use of US dollars, and this would not affect the foreign currency accounts of Russian depositors in any way. Russia is reducing its dependence on US dollars in a well-planned and dynamic way.¹⁹

Speed up dedollarization, explaining why it is necessary. With the development of negative dynamics in Russian-American relations, the dedollarization measures for Russia are gradually being accelerated and modernized. The use of the US dollar in settlements decreased from 61.5% in the first quarter of 2020 to 48.3% in the first quarter of 2021. On June 3, 2021, the Russian government held an economic forum in St. Petersburg where it announced that the US currency would be completely withdrawn from the National Welfare Fund by July 5, 2021. At the same time, in domestic and foreign media, Russian public officials have repeatedly emphasized that the country’s dedollarization is forced due to US and EU sanctions, thereby appealing to the opinion of the international community and actively expanding the circle of its allies.

Highly appreciate and develop international cooperation. Russia is a large country with serious international influence and rich experience in international competition. It values strengthening cooperation with China, India, Turkey, Iran, as well as is making maximum use of the Eurasian Economic Union, SCO, BRICS, and other international organizations in order to develop relations with their member countries.

Measures and consequences of dedollarization in Russia

As tensions between the Russian Federation and the United States grew, the dedollarization policy in Russia was gaining momentum. After the global financial crisis in 2008, Russia took the initiative by proposing to peg the ruble to gold instead of the US dollar.²⁰ After the introduction of anti-Russian sanctions by the US and Europe in 2014, Russia has already officially started dedollarization. In 2016, this process accelerated, and in 2018, it became large-scale. After the US announced a new round of sanctions, dedollarization is once again becoming a hot topic. Against this background, Russia has taken a number of specific measures.

Direct reduction in the use of dollars. Strengthening restrictions on the circulation of US dollars in the RF, control of consumer protection in Russia,²¹and a ban on payments in foreign currency. It is mandatory for all sales outlets to install a POS machine to support cashless payments in rubles, reject foreign currency payments in the domestic economic system, strengthen foreign exchange regulation, standardize conversion between US dollars and rubles, and combat black market transactions in currencies.

Higher requirements for the banking industry. When Russia became independent, there were more than 2400 domestic banks, and by 2020, this number dropped to almost 400. The main purpose of this reduction was to reduce leverage. Oversight of US dollar deposits has also been strengthened. Commercial banks were required to have different reserves for deposits in national and foreign currencies. In addition, the interest rate on US dollar deposits was virtually reduced to zero; additional conditions were added for issuing loans in foreign currency, the reserve required for loans in local currency was reduced, and mortgages in dollars were banned.

Since 2013, the Central Bank of Russia has been taking measures to reduce the share of US dollars in money transfers both within Russia and abroad. As of September 2018, the share of foreign currency deposits of individuals and legal entities in Russian banks decreased from a peak of 37% in 2016 to 26%.

Reducing the use of US dollars in international settlements. The RF Ministry of Economic Development has developed a plan for dedollarization in foreign trade. The role of US dollars in Russian foreign trade settlements is gradually decreasing. Only in the first half of 2019, the share of dollar settlements shrank from 54.8% in 2018 to 51.2%.

Russia, as a major international energy exporter, has announced that from 2019, it will refuse to accept payments in US dollars for crude oil and natural gas transactions, and importers must pay in euros or other currencies. At the end of 2019, the share of euro in Russian trade settlements increased to 42.3%, which is almost equivalent to the share of US dollars (46.6%).²²

In foreign trade, the dollar was replaced by the euro, yuan, ruble, and other currencies. Over the five years from 2013 to 2018, the share of the euro in Russia’s exports to the EU countries almost doubled from 18.1 to 34.3%.²³ In 2018–2019 alone, the participation of the euro in Russian–European trade increased from 32 to 42%. Over the same period, US dollar settlements in Chinese–Russian trade decreased from 50 to 45.7%, while euro settlements increased from 0.7 to 37.6%.²⁴

Russia’s settlement currency has moved from US dollars to rubles or other foreign currencies in trade with the CIS, EAEU, SCO, and BRICS countries. In October 2019, the share of settlements in the national currency within the framework of the Eurasian Economic Union was 76.6%, of which 72% was in rubles.²⁵ According to the plan of the RF Ministry of Economic Development, the volume of trade in Russian goods and services in rubles in 2024 will reach 300 billion US dollars, and the rate of settlements in the national currency with the countries of the Eurasian Economic Union will be increased to 90%. In 2020, 62% of trade with CIS countries was conducted in rubles.

Owing to the above measures, Russia was able better to avoid the use of US dollars in international economic activity and it has made a significant shift from US dollars to euros in international settlements in order to expand the space for international trade and economic exchanges. In the new era, within the framework of Sino–Russian strategic cooperation, Russia uses the yuan as an international settlement currency to withstand the pressure of US–European sanctions, uses the Japanese yen in some settlements to strengthen Russian-Japanese economic and trade relations, and holds gold assets in order to maintain international reserves.

Decrease in the share of the US dollar in foreign exchange reserves. Until March 2018, the share of the US dollar in the foreign exchange reserves of the Central Bank was 43% ~ 48%. With the tightening of anti-Russian sanctions, the Central Bank of Russia began gradually to reduce it in favor of other currencies and gold. On April 26, 2021, Russia approved the purchase of Chinese government bonds denominated in yuan by the National Welfare Fund and included the yuan in the list of investable currencies for the Fund. Prior to this, the list of investable foreign currencies for the Fund included only seven positions i.e. US dollars, euros, pounds, Australian dollars, Canadian dollars, Swiss francs, and Japanese yen. The assets of the National Welfare Fund of Russia account for approximately 7% of Russia’s gross domestic product (GDP). Prior to the addition of Chinese government bonds to the list, the Russian National Welfare Fund was only allowed to invest in government bonds from 17 countries, including the US, Australia, Germany, Japan, Switzerland and Canada. Thus, the Chinese security became the 18th investment government bond. According to the Central Bank of the Russian Federation, the share of the yuan in Russia’s foreign exchange reserves increased from 2.8 to 14.4% by the end of 2018; the share of currency and US dollar assets in Russia’s international reserves decreased to 21.2% by the end of 2020, while the ratio of gold and yuan increased to 23.3 and 12.8%, respectively. At present, the Russian Central Bank is probably the largest investor in Chinese government bonds available to foreigners, with nearly a third of its total holdings denominated in yuan.

Russia’s sale of US Treasuries. In October 2010, US debt held by Russia hit a record high of 176.3 billion US dollars, making Russia one of the top ten investors in America’s Treasury bonds. After the outbreak of the Ukrainian crisis, Russia began to accelerate bond sales. In the 18 months since 2017, Russia has reduced its holdings of US Treasury bonds from 96 billion US dollars to 8 billion, a 90% drop.²⁶ According to the US Treasury, in February 2021 Russia almost completely abandoned long-term US Treasury bonds (only 306 million US dollars remained). Russia sold 94% of the peak amount of US bonds it used to hold.²⁷

Expanding non-US dollar funding channels. Under the sanctions, it is difficult for Russian businesses to obtain funding or trade in US dollars. In order actively to expand financing channels, Russia has been preparing to issue sovereign bonds in yuan since 2014 and has formulated the relevant regulations. Russian banks and energy companies have started looking for financing in international financial centers such as Hong Kong, Singapore, and Shanghai.

Increase in gold and foreign exchange reserves. While significantly reducing its holdings of US debt, Russia has steadily increased its holdings of gold.²⁸ Since 2000, Russia’s gold reserves have increased five times, and in five years, starting from 2014, they have doubled. As of July 2022, Russia’s gold reserves are 2298.53 tons.²⁹ Since the second half of 2019, Russia has slowed down the accumulation of gold reserves. On the one hand, its foreign exchange reserves were gradually restructured to a reasonable level. On the other hand, Russia, as an oil exporter, may face liquidity pressure due to falling world fuel prices, and will not further increase its gold reserves. Nevertheless, Russia purchased 158.1 tons of gold in 2019 and 8.1 tons in January 2020. On April 1, 2020, the Russian Central Bank announced that it would suspend the purchase of gold on the domestic precious metals market, and in the future, its policy in this regard will be determined in accordance with the conditions of the international market.

At the same time, gold production in Russia is also significantly increasing. According to the Russian Federation of Gold Miners, Russian domestic producers have mined 2189 tons of gold over the past decade. Russia currently ranks third in the world in terms of gold production after China and Australia, and gold miners plan to double their output, making Russia the second largest gold producer in the world.

In addition, unlike other countries in the world that store their gold in the United States, all Russian gold is stored in the vaults of the Central Bank of Russia in Moscow.³⁰

Currency swaps³¹and local currency transactions. In recent years, the international currency swap has become a new monetary mechanism. Russia is seeking to sign various currency swap agreements with countries such as Iran, Turkey, China, etc. This will allow it to trade with other countries in local currency instead of US dollars.

Based on the currency swap, Russia is also actively promoting bilateral settlements and payments in local currency. In October 2019, the Russian Ministry of Finance announced that it had signed an agreement with the Turkish Ministry of Finance on settlements and payments in national currency. India and Russia have started cooperation in this area. Iran and Russia have signed bilateral currency agreements. Energy trade between Russia and Iran must be conducted in local currency. Russia is also committed to promoting local currency settlements in bilateral trade with countries in the Middle East, Southeast Asia, Latin America, and Africa.

Creation of an internal payment system and a system of financial information exchange.³²Setting up an internal FIX (financial information exchange) system. In December 2014, the Bank of Russia started develo** the SPFS (FMS) (Financial Messaging Systems), which was regarded as the Russian version of SWIFT. Its design relies on the SWIFT system, adopting the same standard and interoperability capable of supporting transaction messages for many currencies. Currently, the main users of the system in Russia are the Russian Treasury and large banks.

Creation of a proprietary payment system. On December 15, 2015, the Bank of Russia began issuing the first batch of bankcards supporting its domestic payment system, namely MIR cards. In the second half of 2017, the Russian government legislated that new cards issued by banks after July 1, 2017, were to support the MIR payment system. In July 2020, the State Duma of the Russian Federation additionally adopted an amendment to the Consumer Rights Protection Law proposed by the Russian federal government, according to which online merchants in Russia were required to accept payments with the MIR card from November 1, 2020.

Strengthening international cooperation in the field of the international payment system. Russia not only seeks to improve the use of the SPFS system by domestic financial institutions, but also is eager to cooperate with well-known international financial institutions in the field of payment systems. Russia is currently negotiating with regulators in China, Iran, and Turkey for linking SPFS with financial information systems in those countries. Russia is constantly improving the system in accordance with international standards in order to promote its use by foreign enterprises. In June 2019, during the SCO summit, Putin put forward an initiative to create conditions for settlements in the national currency and strengthen cooperation between the SPFS and Chinese and Mongolian financial institutions. India expressed its intention to strengthen cooperation with SPFS. On September 17, 2019, the Central Bank of Iran confirmed that Iran and Russia were to create a bank settlement mechanism between the two countries in order to “bypass” the SWIFT system and avoid US and European sanctions.

MIR cards can be used for payments throughout Armenia, Abkhazia and in many parts of Belarus, Kazakhstan, Kyrgyzstan, Uzbekistan, and Turkey. The Bank of Russia has strengthened cooperation with the Chinese cross-border international payment system (CIPS) in yuan, jointly issuing MIR-Union Pay cards.

In addition, Russia, China, and India are exploring electronic payment methods in case they are cut off from the SWIFT system. The Eurasian Economic Union also hopes to develop a new payment system without US dollars and it has signed specific trade agreements with partners, including China and Iran, to avoid using the US currency through investment and settlement mechanisms.

New payment methods. BRICS Pay system. Currently, all BRICS countries, except for South Africa, have created their own independent payment systems, namely the Russian MIR system, the Chinese UnionPay, the Indian RuPay and the Brazilian ELO. At the meeting of the BRICS Business Council³³ held at the end of February 2019, the Russian side put forward a proposal to build a payment system that would be aimed at integrating the internal payment systems of the BRICS countries to facilitate financial payments and transfers, effectively simplify cross-border payments, and reduce the impact of the US dollar on the international trade. On November 14, 2019, the BRICS countries signed the relevant documents on the creation of a payment system.

Russia’s digital currency. Electronic payments are already widely used in Russia. In 2018, the Russian parliament began drafting a bill on digital financial assets, which clarified the legal concept of digital currency, strengthened its public acceptance, and analyzed the scheme for improving the tax system. In October 2020, the Central Bank of Russia released a report analyzing the feasibility of issuing digital rubles and describing various development modes and scenarios. Deputy Chairman of the Central Bank of the Russian Federation Alexei Zabotkin noted that there was a demand for digital rubles, which would be used in addition to cash and noncash rubles. He stressed that the Central Bank would introduce digital currency into the internal settlement system³⁴ and it would become a new factor for the dedollarization of Russia.

Establishment of a stabilization fund. One of the most important fiscal measures was the adoption of Alexey Kudrin’s proposal and the establishment of a stabilization fund.³⁵ During Kudrin’s tenure as finance minister, international crude oil prices rose. After the increase in the export tax on crude oil, a stabilization fund was created that helped Russia not only to survive the financial crisis of 2008, but also to overcome subsequent crises. The reduction of the dollar share therein in July 2021 also contributed to the dedollarization.

Deoffshoring. After the collapse of the Soviet Union, the Russian economy experienced privatization and dollarization, which led to a large outflow of capital. In December 2014, in order to reduce capital flight abroad, V. V. Putin in his annual address to the nation called for a series of deoffshorization measures, including the return of Russian businesses back to domestic jurisdiction, the repatriation of foreign Russian funds, the establishment of the Russian Precious Metals Exchange, and the creation of two domestic offshore financial centers in Russia (Primorye and Kaliningrad). Responding to the president’s call, billionaires, for example, Gennady Timchenko, returned their assets to Russia [5].

Promoting dedollarization in regional international organizations or countries. Taking into account current economic opportunities, Russia was actively strengthening cooperation with other countries and was beginning to promote dedollarization in some regional organizations.

1. Russia plays a leading role in dedollarization within the Eurasian Economic Union and the CIS. Owing to Russia’s efforts, 70% of Russian exports and 30% of Russian imports to the Eurasian Economic Union are paid in Russian rubles. Russia is actively advocating the payments in the trade between the CIS countries being made in Russian rubles.

2. Russia actively promotes dedollarization in the SCO and supports such countries as India in this effort.

3. Russia proposes to build a new payment system called “BRICS Payment” among the BRICS countries. The establishment of the BRICS Development Bank and the emergency standby agreement at the BRICS summit held in July 2015 means that future loans and emergency assistance between the BRICS countries will be issued in US dollars to a lesser extent.

4. Getting rid of the petrodollar peg. The tie between oil and the dollar is the key to the hegemony of the US currency. Previously, the US was the largest importer of crude oil. After the deployment of shale oil production, the United States became the world’s largest exporter of it, becoming a competitor to Saudi Arabia and Russia. Russia is using its rich oil resources as a powerful argument in order to lead the fight against the petrodollar. On March 6, 2020, as COVID-19 raged around the world, international demand for crude oil plummeted.

Russia rejected Saudi Arabia’s proposal to cut oil production, causing international crude oil prices to plummet to shockingly negative levels. This reduced the export of the US dollar, and the factors supporting the status of the US dollar changed.

Prospects and significance of dedollarization in Russia .

The international discussion about the possible collapse of the US dollar has been going on for almost 50 years. It has become increasingly violent in recent years, but the dominance of the dollar still lingers. According to SWIFT data, in 2012, 29.7% of global transactions were conducted in US dollars, and this share increased to 39.1% at the beginning of 2019. According to the statistics of the International Monetary Fund, the share of US dollars in world foreign exchange reserves was 59% in 1995 and increased to 63% in 2018. There is still a persisting gap in the economic performance of countries: Russia’s GDP in 2019 amounted to 1.64 trillion US dollars while the United States’ GDP was 20.5 trillion. What are the prospects and significance of Russia’s dedollarization under such conditions?

The prospect of dedollarization in Russia. Russia and other countries are taking countermeasures because the United States is using the dollar as its main tool in imposing sanctions. As America expands the package of sanctions, more and more countries are starting to participate in joint dedollarization. Currently, about 10% of countries and 1/4 of the world’s population suffer from US sanctions, hence the global trend of dedollarization.³⁶

After the global financial crisis of 2008, as well as in the context of the COVID-19 epidemic in 2022, the United States began to resort to quantitative easing in its monetary policy. This led to a loss of confidence in dollar bonds and undermined the dollar influence in the global economic system. Russia and other countries have begun to increase the share of the euro and other currencies in their reserves, which may further lead to a multipolar international monetary model. Just as the value of the British pound gradually lowered with the decline of the British Empire, the era of the dollar as a world currency will eventually end.

In the process of dedollarization, it is difficult for countries to take concerted action, since their interests do not always coincide. The US attempts to maintain dollar hegemony and simultaneous dedollarization of such countries as Russia entail deep political and economic uncertainty.

There will be many alternatives to the international payment system. Over time, it will include coexisting SWIFT, and systems in China, Russia and other states. The interconnection between payment systems in the European Union, China, and Russia will be the focus of economic and financial work in all countries in the future.

The Russian ruble cannot replace the US dollar as an international currency within a short space of time. Russia still lags behind the United States and developed European countries in terms of the efficiency in the distribution of market resources, which is a direct reflection of financial stability, the capital market, the size of the economy, infrastructure, and the abundance of financial products. Russia still has a long way to go. The lag in these areas will be an important factor influencing its dedollarization.

In addition, gold and digital currency will also become important tools in this process. Gold is seen as an important component of dedollarization in many countries. In recent years, Russia and other states have created significant gold reserves as a step**-stone for the future.

The digital currency also sets the direction for future development. Digital currency issued by central banks (CBDC) will facilitate dedollarization. At present, Russia has made positive achievements in this area; in 2021, the Russian Law on Digital Financial Assets came into force and in the second half of 2021, legislative work was carried out on the digital ruble.

Significance of Russia’s dedollarization. Among the countries resorting to dedollarization, Russia is taking the most radical steps. It not only carries out dedollarization within the country but also promotes tough measures for the exchange of financial information and international currency payments for energy. Due to Russia’s decisive actions and its vigorous efforts in the field of international cooperation, more and more countries are joining the process of fighting the hegemony of the US dollar.

The main reasons for dedollarization are dissatisfaction with the hegemony of the US dollar, concern about its excess issue, the desire to change the Bretton Woods system and the urgent need to form a new international economic and financial order. Although dedollarization cannot completely eliminate the impact of the US currency on the Russian economy in a short time, it has a wonderful demonstration effect for the whole world and is of great historical significance for the destruction of the old dollar-dominated international monetary system and the creation of a new one.