The other day, a list of instructions given by Russian President Vladimir Putin following a meeting with members of his government was published on the Kremlin’s website. Among the orders was one concerning a prospective Eurasian Economic Union (EAEU) currency union, a proposal he again voiced at a joint press conference with Kazakhstan and Belarus leaders in the Akorda on March 20.
“The Bank of Russia, in cooperation with the Russian government and member states’ central banks and Eurasian Economic Union members themselves [are tasked] with determining how we will further integrate in regards to currency and the financial sectors. We will study the viability of establishing a currency union,” the Russian president said.
He assigned Russian Prime Minister Dmitry Medvedev and Chairman of the Central Bank Elvira Nabiullina with studying the issue.
A number of sources, such as the Alpari Broker Company drew incorrect conclusions from the statement, saying that a single currency will appear on Jan. 1, 2016.
But, Putin’s instructions only very vaguely define what exactly a viability and opportunity study is. This means that before something is offered to partners, they need to understand whether the currency union is beneficial for all sides. If they decide that it is beneficial, the issue will be brought up for discussion by member states. All EAEU member states have the right to bring up concerns or ideas. There has not been any mandate creating any sort of currency union.
Secondly, if Russia decides that a currency union is beneficial, a long process of negotiations, consultations and ratifications will take place. They may last for years, which makes the chances of creating a currency union by January 1, 2016 almost zero.
Thirdly, a currency union cannot function without a single regulator, which according to Section 2 of Article 103 of the EAEU Treaty, will be located “in Almaty in 2025.” In other words, a currency union can only be established after 2025.
Fourthly, it is difficult to assess what the currency union will bring to Kazakhstan, as there is no structure to do it yet. If national currencies, including the tenge, are replaced, it would harm national sovereignty. It is unlikely that EAEU member states would agree to something like that, especially considering that among them could be countries such as Turkey. If a supranational currency is created, it will not harm any nation’s sovereignty and is 100 percent debatable. If this becomes the case, minor organisational details will be discussed. But, the main question still remains, how does Russia benefit?
Fifth, the currency union would likely only be discussed when all member states show signs of economic growth for several consecutive years, mutual trade turnover has been growing, national currencies are stable and there are no external obstacles such as sanctions. In terms of the economy, not all of the above stated conditions have been met. Therefore, opinion of the experts on the timeliness of the single currency is not only wrong, but also envisages an extra burden on the countries at a time when they already have enough internal problems.
The author is an independent economic analyst and formerly an adviser to the Chairman of the National Bank of Kazakhstan.