Idea of EEU common currency: more political, less economic

BISHKEK (TCA) — The Russian ruble should be made the currency of settlements in the Eurasian Economic Union, Board Chairman of the Eurasian Development Bank (EDB) Andrey Belyaninov recently said at a conference of the Russian TV business channel RBC "Window of opportunities: Investments and new projects in Eurasia".

There are the richest gold reserves, both in the central bank depositories and in natural resourses of the Eurasian Economic Union (EEU) member countries, so the ruble can be backed up with gold, Belyaninov said.

The introduction of the EEU common currency is stipulated by the EEU documents according to which the integration association should have its own Central Bank with the right for emissions by 2025.

Background

The idea of setting up a single regional currency has been discussed many times before. Back in 2003, Kazakhstan’s President Nursultan Nazarbayev proposed a new regional currency for the then Single Economic Space (Russia, Belarus, Ukraine and Kazakhstan) that would be named “the altyn” (gold). The common currency would challenge the dollar’s and the euro’s role in regional trade and help stimulate interregional trade and economic cooperation, he said.

Three years ago, at a meeting of leaders of the EEU member countries, Nazarbayev again raised this issue and offered two options for EEU money — altyn and euraz, like a single euro currency. But the then Chairman of the Central Bank of Armenia Artur Javadyan objected saying that talks about the transition to a common currency were premature. The presidents of the EEU member states concluded that such a process would take from 30 to 40 years.

Two years ago, then Kyrgyz Deputy Prime Minister Aaly Karashev also lobbied for the EEU single currency. The country should consider issues of currency regulation, in particular, the introduction of a unified currency for the implementation of joint EEU trade and customs regulation within the organization, he said. This initiative is real and quite feasible, but not in the near future, local experts said.

Expert opinions differ

The introduction of a common currency on a large space will be a strong blow to small economies, experts say. Kyrgyz economist Iskender Sharsheev told the Vecherny Bishkek IA that the Baltic states experienced the deepest stress in the economy when the euro entered into force in 2003, despite certain preferences the EU granted. Even in those conditions, the inflationary crisis lasted several years there.

As for Kyrgyzstan, the prices in the country are now high enough while salaries and pensions are small. There are no deep reforms in Kyrgyzstan, and the role of the state is high. Against this, the single EEU currency would be a real blow to the country. It will be beneficial for Russia, Kazakhstan and Belarus with more strong economies, but not for Armenia and Kyrgyzstan.

The expert believes that other EEU states will actively push the Kyrgyz authorities to this step. Most likely, the EEU countries will implement Belyaninov’s initiative. Here, political interests are the first, followed by the economic ones. Nevertheless, the dollar will remain a serious reserve currency, Sharsheev added.

In any integration association, the countries unite first from the point of view of politics, and then gradually the economy replaces politics. After free trade and customs control zones are created, a single currency zone will be needed. Without it, integration cannot last long, and the European Union experience can serve as a good example.

There will be several currencies in the world in the future, not just the dollar. But the introduction of the ruble as a common currency will not happen quickly, experts say.

Among the EEU countries, Russia has the most stable currency. But to avoid the feeling that Russia has more privileges, it is necessary to come up with a conventional unit, like, for example, altyn, and equate it with the ruble, Kyrgyz analyst Jumakadyr Akeneev told Vesti.kg. Although the ruble has long de facto become a common currency. Labor migrants transfer their money in rubles, and the Central Asian countries buy fuel and gas for rubles.

Settlements within SCO

The Shanghai Cooperation Organization (SCO) can switch to mutual settlements in their national currencies, Kazakh President Nazarbayev said at a meeting of the Council of Heads of the SCO Member States recently.

The SCO strategic priority should remain strengthening of security and development in the organization's space, as well as the opportunity to consider joint mechanisms for financing projects, he said, suggesting to think about the transition to mutual settlements in the national currency. The SCO can implement large investment projects using such a currency including the Eurasian high-speed railway, Nazarbayev said.

Blockchain and crypto-currency

The countries of the Eurasian Economic Union need to jointly develop legislation in the field of crypto-currency and blockchain, said Tatiana Valovaya, Minister for Integration and Macroeconomics of the Eurasian Economic Commission (EEC), the EEU permanent regulatory body.

"For the future EEU development and ensuring macroeconomic stability, we should now take into account that the digital economy will be served by digital money, and we should be ready for this. There is a common opinion of representatives of the EEU member countries that it is necessary to come to a common understanding of the basic terms in the field of crypto-currency and blockchain. In the future, this will make it possible to harmonize approaches within the EEU even if the national legislation of the EEU member states changes," she said.

EEU experts are currently monitoring the situation in the countries that are actively implementing regulatory standards for crypto-currencies. They analyze requirements for information systems, problems faced by the regulators of these states, and how consumers and investors react to them.

Kyrgyzstan’s official position

At the conference "Digital agenda in the era of globalization" held in Almaty in February, then Prime Minister of Kyrgyzstan Sapar Isakov said that the introduction of crypto-currency would help reduce the level of corruption in public procurement. The Kyrgyz authorities were considering the introduction of crypto-currency into the system of public procurement, he added.

However, Russian Prime Minister Dmitry Medvedev, in response to Isakov's statement, said he was pessimistic about the crypto-currencies. "No one knows if these crypto currencies will be kept," he said.

The National Bank of the Kyrgyz Republic (NBKR) does not intend to hamper the development of the crypto-currency market in Kyrgyzstan, but warned about the risks of using this type of currency. The National Bank does not bear any responsibility for this, NBKR Chairman Tolkunbek Abdygulov said. The risk to lose money is very high. Abdygulov advised to rely on those financial tools that have been checked by time.

In Kyrgyzstan, it is difficult to cash out the crypto currency, and many citizens will not invest in it, Abdygulov added. The National Bank uses block-technology in its work, according to which the crypto currency operates. The NBKR also plans to use blockchain when creating a data storage center.