Has the time come for Russia to dump the rouble and create it’s vision for their own Eastern European economic and monetary block? Back in May, LeapRate reported on the formal signing of partnership of the new ‘Eurasian Union’, which includes Russia, Belarus and Kazakhstan. The partnership, which has been in the works for a long time now and has been formally effective from the start of the year, will implement tariff and non-tariff regulations.
The report back in May stated that the newly formed ‘Eurasian Union’ will “gradually align” their currency and monetary policies. Well, 3 months into 2015, the Russian leader is looking to speed things along on the monetary front, especially as the rouble has been battered within the last year.
According to reports in the Telegraph, a daily UK broadsheet newspaper, Vladimir Putin proposed last Friday to create the regional currency union with Belarus and Kazakhstan, Russia’s partners in the political and economic union made up of former Soviet republics.
Mr. Putin made his proposal at a meeting with the Belarussian and Kazakh presidents which highlighted the challenges facing the Russian led Eurasian Economic Union following the fall in global oil prices and the decline of the Russian rouble.
“The time has come to start thinking about forming a currency union,” Mr Putin said after the talks in the Kazakh capital Astana with Belarussian President Alexander Lukashenko and Kazakh President Nursultan Nazarbayev.
Putin gave no details of the proposal but suggested it would be easier to meet economic challenges by working closely together. Mr. Lukashenko and Mr. Nazarbayev did not immediately respond to the proposal in public, but analysts believe in the near term that it is unlikely to get off the ground.
Kazakhstan, the second-largest post-Soviet oil producer and economy after Russia, has traditionally been lukewarm to the idea of introducing a common currency, saying that the first order of business between the three nations should be to synchronize their monetary policies.
The Russian rouble’s decline has hit Eurasian Union partners Belarus and Kazakhstan. Chart shows the rouble has recovered a bit in the last couple months and looks poised to recover more losses after hitting a low of 80 roubles to the dollar which sparked a mini currency crisis for Russians heading into 2015. One year USD/RUB chart Courtesy of Investing.com.
The Russian rouble has declined by about 40% against the US dollar since midway through last year and hit a low of 80 roubles to the dollar before forcing the Central Bank of Russia to allow for a free float as it couldn’t keep defending the currency at all costs. This was the most sensical thing to do for the long run and the rouble has since come back to a new equilibrium at around 60 rouble to the dollar and looks poised to recover more of it’s losses. Meanwhile, Belarus devalued its own rouble in January and there has been speculation on markets that Kazakhstan may soon devalue its tenge currency.