Common Currency for the Eurasian Economic Union: Testing the Ground?

On March 20, Russian President Vladimir Putin, while on a visit to Astana, Kazakhstan, said that Russia, Belarus, and Kazakhstan—the three main founding members of the Eurasian Economic Union (EEU), and formerly Eurasian Customs Union—should consider creating a monetary union. As Putin argued, “working shoulder to shoulder, it would be easier for us to respond to external financial and economic threats and protect our joint markets” (Lentra.ru, March 20). A few days earlier, Putin instructed the Central Bank of Russia and the Russian government to, by September 1, 2015, outline the future direction of monetary and financial integration in the EEU “with a study of the feasibility of establishing a monetary union in the future” (Lentra.ru, March 20).

A common currency has, for a long time, occupied a central place in the broad discourse on Eurasian regional integration. In April 2003, Kazakhstan’s President Nursultan Nazarbayev first proposed a new regional currency for the Single Economic Space (which, back then, included Russia, Belarus, Ukraine and Kazakhstan) that would be named the altyn (“gold” in most Turkic languages) (Nomad.su, April 2, 2003). For Nazarbayev, the altyn was seen as a way to stimulate intra-regional trade and economic cooperation. And years later, the global financial crisis of 2007–2008 raised particular concern among emerging economies about the global dominance of the US dollar and developing countries’ dependency on world capital markets as well as the dollar’s reserve function. In a 2009 article entitled “Keys to a Crisis,” written for the Russia newspaper Rossiiskaya Gazeta, Nazarbayev openly questioned whether “the existing de facto world currency is legitimate de jure?” (Rossiiskaya Gazeta, February 2, 2009).

The idea of setting up a new regional currency that would challenge the dollar and the euro’s role in regional trade and economic interactions has lately acquired clear geopolitical overtones, particularly in the context of the ongoing conflict between Russia and the West. As a result, Russia’s EEU partners have somewhat dampened their enthusiasm for initiating a common currency with Moscow. First, in the context of the EEU, Russia’s partners have routinely taken to referring to a common currency as a finalizing and, therefore, a distant stage for integration, serving a purely economic and regional function. Second, the official EEU treaty—in force as of January 1, 2015—contains only a vague remark on the need to set up a common financial services’ market, and most EEU officials maintain that the integration of the member countries’ financial markets cannot be achieved earlier than 2020, pushing a common currency’s introduction beyond this horizon (Ritm Evrasii, August 5, 2014).

Moreover, the presidents of Belarus and Kazakhstan have themselves apparently changed their views on the introduction of a common Eurasian currency out of sovereignty concerns. Alyaksandr Lukashenka and Nursultan Nazarbayev’s public remarks increasingly suggest that they view the introduction of a common currency as part of “political integration,” to which they both remain opposed. Belarusian President Lukashenka, who in the early 2000s seemed committed to the idea of integrating his country’s economy into the Russian ruble zone, was cited earlier this year saying that a common currency will not be introduced at any time during his presidency (RIA Novosti, January 29).

Although a shared currency should, theoretically, ease regional trade arrangements by eliminating exchange-rate volatility and reducing transactions costs, there are limited economic grounds for introducing a common currency within the EEU at the present time. During a special session of the Commonwealth of Independent States (CIS) Economic Forum dedicated to discussing the idea of a common currency, Timur Suleimenov, the Kazakhstani representative in the Eurasian Economic Commission, said that from an economic point of view, intra-EEU trade is far below the required minimum threshold before a common currency should be introduced: “In the European Union, trade in goods and services and the volume of mutual investments at the time of introduction of the euro was 60 percent… We have this figure still at the level of 11 percent. Will it reach 60 percent? Of course not. Our economies are too different and, therefore, we will never be like the European Union” (IA-center.ru, March 16). Additionally, the financial systems of Russia, Kazakhstan and Belarus vary widely, with incompatible sizes of their banking markets, national reserves, inflation rates, and different environments in terms of financial market regulation and liberalization.

The issue of the common currency likely suddenly appeared on the EEU agenda because of the worsening Russian economic crisis and the Russian ruble devaluation, which have impaired mutual trade—with particularly serious complications for Kazakhstan (see EDM, November 21, 2014; March 6, 2015). Unlike Belarus, which adjusted its currency to the depreciating ruble, Kazakhstani authorities have been hesitant to devalue their national currency, the tenge, as it had already been devalued by 19 percent in 2014. Producers in Kazakhstan are reportedly facing serious losses from competition with suddenly cheap Russian goods. In fact, selling to the Kazakhstani market has helped some Russian producers keep their businesses growing, despite Western sanctions (for example, car producers) (TASS, February 18). Furthermore, Kazakhstan’s Central Bank is believed to be spending up to $2 billion each month in an effort to keep the exchange rate from sliding further (Kapital.kz, February 4).

But even with such severe problems, public opinion in Kazakhstan, on a whole, remains strongly opposed to a common currency idea. This view is best summarized in the words of Rakhim Oshakbayev, a deputy chairman of the National Chamber of Entrepreneurs, known for his protectionist views regarding Kazakhstani business: Despite more recently speaking out in favor of the inevitability of Eurasian integration (Kapital.kz, January 1), Oshakbayev, last year, went on record to declare, “in the near future, I hope we will never have a common currency. Kazakhstan is a sovereign country and we will have our own national currency—the tenge” (Vlast.kz, November 21, 2014).

Amid current uncertainties and the general lack of information regarding the common currency plans, Putin’s call for a Eurasian monetary union represents an aspect of longer-term planning for the Eurasian Economic Union’s future development. Introducing a common currency for the EEU will unavoidably be a multi-phased process (IA-center.ru, March 16). However, the fact that the EEU has, at this stage, initiated a public discussion of tighter monetary integration issues demonstrates that its founders are looking for ways to increase the bloc’s resilience and ultimate viability.