Russia plans to abandon all “compromised” currencies in gas payment settlements, it was announced on yesterday (23 March 2022). This followed what Russia said was illegitimate decisions by a number of Western countries to freeze Russia’s assets, which had destroyed all confidence in those “compromised” Western currencies. As a consequence, in future “unfriendly countries” will have to pay for Russian gas in Rubles.
Russia’s Finance Minister Anton Siluanov said this month that Russia was unable to access around $300 billion worth of its reserves due to Western sanctions. Russian President Vladimir Putin said yesterday that Western sanctions against his country have dealt a large blow to public trust in the two major Western currencies (US Dollars and the Euro).
The Russian Central Bank and the government will determine within a week the order of operations for the purchase of rubles on the domestic market by buyers of Russian gas. Russia will continue to supply gas in accordance with the volumes and according to the pricing principles concluded in the contracts. Only the currency of payment will change. Russian President Vladimir Putin said that “It doesn’t make sense to deliver our goods to the EU and the US and get paid in dollars and euros.”
The Russian media service RT reported that, “The announcement caused a spike in the cost of contracts for gas supply at the TTF European hub, [according to] Forbes Russia [which] quoted data from the Intercontinental Exchange as indicating. During Wednesday’s trading, the gas price rose from €97 per megawatt hour (MWh) to approximately €108.5 per 1MWh, but after the president’s speech, it jumped by another €10 to €118.75 per 1MWh, before retreating to €114 per 1MWh as of 1pm GMT.”
RT said that that the ruble surged on Wednesday after the announcement that payments for gas exports to certain Western countries will be switched to Russia’s domestic currency. According to RT:
The Russian currency immediately rose to a three-week high of 95 rubles against the dollar, before settling below 100. It also gained 3.5% against the EU’s currency, trading at 110.5 rubles per euro.
The ruble plunged to historic lows earlier this month as unprecedented Western sanctions hit the Russian economy, dropping to record lows of 132 rubles per dollar and 147 rubles per euro on March 7. In mid-February, the currency’s exchange rate was around 75 rubles per dollar and 85 rubles per euro.RT (23 March, 2022)
Earlier this week, the deputy head of the International Monetary Fund, Gita Gopinath said global economies will be rethinking how safe it is to rely on the US dollar in their foreign currency holdings.
In an interview with Foreign Policy magazine, Gopinath said:
“We are likely to see some countries reconsidering how much they hold of certain currencies in their reserves.”
She said the IMF sees “increasing fragmentation” in global payments systems as one of the consequences of the current events. However, she stated that the US dollar, traditionally considered the world reserve currency, is not likely to suffer an “imminent demise.” However, depending on how long the crisis in Ukraine lasts, there could be larger effects.
Source: RT.com, 23 March 2022.
See also: https://elements.visualcapitalist.com/visualizing-the-eus-energy-dependency/