Internationalization of Ruble: Myths and Economic Policy

Internationalization of Ruble has lately become an issue of intense professional debate, partly due to the progress of integration process within the Eurasian Economic Union and corresponding advance of the Ruble’s role supported by the monetary policy of the Central Bank of Russia. Along the lines of these discussions, the article poses three major questions: (1) does current international role of the Ruble correspond to the fundamental characteristics of the currency and the national economy? (2) is there any room to strengthen this role and how big a potential benefit might be? (3) should economic policy directly target the Ruble’s internationalization? The answer to the first question is broadly “yes”: while “factors of size” favor an increase of the Ruble’s role, several structural factors (mainly the level of development and liquidity of the national capital market) restrict its potential as a store of value. Secondly, the role of Russian national currency could be reinforced. However, on the one hand, it requires non-trivial reforms to improve the structural characteristics of the national economy; on the other hand, benefit is not that large as potential Ruble’s progress is limited due to intense currency competition and the advantages of the leading reserve currencies. Finally, economic policy should be mainly targeted not at internationalization of the Ruble itself but at improvement of fundamentals which would make these gains possible. Corresponding reforms would involve, primarily, more intense and diverse integration within the Eurasian Union as well as expansion and qualitative development of the national financial market.