Will Former Soviet Republics Adopt A Single Currency?

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Given the eurozone’s many woes, it’s hard to imagine why another region would want to embark on a unified currency project. But the world is full of surprises.

On May 29, at a summit in Kazakhstan, Russian Prime Minister and former President Dmitry Medvedev announced that the Eurasian Economic Union (EEU) would “consider the possibility and conditions of launching a monetary union in the long term.” RT and Sputnik, both owned by the Russian state and widely decried as Kremlin propaganda outlets, reported the story in broadly the same terms.

This is not the first time the idea of a single currency has been floated. According to Business New Europe, Putin called for member states to work towards a single EEU currency twice in March. In the second statement, delivered March 20, Putin said, “Working shoulder to shoulder, it is easier to react to external financial and economic threats and defend our joint market.”

Putin was probably referring to the EU, which a day earlier had extended sanctions against Russia over its meddling in Ukraine. Sanctions by the EU, the US and other western powers, along with the drop in oil prices, have sent Russia into an economic spiral.

The currency has been particularly affected. On March 20 the exchange rate was 64.18 rubles per euro, a depreciation of 28% in one year. The ruble bottomed out at 85.66 per euro on December 16, 2014, and traded at 62.95 rubles per euro at the time of writing (6/5/15, 10:57am EDT).

Set against this backdrop of economic turmoil, diplomatic friction and war in Ukraine, what are the chances that an EEU common currency will come to fruition? And if it does, what might it look like? First, what is the EEU, and what are the dynamics between its members?

The Eurasian Economic Union

Whatever spell check might say, the EEU is more than just a typo for EU. It is difficult, however, to say exactly how much more. Russian, Belarus and Kazakhstan signed the treaty establishing the EEU on May 29, 2014 in Astana (Medvedev’s single currency announcement came on the one-year anniversary), and its provisions went into effect on January 1, 2015.

These provisions were not published ahead of time, angering protesters outside of Astana’s Palace of Independence, who suspected their autocratic president Nursultan Nazarbayev of signing Kazakhstan’s sovereignty away.

EEU framers hoped Ukraine would join, but popular “Euromaidan” protests had driven pro-Russian president Viktor Yanukovych out of power in February and replaced his administration with one more inclined to join the EU. Russia’s reaction, annexing Crimea in the first European territory-grab since WWII and fomenting separatist violence in the country’s east, did nothing to reassure the EEU’s Kazakh opponents.

Nazarbayev put on a brave face, however, and insisted that Kazakhstan would not give up “one iota” of sovereignty. The EEU, he stressed, was an economic, not political, union. Many observers, however, have called the EEU a step towards a neo-USSR.

Armenia is also ambivalent towards the union. Until September 2013, it was flirting with EU membership, but in an abrupt “strategic U-turn,” it signed on to join the EEU. The decision does not appear to have been an easy one, and the government is hedging its bets by presenting itself as a “bridge” between the EU and EEU, allowing it—hopefully—to associate with both.

Some see the choice to side with Russia as an attempt to outmaneuver Azerbaijan over the ethnic-Armenian breakaway republic of Nagorno-Karabakh. If Azerbaijan wanted to join the union, it would have to negotiate with its members, including Armenia. Russia is Armenia’s main arms supplier, but now sells weapons to both sides.

For Kyrgyzstan, the issue was more clear-cut. As former Prime Minister Djoomart Otorbaev put it, “There is no alternative.” Due to Kyrgyzstan’s dependence on trade with Russia, leaders want to do everything possible to keep trade flowing. After a series of delays, Kyrgyzstan acceded the EEU in May and is awaiting other members’ ratification to join officially.

Kyrgyzstan’s drawing closer to Russia has earned it the ire of Uzbekistan, which shut off gas supply to southern Kyrgyzstan in April. The immediate provocation was Kyrgyzstan’s sale of its dysfunctional gas utility to Russia’s Gazprom for $1. Uzbekistan opposes what it considers Russian overreach in the region.

Tajikistan has expressed interest in joining the EEU, largely under pressure from Russia. New rules have made it harder for non-EEU members’ citizens to work in Russia, and remittances make up half of Tajikistan’s GDP. This dependence means the ruble’s depreciation has taken a huge toll on the country.

Will there be an EEU single currency?

Of the EEU member states, only Russia has expressed any enthusiasm for a single EEU currency. As with so much of the communication coming from the Kremlin, the reasoning is a bizarre inversion of the truth.

Officials have cited the US economy’s potential collapse—perhaps they meant the Russian economy?—and proposed banning euros and dollars in EEU members’ transactions. In reality Russia’s central bank has gutted its foreign exchange reserves in order to prop up the ruble and now hopes to replenish them to pre-crisis levels.

Meanwhile Kazakhstan is vocally defending its sovereignty, Belarusian president Alexander Lukashenko has said the single currency should be the “last [issue] on the agenda” and Armenia is probably still pining for EU membership. None of these countries seems to want a common currency.

But when push comes to shove, Russia does not concern itself with what other countries want. If the Kremlin sees a unified currency as being in its interest, it will use energy, remittances and propaganda as leverage to force its neighbors’ hands.

Russia’s considerable leverage is no guarantee of success, of course. The fact that RT and Sputnik are reporting calls for economic integration may mean that the Kremlin is seriously pursuing a single currency. On the other hand, Russia is obscuring its true motives behind dubious claims that the world’s benchmark currencies will collapse (note the timing of that piece: one day before the EEU accords were signed).

So long as the Kremlin communicates in conspiracy theories, it is difficult to assess how important the single currency really is to Russia’s leaders.

What would an EEU currency look like?

In October 2014, Pravda reported that the EEU single currency would likely be called the altyn, a name that has been applied to different currencies going back to the 15th century. The report gave a timeframe for the altyn’s introduction: 2025, all things being equal, but perhaps as soon as 2017 due to the impact of sanctions.

Judging by the relative sizes of the economies involved, the altyn would in essence be the ruble. Using the World Bank’s 2013 GDP figures—keeping in mind that Russia’s economy is set to shrink this year—Russia makes up 87% of the proposed altyn-zone.

By contrast, the eurozone’s two largest economies, France and Germany, together made up just under 50% of the whole. All told, the eurozone’s collective GDP of $13.2 trillion is around 5.5 times greater than the proposed altyn-zone’s $2.4 trillion.

Altyn-zone countries by GDP 2013 (current USD)

Source: World BankSource: World Bank

Eurozone countries by GDP 2013 (current USD)

Source: World BankSource: World Bank

The altyn would be inextricably tied to oil prices, which are unlikely to recover to pre-crash levels in the next few years.


Russia’s partners in the newly formed EEU are nervous about Putin’s ambitions and, at least when it comes to their domestic audiences, wish to be seen opposing the single currency. On the other hand, Russia has extensive leverage over these governments, whose economies are tied to Russian gas and remittances sent by migrants working in Russian cities. Whether the altyn becomes a reality mainly depends on how committed the Kremlin is to the idea. As for its potential to replace the dollar or euro as a reserve currency, don’t count on it—or anything else RT says.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing , Forex and Currencies , Economy

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