How Türkiye stands to profit from trading with Russia in local currencies - LEVENT YILMAZ

How Türkiye stands to profit from trading with Russia in local currencies

I have highlighted in several columns the importance of trading in local currencies. I also explained how the United States of America made the whole world dependent on the dollar during the Bretton Woods Conference in 1944 and pointed out the negative effects of that. I also pointed out that if we want to achieve economic stability in the next phase, we must make our economy stronger and more resilient against foreign currencies and exchange rate shocks.

As things currently stand today, especially in the energy trade, which will open new doors and provide important opportunities, is a promising and hopeful matter, but to achieve the benefit of this trade, it must be carefully and thoughtfully planned, and managed in a balanced manner.

Where did the idea of trading energy in rubles come from?

Last week, President Recep Tayyip Erdogan met his Russian counterpart Vladimir Putin during a working visit, and as is well known when it comes to the agreement with Russia, energy is one of the important issues on the table.

In a statement by Deputy Prime Minister Alexander Novak, after the bilateral meeting between Erdogan and Putin, he stated that an agreement was reached between Russia and Türkiye that requires payment for Russian gas shipments to Türkiye in part in Russian rubles and that the Turkish lira will be used in the next stage.

Importance of trading in local currencies?


I wrote a column in May 2020 on this topic. In it, I outlined how the economy suffers from a deficit in foreign trade, as Türkiye's need for foreign currency is constantly increasing because one of the most important reasons for the deficit in foreign trade is energy. Since we are mainly dependent on the dollar to pay for energy.


Therefore, the system creates a continuous demand for foreign currencies, especially government institutions such as the "Botas" oil and natural gas pipeline company. For example, when we talk about the potential for the energy bill to rise to $100 billion this year, it means that there is a very high demand for foreign currencies. An increase in the demand for foreign currency also leads to a rise in the exchange rate. That is why every step to try to reduce the demand for the dollar - even a little - is critical.


Will this system succeed?


If it was agreed that all energy trade with Russia would be in rubles, I would probably be the first to say that this system would not work. Conducting energy trade in rubles through partial payment is a reasonable and feasible idea. Russia also has important exports from Türkiye and these exports are increasing day by day.


Especially since the embargoes and economic sanctions imposed on Russia come at a time when Russia is approaching the Turkish market. Since we import energy from Russia, this leads to a deficit in the foreign trade balance in Russia's favor. So it is not technically possible to pay for the energy we get from Russia in rubles in full. But it is possible to pay in rubles for a part equal to the total of Russia's imports from us.


Questions come to mind

Once such an agreement is announced, the first question that comes to mind is how Türkiye will secure enough rubles, with some even wondering whether we will also use dollars to buy rubles.

And here comes the role of the word “partial” in the agreement, i.e. payment for the entire energy trade, equivalent to what Russia imports from Türkiye, that the central banks agree to exchange money in local currencies, but the banks also have to be more active, and it is very important to prepare the system correctly.

And there is another question when Russia accepts the move to the stage of paying in local currencies, what will it do with the Turkish lira?

Here, too, the goal of raising trade between Türkiye and Russia to $100 billion comes to mind, given that Russia will import more from Türkiye, and the higher the percentage of what Russia imports from Türkiye, the more its need for the Turkish lira will increase.

Of course, setting up and implementing the system will not be so easy, but if local currency trading is to continue to operate, its importance will become more evident in the coming years.

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