Kudrin Brings Ruble Dreams Down to Earth

APKudrin sitting on a panel at the economic forum Saturday in St. Petersburg.
ST. PETERSBURG -- Finance Minister Alexei Kudrin threw a wet blanket Saturday on the idea of the ruble as a reserve currency, even as top Kremlin economic aide Arkady Dvorkovich said it remained a reachable, long-term goal.

In stark contrast to the government's recent push to paint the ruble as a potential successor to the dollar, Kudrin said reserve currencies could not be created by agreement and that China would likely be the first country to break into the rarefied reserve currency club.

"I don't think any new unions of currencies will appear any time soon," Kudrin said in a panel discussion at the St. Petersburg International Economic Forum. "The shortest way toward this would be for China to liberalize its economy and allow the convertibility of the yuan.

"This may take 10 years," he said. "But after this, there will be a demand for this currency, and this will be the shortest way to create a new global reserve currency."

It will take "very serious work" to make the ruble a reserve currency, even at the regional level, Kudrin said.

After shedding a third of its value in the wake of the financial crisis, the ruble has strengthened in recent weeks as prices for oil, Russia's main export, shot higher.

The ruble is still managed within a fairly wide corridor by the Central Bank, but First Deputy Chairman Alexei Ulyukayev told reporters Saturday that it could be freely floated before a 2011 target date. He added that the country must have a normal balance of payments for the float to happen by 2010.

The Kremlin has repeatedly called for reforms in the world financial system, which it says is "unfairly" built on a single currency -- the dollar.

In his keynote speech Friday, Medvedev renewed those calls, saying the prospect of inflation could eventually undermine the dollar and that the strength of the euro had "significantly lessened the impact of the crisis" on many European countries. He also suggested that the role of gold be given more attention.

Europe's fiscal policy makers, however, had other ideas.

"The dollar is obviously the main currency in our global economy ... and the position of the dollar will not be changed in the short term by any kind of political decision or political will," said European Union economic chief Joaquin Almunia, who was on the panel with Kudrin.

"These are decisions adopted by the market, and I think the markets evolve gradually in these kinds of issues," he said.

At a news conference, First Deputy Prime Minister Igor Shuvalov backed Kudrin's view, saying the ruble as a reserve currency could become a "potential reality in the short term" only for some CIS nations.

But at a panel on reserve currencies a few hours later, Dvorkovich, a Kremlin aide whose statements have clashed with Kudrin's in recent weeks, presented a more optimistic picture.

It is "not clear when the ruble will become important," Dvorkovich said. "It all depends on our policy."

"But we have a strategy. It's a long-term one, and we believe our policies will lead to a stronger, more stable, more competitive ruble as a result," he said.

"This will happen step by step, year by year."

At least one member of the panel, however, was pessimistic regarding chances for the ruble -- or the currency of any BRIC country, for that matter -- to take on worldwide significance.

"In my mind, I keep coming back to how you become a reserve currency," said Steven Elliott, senior vice chairman of the Bank of New York Mellon.

Elliott said a well-developed legal system, respect for personal property and a smooth transfer of power were necessary factors for a currency to achieve reserve status.

BoNY is fighting a $22.5 billion lawsuit in Russia over a money-laundering case dating back to the 1990s. Expert witnesses for the bank have argued that the Federal Customs Service is incorrectly using a U.S. anti-racketeering law to seek damages in a Russian court.

"All four countries have work to do," Elliott said, referring to Brazil, Russia, India and China.

The one that solves these issues first will probably see their money become a reserve currency, he said.