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. Last Updated: 07/27/2016

Russia Seen as Crucial to Euro Success

Russia could emerge as an unlikely champion of the fledgling euro after leaders at a Russia-EU summit agreed to study ways to boost its use in trade and increase its share of Russia's official reserves.

Details of the pact agreed in Moscow on Thursday are still sketchy and the euro plays only a bit part on the Moscow Interbank Currency Exchange, accounting for just 1 percent of the $124 billion traded in 2000.

But experts say a major switch from dollar contracts to the euro by Russia's major hydrocarbon producers, who provide EU states with 21 percent and 41 percent respectively of their oil and gas imports, could see the euro come of age in world trade.

In a July 1999 report, commissioned by the government and the Central Bank, the Russian Academy of Science said the introduction of the euro "directly bears on the strategic interests of Russia and alters the conditions for its integration into the world economy.

"In the final analysis, the consequences are to the benefit of our country," it concluded, offering Russia a chance to diversify the currency structure of a dollarized economy where an estimated $60 billion are in circulation.

But whereas EU states accounted for 33 percent of trade turnover in 1998 compared with 8 percent for the United States, 80 percent of foreign trade contracts —- mainly for oil, gas and other commodities — are concluded in dollars, said Olga Butorina, who helped compile the Academy of Science report.

In 1998, natural gas monopoly Gazprom signed 40 percent of its contracts in non-former Soviet states in European currencies. If they were converted to euros, that could provide a terrific boost for the euro, Butorina said.

"It would increase dramatically the demand for euros in the world," she said. "For sure, it would be an important strategic shift and the euro would start to compete with the dollar in international trade markets."

Gazprom was not available to comment on its euro plans.

Not everyone buys into this brave new world. Oleg Vyugin, a former Russian first deputy finance minister who is chief economist at Troika Dialog, says the dollar habit of Russian businessmen is so strong that even the introduction of physical euro cash in January will not trigger a stampede toward the currency.

"It's difficult to imagine Asia switching to the euro," he observed dryly-, urging a cautious, market-led euro takeup.

But some second-tier Russian firms have embraced the euro, finding in the switch to the new unit a haven against sharp currency movements epitomized by the euro's initial plunge against the dollar.

"Today, we pay for our raw materials in euros, about 60 percent of our turnover," says Marina Pereverzeva, general director of Almaz Press.

Some Russian steel firms importing in euros and exporting in dollars have reaped huge rewards. But euro converts complain the currency is only available in Russia through the ruble-dollar cross-rate, which makes it more expensive. They want policy-makers to introduce a direct euro-ruble rate and boost demand for the euro in Russia, although it is unclear where the Russian Central Bank stands on this.

A greater holding by the Central Bank could be one move, although the Academy of Science report was cool on converting Russian foreign debt from European currencies.