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Putin’s Decision To Pay In Rubles: Why Did This Measure Come About And What Does It Mean For World Trade?

Russian President Vladimir Putin announced a few days ago that the payment for the export of Russian gas will continue to be made exclusively in rubles, which is why even some leaders of the countries that use natural gas from Russia have admitted that it is not clear how this transaction will be carried out.

Due to the many ambiguities about this change, especially among the citizens, Rasha Today published a short analysis in the form of answers to frequently asked questions about the payment of gas in rubles, but also what additional changes this decision can bring.

Why switch to rubles at all?

The United States and its allies have imposed various sanctions on Russia, most of them related to economic activities aimed at the country’s financial system. President Putin explained that the illegitimate decisions of many Western countries to freeze Russia’s assets had destroyed any confidence in their currencies. Russia’s energy exports have not yet fallen victim to Western restrictions, primarily because of Russia’s export power, but almost all gas deals are denominated in euros or US dollars, which could make them a potential target. But if gas is paid to Russia in rubles, sanctions against this most important Russian resource will probably be avoided.

Which countries are affected by this decision?

The proposed move affects “enemy countries”, ie those that have imposed economic restrictions on Russia. This includes the United States, Canada, Australia, Japan, South Korea and most EU countries.

What will happen if customers refuse to pay in rubles?

If customers refuse to pay for gas in rubles, they will not be able to buy Russian gas, as no other currency will be accepted. And stopping the purchase of Russian gas would be a serious blow to Europe, which receives more than 40 percent of Russian gas imports. Most European leaders have already spoken out and acknowledged that they could not give up gas from Russia.

How can payments in rubles be handled?

The Central Bank of Russia can sell rubles to gas buyers or they can buy the currency on the open market. Rasha Today also quoted analysts as saying that it would be wise for governments to keep the ruble in their central banks.

How will the change affect Russian gas buyers?

Natural gas is used for a variety of purposes, from heating and cooking to power supply for industrial companies. Buying less gas from Russia effectively means you will pay more for goods on the open market. This leads to higher costs for industry and households, rising prices for all consumer goods and finally a recession.

What does this decision mean for the dollar and the euro?

The dominance of the dollar as a global reserve currency may be threatened. Its strength stems from its connection to global trade in oil and other commodities and it may lose its dominant position in world trade. The euro faces a similar challenge only to a lesser extent, but lower demand for the currency means a weakened position in the global reserve currency basket.

What does this decision mean for the ruble?

An increase in the ruble’s role in international trade would strengthen the currency, as it would be backed by Russia’s vast natural resources. With such support and due to the growing demand, it could one day even become a major world currency. The announcement of a change in the ruble has already raised the exchange rate of this currency to a three-week high.

What are the broader implications?

In a statement, Putin said natural gas was only the first Russian commodity to be sold in rubles. The Russian president announced that he had decided to implement a set of measures to change the payment for Russian natural gas, which will be delivered to the so-called “enemy countries” in Russian rubles as soon as possible. Other exports from Russia are expected, including oil, metals and grain. “It will only further strengthen the ruble and weaken the dollar and the euro,” Rasha Today wrote in the analysis.

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