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Eurasian Economic Union unlikely to introduce common currency overnight

March 23, 2015, 19:44 UTC+3 Alexandrova Lyudmila
Presidents of Russia, Belarus and Kazakhstan shake hands after signing the treaty on creation of the EEU

Presidents of Russia, Belarus and Kazakhstan shake hands after signing the treaty on creation of the EEU

©  ITAR-TASS/Mikhail Metzel

MOSCOW, March 23. /TASS/. The emergence of a common currency of Russia, Belarus and Kazakhstan, whatever it may be called (the "ruble," the "altyn," the "euras" or whatever) is hardly a matter of tomorrow, polled Russian economists believe. Creation of a currency union within the Eurasian Economic Union (EEU) will depend on the situation in each of the economies involved, and speeding up the process would be tantamount to breeding problems.

Russian President Vladimir Putin on March 10 asked the Bank of Russia and the government to settle the issue of integration within the EEU’s currency sphere and to explore the possibility of creating a currency union in the long term by September 1. He raised the issue again at a meeting with the leaders of Belarus and Kazakhstan last Friday. "We believe that time is ripe to discuss the possibility of forming a currency union in the long term," he told the media. "By working shoulder to shoulder we will find it far easier to responded to external financial and economic threats and to protect our common market."

The documents on founding the EEU, signed last year, mentioned the creation of an Eurasian Central Bank and the emergence of a common currency for Belarus, Russia and Kazakhstan by 2025.

The idea of creating such a union and introducing a common currency (for which a handful of names has been proposed already) belongs to Kazakhstan’s President Nursultan Nazarbayev. Russia supported it in 2012. Belarussian President Aleksandr Lukashenko has said that transition to a common currency will be the final stage of integration, completing the emergence of all common markets - of goods, capital and labour force. "I do not think that it will happen today, nor do I expect it will happen during my presidency," Lukashenko said last January.

Experts polled by TASS have been warning against attempts to fast-track the creation of a currency union or put politics ahead of the economy.

A currency union would be the culminating point of integration in a variety of spheres, says research fellow at the Centre for Comprehensive European and International Studies at the Higher School of Economics, Marsel Salikhov. "There must occur integration in the market of goods first, to be followed by integration in the labor market, and then by the integration of monetary and credit policies. Once these conditions have been met, the question of a currency union may be brought up. But it would be very wrong to put the cart before the horse."

The question of creating such a union is abstract in a sense, bearing in mind the fact that there are considerable differences between future participants. "The three countries have different approaches to monetary and credit policies. Russia has a floating rate of the national currency - the rouble - and free movement of capital, Kazakhstan maintains a fixed exchange rate, and Belarus has restrictions on capital flows."

Without addressing these issues first it will be hard to contemplate when the currency union may materialize. A currency union is a matter of a distant future. Addressing the issue by decree would be wrong - economic problems would be imminent. "It has taken Europe several decades to make transition to the euro, and there have been so many problems."

Obviously a decision has been made to accelerate the process of creating a currency union due to the economic problems in the three countries concerned, says assistant lecturer at the international cooperation chair at the presidential academy RANEPA, Roman Andreyeshchev. Attempts at creating it fast are unlikely to succeed, but it is worth to keep trying anyway," he believes.

"Building a good house without a basement is impossible. In the post-Soviet space quite a few good decisions were made, but they are still very far from implementation: there is no normal customs space yet and the zone of free trade is to be developed. Politicians may keep saying whatever they want, but the economy decides everything. When politics outpaces the economy, it is very bad. But attempts should be made again and again to identify the right solutions," the expert concluded.

Infographics The Eurasian Economic Union starts its work The Eurasian Economic Union starts its work
The Treaty on the establishment of the Eurasian Economic Union comes into effect on January 1. Infographics by TASS

The director of the Strategic Analysis Institute at the FBK consultancy, lecturer at the Higher School of Economics, Igor Nikolayev, is certain that in attempts at establishing currency unions politics should not gain the upper hand over economics.

"Experience, in particular, that of creating the European currency system, shows that if the economies of the potential member-countries are basically OK, such a union does have a future. Such unions should be created when the economy is on the ascent. Now, that the economic situations in the three EEU countries are not the very best, the timing looks not very suitable."

"Questions will crop up at once. For instance, where the emission centre will be located?" the expert asks. "The objective reality has not been taken into account to the full extent. There is no consensus on the fundamental issues yet."

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