Why can’t we trade in national currencies?
Trading with neighboring countries, especially Russia, with national currencies has been a kind of dream for years. The system is simple, at least in theory: We pay by rubles when importing from Russia and they pay the price of goods they receive from us in Turkish lira. Why should Turkey or Russia be condemned to the dollar? But in reality, it does not work. We haven’t been able to get there even though both parties want it. According to Russian leader Putin’s speech last week, our northern neighbor is very open to trading in national currencies. We also have been voicing it for years. So what is the obstacle and why can’t it be overcome?
There is a ‘small’ obstacle
If the two countries were trading in a balanced way, there would be no obstacle to trade with national currencies. In fact, this is not much of trade as it is swapping. But what if the trade volume is extremely imbalanced?
Let’s take Turkey-Russia trade as an example. Turkey had $1.7 billion of exports to Russia in the first half of this year. During this period, our imports from Russia was exactly $ 10.5 billion. The export-import imbalance is not unique to this year. Turkey’s exports to Russia and imports from there was $3.4 billion-$22 billion in 2018, $2.7 billion-$19.5 billion in 2017 and $1.7 billion-$15.2 billion in 2016.
It is natural that there is such a big difference. Turkey buys a large portion of its energy needs from Russia. This gap will continue for the foreseeable future.
Now, suppose our annual exports are $3 billion and our imports are $20 billion and a dollar is TRY 6 while the dollar is 70 rubles. In this case, our exports would amount to TRY 18 billion while our imports to 1.4 trillion rubles. Russia would pay us this TRY 18 billion in liras. On the other hand, we will have to find 1.4 trillion rubles to pay for our imports from Russia. Where would we get so many rubles?
We would need to find rubles for imports worth about $20 billion a year, i.e. 1.4 trillion rubles. The first thing that comes to mind is to sell foreign currency from the reserves but other ways can be explored as well. Turkey welcomes about 5 million Russian tourists every year. Foreign tourists spend an average of $750 in Turkey. This amount may be slightly lower for Russian tourists but let us assume that they also spend this amount. In that case, Turkey would accumulate $4 billion from these tourists.
Let us assume that we ask the Russian tourists to spend in rubles rather than dollars. But what will happen if shopkeepers, restaurant owners or taxi drivers insist on dollars when a Russian tourist hands out rubles? Putting that question aside, even if we could convince people to accept rubles, we would still only accumulate $4 billion, or 280 billion rubles, a fraction of our needs.
Solutions are endless. There is one more move that we can make: The Treasury can concentrate on Russia in foreign borrowing and borrow from Russian banks in rubles. Can’t we do that!?
What is the share of the ruble in our trade?
Total exports in the first six months was $83.7 billion and 0.17 percent (1.7 per thousand) of this, equivalent to $141 million, was composed of rubles. Total imports in the same period amounted to $98.6 billion of which $8.3 million, or 0.008 percent (8 per hundred thousand) was rubles.
Does the exporter want rubles?
Suppose we overcome all these problems. Say we find rubles and Russia has no problem supplying liras. We don’t know how Russian businesses would react, but do our exporters really want the price of the goods he sells in rubles or in dollars? It’s easy enough to say, “So what, take the rubles and convert them to dollars.” But even small losses in these exchanges can become big over time.