Why can’t we trade in na­tional cur­ren­cies?

Dünya Executive - - COMMENTARY - Alaat­tin AKTAS Econ­o­mist

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?

Two op­tions

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.

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