Tuesday, March 29, 2022

Why paying in roubles for Russian gas and oil might matter — Alexander Mihailov

Why might Putin have made this announcement? At least three key possible reasons come to mind, all related to well-known theoretical and empirical work in international monetary economics:
  • Market segmentation, arising from obstacles to the formation of a unique global market with a single price for a product (in this case, gas), allows monopolistically competitive firms (such as Gazprom in this case) to operate pricing-to-market strategies by choice of the currency of pricing in international transactions for each such segmented market.
  • A shift of the exchange-rate risk from Gazprom as exporter to its importer counterparties in the ‘unfriendly’ countries, which could potentially result in rising energy costs if the rouble gains value in a medium-to-longer run.
  • As a consequence, the move could boost demand for roubles in international forex markets, in particular by forcing the West to allow gas and oil buyers a way to purchase roubles under the current sanction regime, and thus – presumably – a way for Russia and its central bank to sell those roubles.
The combination of these three factors, and especially the final one, might potentially enhance the international role of the rouble.
vox.eu/CEPR
Why paying in roubles for Russian gas and oil might matter
Alexander Mihailov

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