Does a common currency for the EAEU make sense? Not in economic terms, but perhaps there is a political subtext that makes the proposal more understandable....
All this leaves us wondering what Putin is thinking as he pushes the seemingly unpromising idea of an EAEU currency union. I see two possibilities.
One is that neither Putin nor his advisors have a good grasp of economics. The marginalization of most of the sounder economic thinkers that he listened to earlier in his Presidency favors this interpretation.
The other possibility is that he understands that a currency union among a structurally diverse grouping of sovereign states is a bad idea, but he thinks that he can do something about that pesky problem of sovereignty. In this interpretation, the EAEU currency union is just a foot in the door. The ultimate project is for bringing the ruble to Kazakhstan, Belarus and Armenia—perhaps ultimately to Ukraine, Latvia, and beyond—in the same way he brought the ruble to Crimea.
Kazakh President Nursultan Nazarbayev and Belarus President Alexander Lukashenko, who were present at the meeting with Putin, were reportedly cool to the idea of a currency union. Neither of them is an economist, but both are wily political operators. It is likely that they are aware of the threat to their countries’ sovereignty inherent in the project. Time will tell if they are able to stand up to Putin.
When all is said and done, currency unions are about political integration more than economic benefit, since they involve limitation of national sovereignty in favor of the institutional arrangements of the union. As we are seeing in the case of the EU. It's also the case with federalization, which was a big issue at the time of the founding of the United States of America. Currency unions can be highly successful or a disaster, depending more on political interests than economic ones.
The way the world order is emerging as a result of globalization is that several political entities will dominate socially, politically and economically because of their sheer size and level of organization — North America (the US and Canada), China, and India. Therefore, there is pressure on other blocs to cooperate in order to have a comparable seat at the table. This was one the reasons for the creation of the EU and EZ, for example. Since the collapse of the USSR, it makes sense for countries of the region to do the same rather than be sitting ducks for colonization, relegated to providing natural resources and cheap labor to the rich and powerful blocs, in the process of globalization. Latin America is awakening to this also, as is Africa.
Ed Dolan's Econ Blog
Does Putin’s Proposed Eurasian Currency Union Make Sense?
Ed Dolan
