Archive for September 30th, 2012

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Currency wars over Ukraine?

September 30, 2012

Well, I was hoping to write something truly interesting from the meeting between the CIS Prime Ministers that has been held over the past few days in Yalta.

Unfortunately, not much worthy of real comment has been said or done – unless you want to include the nearing ascension of Kazakhstan and then Kyrgyzstan as formal members and any effect that may have on the thinking of Ukraine.

As it stands, Ukraine is interested in a Free Trade Agreement with the CIS but no more – things can change however – and may well do so if the Eurasia Union becomes a reality in 2015, especially so if Vietnam joins as it hopes to do.  Asia-Pacific space and all that!

Anyway, just as I was giving up hope on anything overly interesting, Russia via VTB bank, suggested that Ukraine make the Ruble a tier 1 currency, and considering that 40% of trade between Ukraine and Russia takes place in Rubles, that is a fair suggestion.

For Ukraine to do so, it would make the Ruble an official reserve currency held by the National Bank of Ukraine – along with the US$, Euro and Chinese Yuan.

As I wrote last November, currently 33% of all Ukrainian/Chinese trade occurs in Yuan – and the Chinese would like that to be a much higher percentage.

It is worthy of note that Russia, via Dmitry Medvedev whilst in Yalta, seems to be singling out the Yuan for a fight with the Ruble in Ukraine.  One therefore has to suspect that this suggestion put forward (undoubtedly at the insistence of the Kremlin) by VTB has much more to do with geopolitical influence than paying for trade in domestic currency.

It can surely not have gone unnoticed by the Kremlin, the amount of Chinese money that is heading into Ukraine, be that in agriculture, R&D, space, infrastructure, consulates opening all across Ukraine, loans, mine purchases etc in the past 18 months.  (Simply put “China” in the search facility of this blog to get an overview Chinese activity in Ukraine.)

Could it be that Russia now sees a new realistic geopolitical threat when it comes to Ukraine?  Not the pull of the EU but the growing influence of China instead?  Has it eventually recongised not only the polarity of West and East that attempt to influence Ukraine, but now one that comes from the Far East – one which has been building up slowly but surely for the past few years in every major economic sector within Ukraine?

The new battleground will be the NBU?

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