Ask HN: How is it beneficial for Russia to only accept payments in rubles | Hacker News Reader

Ask HN: How is it beneficial for Russia to only accept payments in rubles

15 pointsweinzierl18 comments

I cannot wrap my head around on why Russia is going to only accept payments in rubles for gas deliveries. I remember from the 80s that everyone in eastern Europe was keen on hard currency. How is the situation different now?

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Assume for simplicity that only two countries exist, Germany and Russia, and that all Euros are numbers in a computer. Crucially, the computer storing Euros is in Germany.

Up to a month ago, Russia could have shipped gas to Germany in exchange for "Euros", which means: Russia ships gas, and at the same time a number in a computer in Frankfurt goes up, reflecting the fact that Russia owns more Euros. Then Russia could go to a car dealer in Stuttgart and buy a Porsche 911 by spending Euros. Russia gets the Porsche and the number in the computer in Frankfurt goes down.

Now Germany is saying: the number in the computer is frozen. Russia cannot spend "Euros" to buy a Porsche. So Russia, understandably, says: These "Euros" are useless to me.

In this setup, no trade can happen anymore. The Euro is effectively worthless and the ECB has defaulted. As a compromise before things get worse, Russia is proposing an intermediate solution. First Germany sends the Porsche to Russia. To keep track of the transaction, a number in a computer in Moscow (a "Ruble") goes up. Later, Russia sends gas to Germany and the number in Moscow goes down to settle the balance. In order for this to work, the Porsche dealer or some intermediary must accept Rubles in exchange for the 911, and Germany must trust Russia not to freeze Germany's rubles (in which case Russia gets the Porsche for nothing and Germany is pissed).

How is this different from the '80s? First, many things in the 80's were done in physical bank notes, to which the "freezing" does not apply. However, the large amounts of gas trade make the exchange of physical bank notes impractical. Second, banks in the '80s would not have dared to freeze the money of their customers. Such breakage in the banking system is a new thing whose consequences remain to be seen.

This is an excellent answer! Thanks a lot. What made it click for me was the example with the Porsche. In the end it is not a matter of buying Rubles for Euros but goods for Rubles.

Europe needs rubles to pay for the oil. Europe has no rubles.

1. In what currency Europe pays for the rubles?

2. Who gets the euros in this trade?

answers: ˙soɹnǝ sʇǝƃ ɐıssnᴚ (2 'soɹnƎ (1

Russia goes trough this extra step to create demand for rubles and stabilize the exchange rate.

It's a token of recognition that other parties do need your goods and services and hence are backing a currency of your issuing as a legal tender. The more parties are involved in the trade with the same currency the more transactional trust the currency gets (as non-issuing parties could credit one another in the same currency for future purchases of various kinds from the issuing party). You can ask yourself a similar question to get an intuition about the importance of the move: what's the difference between IRS accepting payments in Bitcoins or dollars vs. accepting only dollars?

You have to buy rubles with a proper currency like dollars, euros or beanie babies. Then Stalin, sorry Putin, has a hard currency he can use to buy tank parts and sugar.

That seems like an extra step, why not just keep accepting euros?

Why does he need to export rubles? Which other markets are going to want to buy them from Germany after?

This was my thinking as well and moreover, since the Ruble is so low you get a ton of Rubles for little Euros currently. If the contracts were in Rubles it is a disadvantage for Russia if the contracts were in Euro it should not matter. What is the scenario were Russia is better off with this move?

Why are you assuming the price of gas will remain constant. It will probably fluctuate along with the ruble as long as russia deems it profitable

This from the German perspective. Germany has long term contracts with Russia. I assumed prices are also negotiated long-term, but I could be wrong.

Isn't that Germany's problem?

We don’t know who will sell rubles. It’s plausible that Russia can force would-be buyers to buy them at a special place and at a special (unfavorable) rate.

I guess that depends on how the price of a cubic foot of gas was negotiated.

Did they set it up to $ and then just converted to rubles at payment. Or was it setup in rubles and then you convert to the buyers currency.

That is the interesting question but regardless of the answer and considering the current exchange rate I only see that in one case it should be to the detriment of Russia in the other case it should not matter. What am I missing?

Imagine it was negotiated at dollars but now Russia demands rubles at a rate of 1:1.

Then it’s like giving away free gas. They probably want it at current market rates what ever those are 1000:1 1m:1 that will help remove excess rubles out of the system.

That's exactly the opposite. Imagine you need 100 Rubles to pay for 1cf of gas. But you don't have rubles, you need to buy them. Would you rather spend $1 (given a rate of 1:100) or $100 (given a rate of 1:1) to pay for that 1cf of gas?

But you can buy them on the “market” black or otherwise so you ideally buy up as many as possible and give them back to the Russians for disposal. That creates demand for the currency and is the reverse effects of printing money.

The rubles are exchanged for gas and oil from Russia. But Germany being forced to buy rubles means that isn't quite such a tiny amount of demand for rubles as before, which means the value of the ruble doesn't coontinue to plumment.

Which is good for Russians and Russian companies holding a lot of rubles who find that even foreigners still willing to trade with them don't think their rubles are worth many dollars or Euros any more.

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