13 Apr 2014

Altyn - the new Eurasian currency

On Thursday, the leaders of the Russian Federation, Belarus and Kazakhstan have agreed on the introduction of a common currency for the Eurasian Union until 2025. However, it was noted that in case of strict economic sanctions against Russia, the countries could swith to the single currency significantly earlier, already in 3-5 years' time. It is possible that Armenia, Kyrgyzstan and Tajikistan will also join the common monetary zone. The new currency will be called altyn, after a historical currency originating from the monetary system of the Golden Horde, used in Russia until the 18th century.
The etymology of the word altyn is disputed: according to one theory, it comes from the Tatar word for 'gold' (however, as far as it is known, copper and silver coins were used as altyns, but not golden); according to another, it originates from the Tatar word for '6', as it was worth 6 of 1/2 dengas. It was a convenient currency unit for trade between Russians, who used a decimal currency system and Mongol-Tatars, whose monetary system was duodecimal.

An old Russian altyn. Photo by Wikipedia

In May 2014, presidents of Russia, Kazakhstan and Belarus will sign a treaty on the establishment of the Eurasian Economic Union in 2015. It should become a united economic space with common currency, customs and tax regulations as well as energy and industry policy, a kind of answer to the European Union. According to the notion of its creators, the Eurasian Union later could become a militay-political bloc, able to compete withe the NATO or China. In this way, the existing organizations CIS, CSTO and the Customs Union would be practically incorporated in the Eurasian Union.

 The process of introduction of the single currency is planned to be the following: at first, a consultative council will be created with the governors of the central banks of the participating states. They will be responsible for the rates of national currencies, regulation of banking and insurance activity and the unification of the markets of securities. It was also intended to organize a Eurasian Central Bank. However, the proposal was blocked by Alexander Lukashenko, who - although in theory supports the project - is said to be cautious about its realization. Nevertheless, corresponding documents, meant to be signed next year, are being prepared. The final deadline for the introduction is 2025. Kazakhstan is hoping that it could happen earlier, in 3-5 years, in case of serious economic sanctions against Russia.

The idea of a single currency for the Eurasian Union was created by Kazakh president Nursultan Nazarbayev, and subsequenlty supported by Vladimir Putin and Dmitry Medvedev in 2012. (Already in 2009, Nazarbayev has spoken up for a supranational currency for the whole world which he considers an effective mean to fight the global financial crisis.) The Eurasian Central Bank is planned to be situated in Almaty, Kazakhstan. This regulatory board would almost completely take over the role of national banks, although national banks would remain. The current EU-model was clearly taken as role model. But in this case, the Eurasian Central Bank would probably have to strictly obey the presidents and prime ministers of the EAEU. At present, the economy of Kazakhstan represents 10% of the Russian economy, Belarus - 3%.

According to the director of the analytical department of Alpari, Alexander Razuvayev, in the beginning, the new currency will be cashless. Cash will appear in a year or two. At the same time, rouble and tenge will be circulating parallel. The advantages of a common currency are obvious. Businesses and citizens will not lose on exchange and bank charges. It should be also noted that a single economic system cannot be operated without a single currency. Although the Eurasian Central Bank will be located in Kazakhstan, the main capital market, of course, is the Moscow Stock Exchange. The weakness of the new currency will be the dependence on energy prices. The economies of both Russia and Kazakhstan are based on raw materials. 

The name of the new currency is obviously a symbolic gesture towards Kazakhstan, but it is interesting if Russia would be ready to give up roubles, a national symbol.







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