Can Russia stop using the US dollar?

President Vladimir Putin’s government says it is working on plans to de-dollarise Russia’s $1.6tn economy and wean its biggest industries off the US currency, following four years of US sanctions against the country and its expectation of new restrictions. Kremlin has sought to strike deals with major trading partners to use the Russian rouble for imports and exports. That push has been welcomed in countries such as China and Turkey where relations with the US are similarly strained.

But rhetoric may be easier than reality. Russia relies heavily on exports of commodities and energy — markets where the dollar is overwhelmingly the currency of choice. And the Kremlin is unlikely to convince its western partners to trade in the volatile Russian currency. So can Russia really stop using the US dollar?

Analysts are divided over just how painful four years of sanctions have been for Russia’s economy, but the impact on its currency and bond markets has been significant. Increased trade with China and other Asian partners in recent years has helped reduce the overall contribution of the dollar to its currency settlements, but the greenback still accounted for 68 per cent of inflow settlements last year. From 68 per cent of Russia’s total external debt in December 2015, to 53 per cent in March of this year, the push to de-dollarise Russia’s obligations has been a modest success.

At a major joint military exercise in Vladivostok last month, Mr Putin and Chinese leader Xi Jinping vowed to stand together and fight against US policies such as sanctions against Moscow and tariffs against Beijing. Despite promises, pledges and programmes to reduce Russia’s reliance on hydrocarbons, production of oil and gas is still the backbone of the country’s economy — accounting for some 50 per cent of the federal budget.

While gas is typically sold to European countries on long-term contracts that could be priced in euros, the global oil trade is a dollar market, with major traders unlikely to accept foreign exchange risks by buying and selling in other currencies. China, which has increased its purchases of Russian oil and gas, could be open to de-dollarising those imports — but other countries are unlikely to follow suit.