Title: Choice of a substitution currency in Russia: How can we explain the dollar's dominance?

Authors: Anna Dorbec

Addresses: BNP Paribas, 6 boulevard des Capucines, 75450, Paris, France

Abstract: The analysis of Russia|s external economic relations reveals a paradox: while Europe is its main trade and direct investment partner, its currency|s role in the Russian financial sphere is lower then that of the US $. This paper analyses this phenomenon by separating the currencies| use for transactional purposes from their role as a |store of value|. The influence of three main factors (habits, trade relations and exchange rate fluctuations) on the relative demand of the euro in Russia is tested for the period 1999-2004. Finally, we suggest a theoretical interpretation of the results using the conventions theory approach.

Keywords: dollarisation; euroisation; transition; Russia; currency substitution; asset substitution; network externalities; hysteresis; conventions theory; euro; dollar; habits; trade relations; exchange rate fluctuations; emerging economies.

DOI: 10.1504/IJEPEE.2009.030576

International Journal of Economic Policy in Emerging Economies, 2009 Vol.2 No.3, pp.241 - 265

Published online: 24 Dec 2009 *

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