Russia and Ethiopia are actively exploring the feasibility of conducting trade using their respective national currencies, aiming to reduce reliance on the US dollar and enhance economic cooperation.

Reduced reliance on the US dollar could motivate banks to issue letters of credit (L/Cs) denominated in local currencies to mitigate foreign exchange risks for traders.

Early trading

Both nations have commenced trading in their local currencies according to Ethiopian ambassador to Russia, Genet Teshome Jirru.

While this initiative is in its early stages, there is mutual interest in its development, according to the ambassador. Trading in national currencies is seen as beneficial, as it helps avoid transaction costs and losses due to exchange rate fluctuations, he adds.

Russia's currency expansion

Russia has expanded its list of countries eligible for currency trading Russian roubles to 40, now including Ethiopia. This move is part of a broader strategy to diminish the dominance of the US dollar in international trade and strengthen economic ties with other nations.

Despite Moscow's efforts, African countries have shown reluctance to adopt the Russian rouble for bilateral trade.

Banking cooperation

Implementing trade mechanisms to manage trading in currencies such as the Russian rouble and the Ethiopian birr typically involves establishing financial infrastructure to support transactions, which may include bilateral agreement.

This normally entails formulating agreements between central banks to facilitate currency exchange and settlement processes.

Encouraging L/Cs

Banks could then be encouraged to issue L/Cs denominated in local currencies to mitigate foreign exchange risks for traders.

Payment systems integration would also be needed to develop new or enhance existing payment systems to support seamless transactions in national currencies.

This article represents the views of the author and not necessarily those of the ICC or Coastline Solutions.