By creating its own monetary and financial system, an economic and trade bloc backed by Russia is looking to reduce its reliance on the US dollar and euro for internal trading and in deals with China.

The Eurasian Economic Union (EAEU), a counterpart to the European Union, has five member states - Armenia, Belarus, Kazakhstan, Kyrgyzstan and Russia - and ensures the free flow of goods and economic cooperation among them, but it does not have a single currency like the 19 of the 27 EU states do.

The union has also cultivated a close relationship with China, which has been expanding its influence in Eurasia via the Belt and Road Initiative.

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Sergei Glazyev, the union's minister of integration and macroeconomics and a former adviser to Russian President Vladimir Putin, said on Monday in an online forum about extending EAEU-China collaboration that the union is increasing the use of national currencies to minimise risks.

"Russia and China have created their own payment systems and a system of electronic information exchange between banks, but economic activity participants are still very inactive in using these infrastructure elements and still work in foreign currencies," Glazyev said.

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"I believe that we should radically reverse the situation and create our own Eurasian monetary and financial system," he said. "It would insure us against risks and would be reliable, transparent, convenient and efficient, and would not be burdensome for economic activity participants."

At the moment, about half of the payments made within the union are settled in national currencies, while the share when trading with China was even lower - at 15 per cent - according to the EAEU.

Glazyev also stressed the urgent need to stabilise the exchange rates of the bloc's national currencies, to establish Eurasian exchanges and pricing mechanisms, and to offer incentives to settling in national currencies.

The proposal comes as both Russia and China have been seeking to cut their dependence on the US dollar for some time.

The United States has used its control over the global financial system to impose sanctions on Russia since 2014, and this year Washington sanctioned a series of Chinese Communist Party officials and companies for their roles in eroding Hong Kong's autonomy, in helping Beijing build up islands in the disputed South China Sea, and for alleged human rights abuses in Xinjiang province.

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In a deteriorating Sino-US relationship, Beijing is looking to speed up its internationalisation of the yuan in global payments to reduce the impact of conflicts with the US.

In the first quarter of this year, only 46 per cent of bilateral trade between Russia and China was settled in the US dollar - the first time the share had fallen below 50 per cent - according to data from Russia's central bank and Federal Customs Service. This stood in stark contrast to 2015, when almost 90 per cent of their bilateral trade was settled in the US dollar.

Meanwhile, the euro's share in those bilateral deals during the first quarter accounted for a record high of 30 per cent, while the yuan's share reached 17 per cent, and the rouble accounted for 7 per cent.

Beyond trade, Moscow and Beijing have also sought to strengthen their financial collaboration to speed up the de-dollarisation process. Last year, Moscow said it planned to launch its first yuan-denominated bond, hoping it would boost interest by Chinese investors in Russian assets and help create benchmarks for the setting up of hedging options for roubles and the yuan, sidestepping use of the US dollar.

This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP's Facebook and Twitter pages. Copyright © 2020 South China Morning Post Publishers Ltd. All rights reserved.

Copyright (c) 2020. South China Morning Post Publishers Ltd. All rights reserved.