In an effort to insulate the Russian economy from U.S. sanctions, the Kremlin has made "de-dollarization" a long-term priority, but will be forced to rely on the greenback for some time, according to economists.
Since 2013, the Central Bank of Russia (CBR) has been trying to reduce the number of transactions conducted in U.S. dollars, either for domestic payments or foreign trade.
Russia has repeatedly faced U.S. and EU sanctions since 2014 for reasons ranging from its annexation of Crimea to the poisoning of an ex-spy in the U.K. as well as online meddling in the 2016 U.S. election.
A key reason for its emphasis on de-dollarization is that U.S. sanctions are extra-territorial — they target all companies using the U.S. dollar or operating stateside subsidiaries. Ditching reliance on the dollar is therefore seen as a way for Russia to circumvent sanctions, according to Agathe Demarais, Global Forecasting Director at the Economist Intelligence Unit (EIU).
"De-dollarization could benefit the euro and yuan above all, and the CBR is also increasing the share of its assets that are held in these two currencies," Demarais told CNBC via email.
In order to pre-empt potential sanctions that cut Russia off from international financial channels (such as SWIFT), Russia has also created a domestic bank payment system, Mir (which means both "peace" and "world" in Russian).
It has also escalated efforts to sign currency swap agreements, which enables direct trade between two countries in local currencies, instead of the usual reliance on U.S. dollars.
"Unsurprisingly, Russia has concluded currency swap deals with countries that currently have poor relations with the US, including Iran, Turkey and China," Demarais added.
According to a report published this week by ING Chief Economist for Russia and CIS (Commonwealth of Independent States) Dmitry Dolgin, the de-dollarization effort is now evident across most areas.
This includes trade flows, foreign debt, international assets held by banks and the CBR, local loans and local foreign exchange market turnover. Conversely, the role of the dollar has actually increased in transactions of private holdings held by companies and households.
"De-dollarization is favored by the banks, while the rest, including companies, households and even the government, are holding on to their US dollars which are more attractive relative to euro thanks to higher interest rates," Dolgin said in the report.
Dolgin pointed out that de-dollarization progress is also "optically suppressed" by the effects of a depreciation of the euro and ruble against the dollar by around 20% and 50% respectively since 2013, suggesting that the drop in the share of Russian dollar usage would have been more pronounced had these exchange levels remained unchanged.
Some companies, however, have begun to move away from the greenback. In 2015, Gazprom Neft announced that it settled all of its oil exports to China in renminbi. And in August this year, Rosneft announced that it would stop using the US dollar for its export contracts.
However, Demarais said complete de-dollarization remains a "utopia" on account of the reliance of global oil exports using dollar transactions, as well as the volatility of the rouble. Additionally, as Russia represents only 2% of global GDP (gross domestic product) it also means the rouble remains unattractive for some international investors.
Additional trading costs created by de-dollarization will also represent another "major obstacle," she said.
Dolgin suggested that further de-dollarization of Russia's trade and a switch of its oil export contracts to euros is possible if the EU and China upscale their own efforts to bypass the dollar.
The report concluded that Russia's Ministry of Finance may be able to de-dollarize its assets after 2020, once the liquid portion of its National Wealth Fund (NWF) reaches 7% of GDP, allowing "bigger diversification of instruments."
The EU is embarking on a mission to increase the international role of the euro, and as such stands as a key beneficiary of Russian de-dollarization.
"Unofficially, the EU is keen to support Russia's de-dollarization efforts, as EU officials lament the effects of extra-territorial US sanctions on European companies and want to promote the euro as an international currency," Demarais said.
In a staff working document published in June, and following consultations with public and private market participants, the European Commission concluded that "the euro clearly stands out as the only candidate that has all the necessary attributes of a global currency that market participants could use as an alternative to the U.S. dollar."
The Commission also highlights the potential to increase the share of euro-denominated transactions in energy commodities, particularly natural gas.
A European Commission spokesperson told CNBC that promoting the euro's international role is "part of Europe's commitment to an open, multilateral and rules-based global economy and trade."
"A strengthened role for the euro would help improve the resilience of the international financial system, providing market operators across the globe with additional choice and making the international economy less vulnerable to shocks," the spokesperson said.