Conditional units: Russian alternative to currency

When doing business in Russia, foreign companies will frequently face such term as "conditional unit". It is a sort of artificial currency used in order to hedge currency exchange fluctuation risks.

The issue here is that in Russia it is prohibited to pay from one residential Russian legal entity to another in any other currency except Russian rubles. So bank transactions inside Russia between residents are only ruble transactions. Of course, when paying abroad or to non-residents, it is allowed to pay in any currency.

But what if you sell inside Russia those items that you need to purchase abroad? Nominating sales prices in rubles might be dangerous, as currency exchange rate might fluctuate quite a lot. It is also not possible to get paid in any currency except rubles. So the only option to hedge this risk and do not violate the law is to apply sales prices in so-called conditional units.

Conditional unit is an artificial currency that both parties had agreed to apply and bound to any real currency exchange rate, or a combination of rates. E.g., it can be bounded to euro. So the payables and receivables will be nominated in conditional euro units, bounded to the rate of euro to ruble; but, the parties will make a payment in rubles at e.g. the rate of the euro at the date of the payment. This means that the seller will receive such amount of rubles that will equal to agreed amount of euro at current exchange rate. Depending on the date of the payment, the rate will be different.

Nomination of payables and receivables in conditional units should be treated in a similar fashion as currency obligations. In particular, payables and receivables, not paid by the end of the month, should be revaluated at the rate at the end of the month (posting unrealized currency exchange gains or losses). Application of ruble payment to conditional units posted invoice will lead to posting of realized currency exchange gains or losses. In such case it is enough to create EUR currency and use it both for currency transactions abroad and internal conditional unit transactions, applying official Central Bank rates. Russian localized versions of Microsoft Dynamics products have a special automation for connecting with Central Bank website and download rates for selected currencies. It should be scheduled as regular everyday batch process.

But, there might be more complicated conditional units, e.g. euro rate to ruble + 5%, or weighted average between rate of euro to ruble and USD to ruble at the date of the payment. Generally, it can be whatever parties agree. In order to follow such rules you would need to create a new currency in your system and either manually fill the needed rate for each day, or create additional automation that would make the calculation based on official rates.