Both Russia and Iran are in a bind due to the oil crisis. The best thing for both countries to do is to enact some easy-to-implement, partially stabilising policy. Three measures can be taken: 1. Enhance taxpayers’ autonomy by allowing entities to pay taxes in a greater variety of currencies; 2. Let citizens and businesses trade in a greater variety of currencies; and 3. Deregulate derivatives markets in particular (and financial markets more generally).
An entirely destabilised Russia and/or Iran is in no-one’s interest. Although relations with NATO are sour, other prominent nations such as China and India have offered a helping hand (albeit a limited one). However, an alternative, mutually beneficial agreement can occur between these four nations.
First: enhancing taxpayers’ and trading autonomy. Russia should allow its taxpayers to pay taxes in the rouble, the Chinese renminbi, the Indian rupee and the Iranian rial whilst legally enabling trade in all these currencies. Similarly, Iran should allow taxes to be paid in Russian rubles, Chinese renminbi and Indian rupees as well as enabling trade in them. Since only being allowed to pay taxes in one currency artificially raises the cost of doing business in other monies, the enhanced autonomy of taxpayers will make it feasible for some exporters to sell in relatively cheaper money (thereby stimulating production and exports) and importers to buy with relatively stronger money (thereby combating inflation). It would also provide access to less volatile and less vulnerable monies. Another advantage is that tax revenues paid in different monies would allow diversified foreign exchange reserves and, therefore, the Russian and Iranian governments would be in a better position to defend their own national monies’ value in future (should they so wish to). This would enable Russians and Iranians to get on with their lives in a more normal way. Furthermore, since Russian and Iranian currencies would be accepted for trade and taxes in the other country, the mutual recognition may help bolster their value. The arrangement would also benefit China and India since the renminbi and rupee would make up a greater share of foreign exchange transactions.
For tax collection, a proportional system could be implemented; that is, if an entity earned (for example) 30% in rupees, 50% in roubles, 15% in rial and 5% in renminbi, a flat tax of 30% could be imposed such that the 30% rate is levied on each of the currencies according to proportions held (meaning 9% of the 30% comes in rupees, 15% comes in roubles, 4.5% in rial and 1.5% in renminbi).
Furthermore, extensive deregulation and liberalisation of the countries’ respective derivatives markets (especially with respect to interest rates, foreign exchange, commodities and equities) will enable domestic entities to better manage current and expected risks. Although inflows from NATO member-states may not be so forthcoming, both India and China have a vested interest in a stable Russia and a stable Iran; hence, it would not be surprising if (given the increased opportunity and ensuring a supportive climate for it) increased foreign direct investment in the Russian and Iranian derivatives markets for commodities, equities, interest rates and foreign exchange helped substantially manage expected risk of the oil crisis in these countries.