Sanctions against Russia for its role in the Ukraine-Russia conflict became the perfect opportunity for two global powers to push forward a new world financial order excluding the Dead Presidents.
In global politics and finance, there’s been a lot of talk about de-dollarization, or the phasing out of the US dollar as the mainstay for reserve currency. Carrying out the big power moves are China and Russia. For years, both countries have been hustlin’ hard to take over the global economy by creating treasury systems less reliant on U.S. currency. Using multiple trade and economic deals with other countries to boost their currencies, they also are designing and implementing new payment systems.
Following a multi-day March meeting between Chinese President Xi Jingping and Russia’s head of state, Vladimir Putin, the Jingping Administration announced a “bilateral cooperation” with projections to rapidly implement more “trade in goods and services between the two countries . . . by 2030.”
One of its priorities is to develop a robust e-commerce system, and create better business relationships centering “a digital economy and green sustainability.” But that is just the start, they also plan to “deepen” their relationships by improving transit, which involves building highways and railways to support a sound infrastructure along the Sino-Russian border.
Opening up the border will allow more travel of both people and goods, which is also part of their collaborative efforts to exchange more natural resources such as energy, fertilizer, minerals and other bulk commodities. Overall, the plan is to consolidate both security and investment efforts that create a NorthEast-FarEast political-economic bloc.
While the China-Russia pivot is decades in the making, their currency maneuvers became most obvious after the U.S. placed strict sanctions against Russia for launching hostile attacks against Ukraine in February 2022. Through embargoes, seizures of assets from Russia’s rich and famous, and multiple bank freezes, the sanctions limited Russia’s access to U.S. dollars. Also affected were countries that do business with the eastern European superpower.
At first, it seemed to be an effective strategy. But, the strong-arming by the U.S. and allied nations backfired. Rather than buckle under pressure, Russia built a banking infrastructure allowing them to continue their financial operations; especially with them being the biggest producer of oil in that region of the world. Using oil to back their currency is a phenomenon often referred to as the “petro dollar.” By doing so, Russia flexed its economic independence in this latest round of geopolitical beef.
Before Russia’s petro-dollar, the tactic has been used by other countries such as Saudi Arabia. Since the 1970s, the Middle-Eastern economy relied on oil to buy treasury bonds rather than precious metals. This was due to then U.S. president, Richard Nixon, removing the gold standard from the U.S. monetary system.
In a current twist, Saudi Arabia’s Finance Minister, Mohammed Al-Jadaan recently told Bloomberg that the country is considering trading its oil in currencies other than the dollar after the Jingpin and Putin Administrations’ conjoined plans were released. “There are no issues with discussing how we settle our trade arrangements, whether it’s in the U.S. dollar, the euro, or the Saudi riyal,” Al-Jadaan said.
The finance minister further expressed that the Saudis enjoy “a very strategic relationship with China . . . and the U.S.” and hopes to be a “bridge” in discussions on how to move forward in the global shift. To add to its new positioning, Saudi Arabia applied to join the economic bloc, BRICS, in 2022. BRICS’ decision is scheduled to be released within the next several months.
Overall, the latest wave of currency wars is a complex issue with far-reaching consequences for the world economy. More pointedly, de-dollarization goes beyond Russia and China. In southern Asia, the Reserve Bank of India (RBI) established the “Indo-Nepal Remittance Facility Scheme,” to simplify trade between India and Nepalese importers. With this system, Napalese can pay for purchases from India in Rupees. This major move is expected to reduce transaction costs, mitigate exchange rate risks, and boost bilateral trade. Ultimately, it reduces both countries’ dependence on foreign currencies in international trade, as well as strengthens the usage of the Indian currency.
While many of the worlds’ banks want the dollar’s influence to weaken, they have to be mindful of it from plummeting. Like Russia and China, foreign countries have previously dumped their reserves of U.S. dollars for other currencies. In response, American banks floated artificial interest rates. By raising the rates it created an inflationary environment. Although it is a quick fix, the baggage carries unintended repercussions that even hit home. Because inflation also causes higher debt pay back for corporate America, it causes institutions abroad and at home to tumble, hence the recent fiscal fiascos Silicon Valley Bank, Target, and Mcdonald’s.
Indeed, the US dollar’s status as a global reserve currency is at risk due to several countries worldwide refusing to use it. This could lead to the collapse of the U.S. dollar’s status, resulting in significant implications such as its reduced ability to finance its debt and loss of its economic and political power.
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