Contributed by Joe Montero
As Washington moves towards implementing tougher new sanctions against Russia, including the denial of access to international banks and trade in American dollars, Moscow is considering its options.
President Vladimir Putin has slammed US efforts to maintain dominance on the world stage and seriously considering dumping American currency reserves and using alternatives for international trade.
To do this, concrete steps are being taken to use other currencies. Prime Minister Dmitry Medvedev said. “We will certainly be moving in this direction.” This follows Putin’s observation last month that the move is “not because we want to undermine the dollar but because we want to ensure our security, because they are constantly slapping sanctions against us and are simply denying us an opportunity to use the dollar.”
If the shift is carried through successfully, it may undermine the American dollar, by making it less relevant as the international standard.
It could turn out that Washington’s sanctions, as well as sanctions against China, could help to bring aa bigger shift about. The two countries have been building their trading ties and form the basis for the creation of a new trading block. China already accounts for 60 percent of Russia’s trade. Europe could be drawn into this partnership.
Speculation is that trading could shift to the use of euros. yuan and roubles.
According to the Russian central bank’s data, the share of dollar payments in exports of goods and services declined to 68 percent from 80 percent between 2013 and 2017. At the same time, the share of transactions in euros increased to 16 percent from nine percent and those in roubles rose to 14 percent from 10 percent. Payment for imports in dollars declined 36 percent from 41 percent. Russian holdings of US government debt fell by around $80 billion this year.
Chinese counterpart Xi Jinping has consistently expressed sympathy to the idea of shifting from the American dollar and India has begun to trade with Russia in roubles.
India has also began to trade with Russia in roubles.
With the two fastest growing economies on board, the chances of drawing other nations in are substantially increased.
Being the factory of the world, producing much of what consumers want, makes China a critical factor. If the material standard of living of the population is going to be maintained, trade with China will have to be continued, and this provides a great deal of leverage.
Russia and China are increasing trade with a growing number of countries in the Middle East, Africa and Latin America. China is building its relationships through Asia and the Pacific. The number of nations starting to move away from the one currency regime is growing.
Ultimately, the key is going to be Europe. And Washington is causing tensions there. Especially with Germany, which happens to be Europe’s dominant economy. Should the relationship deteriorate further, the likelihood of the continent shifting towards the new trading arrangement will increase. The continent has already moved away from American dollars to trade for Iran oil.
The American penchant for the imposition of sanctions on other nations faces a good chance of backfiring.
The main obstacle faced by Russia is its dependence on imported oil, which is traded in American dollars. But American sanctions on Iran, failure in Syria, distrust in Iraq, growing isolation in the Middle East as a whole, and conflict with Latin American oil producing countries, including Mexico, may well work to help resolve this problem.
Shifting the global economy away from one dominant currency is a good thing, since it works against there being one dominant power, and this is conducive to a more equal world.
The downside is that such a significant change will cause political waves, and this makes it somewhat risky.
One thing we can be sure of. Change is coming, and this will reflect the new realities of the global economy. The era of American dominance closing. Donald Trump can jump up and down all he likes. He is not going to change this.
How it occurs is also important. If it is too abrupt, it could plunge the American economy into crisis and this will bring down the global economy with it. A properly managed change is less likely to do this. A cooperative approach to change will make life easier for all concerned. The alternative is escalating conflict. It is up to the nations of the world to decide which it is going to be.