“Every job will demand some sacrifice. The key is to avoid unnecessary sacrifice.”
America gave in to the emotional appeals of Ukrainian President Volodymyr Zelenskyy by unwittingly providing its precious currency, the Dollar, as a weapon of economic war under the SWIFT facade. The gesture cornered the Russian Rouble temporarily. But with President Putin insisting on Rouble payments for every drop of
oil supplied to the European Union, the Russian currency has made a surprising and unprecedented come back. In the evolving geo-political situation, with alternate currency contracts for oil trade signed
worldwide, the Dollar had appeared a loser even before the war was over.
After the culmination of the Bretten Wood agreement in 1971, the entire world incessantly sold oil and gold in USD for over 50 years. By risking the Dollar as a weapon of war in Ukraine, the US has opened the doors for trading oil and metals in the Rouble, Yuan, Rupee, and Iranian Rial. With demand for Dollars receding, its value will also follow the lower trajectory and make it a docile currency like the Royal Pound Sterling of the British Monarchs.
The principal exports of Russia are Crude Petroleum ($123 billion), Refined Petroleum ($66.2 billion), Petroleum Gas ($26.3 billion), Coal Briquettes ($17.6 billion), and Wheat ($8.14 billion), mainly
exported to China ($58.1billion), Netherlands ($41.7 billion), Belarus ($20.5 billion), Germany ($18.9 billion), and Italy ($16.7 billion).
With China and Belarus continuing with Moscow and India shifting its imports to Russia, a parting with the Netherlands, Germany, and Italy will not hurt the Russian economy in the long run. Meanwhile,
the Reserve Bank of India is in consultations on a rupee-rouble trade arrangement to enable trade with Russia after western sanctions restricted international payment mechanisms.
The volume of Russian and Chinese currencies in international transactions as of December 2021 is low, with the percentage of Chinese RMB at only 2.7%, behind the US dollar (40.5%), Euro
(36.7%), and British pound (5.89%). The share of the Russian Rouble is only 0.21%. With Russia insisting on Rouble payments for its gas supplies to the ever dependent Europe, the position will change
drastically.
Further, China and Russia currently enjoy the best relations. With an agreement to coordinate diplomatic and economic moves. Russia is China primary supplier of petroleum products and wood.
China supplies electrical and electronic goods to Russia, along with mobile phones. De-dollarization has emerged as a priority for Russia, who, like China, is searching for alternatives after the initiation of the
US-China trade war and the US’s use of punitive financial measures. Russia tried to bypass the Dollar trade in the past. Still, despite the Dollar’s continued importance as the medium of exchange in international currency markets selling euros in exchange for roubles faced challenges without going through the Dollar.
The alternative, therefore, is the development of a central bank digital currency (CBDC) that bypasses the Dollar. China has launched its CBDC during the winter Olympics. The burning of midnight
oil by the oil-rich Russia post-sanctions will create an alternative soon. Policymakers in Russia are rushing through the project. Although it will take some time for such a CBDC to challenge the Dollar’s role in
international payments, Russia might leapfrog by replicating the Chinese CBDC to accelerate the trade outside the Dollar.
The risk taken by the US in ostracising the Russian economy appears to challenge its monopoly. Energy deficit countries continue to bypass the Dollar through bilateral currencies, diminishing the
greenbacks role.
The five million refugees from Ukraine will come back within two years of the forgettable war. New skyscrapers will emerge from the ruins of war-devastated Ukraine soon. Still, Dollar, due to its gallantry, will go into the wilderness as oil guzzlers like China, India, Korea, Japan and the UAE trade in native currencies shunning the Dollar.
Rightly said , “Dont sacrifice a good life for a good time.”
– Hargovind Sachdev
