De-Dollarization Not a Possibility But an Inevitability! Politicization of Dollar Will Have Conseque
The wave of de-dollarization is gradually engulfing the world. The reason is the USA's excessive desire to control the world through economic policies. Is it possible to create a global economy without the hegemony of the US currency and has anybody succeeded in that endeavor?
Artyom Yamshchikov with the details.
Is a world without the US currency a myth or reality? There isn't an unequivocal answer so far but it's obvious that de-dollarization has already begun. And we can't say it was anybody's individual decision. It's a policy of economic necessity. Washington's been pulling the thread called the dollar perhaps too much. That's why so many states want to cut it off. The first reason is the American economy's excessive influence over the entire world. A clear example is the Wall Street mortgage collapse that led to the global crisis in 2008. According to the IMF, many countries still haven't overcome the sharp economic contraction.
Another example is the policy of the Federal Reserve. During the crisis, the American regulator focused on quantitative easing by using its money printing press to the fullest extent. As the result, over the five crisis years, the FRS printed $3.5 trillion. The wild, cheap money literally flooded the developing economies. The situation has changed.
Now, the FRS has turned on the dollar-vacuum. It increased the rate, making the American currency more expensive and launched a quantitative tightening program, withdrawing dollars from the economy to decrease its own balance. It's already decreased by $300 billion to date meaning that the total number of bills have physically disappeared from the world. Fundamentally, that must eventually impact the exchange rate of the dollar against national currencies. That might create problems for those who took loans in dollars. The dollar liabilities of the Russian external debt have decreased, but they still make up half of its volume. All operations are conducted through American financial companies. But if we remember the sanction policies of Washington and the threats to deny certain countries access to SWIFT, the issue stops seeming so ephemeral.
Ultimately, to protect the world economy from Washington's influence some states began the process of de-dollarization. President of VTB Bank Andrey Kostin for the first time publicly suggested supporting ruble transactions instead of the dollar ones.
Andrey Kostin, President of VTB Bank: «We never thought about that until the United States started using the dollar as a political instrument. It has nothing to do with the economy, business, or finance. They're attempting to achieve certain political goals, using financial leverage, which is the dollar in this case».
Obviously, such things don't happen overnight. The percentage of dollar transactions in Russia is slowly decreasing. Over the last five years, it's decreased by 10% The importation of dollars has decreased by 6%. Transactions exporting the ruble have increased by 4%. Even though the transactions with Russia's largest economic partner, China are primarily conducted in dollars (about 88% export transactions and 73% import transactions) the transition to national currencies is being discussed and an intergovernmental agreement is being drafted.
The process of de-dollarization is facilitated by the growth of non-resource exports according to the Finance Ministry. It would be much harder to switch resource exports to national currencies where pricing traditionally occurs in dollars. The government still plans to do that. The companies that agree to enter the ruble zone will receive discounts and benefits such as a faster VAT refund for export shipments and the phasing out of the mandatory repatriation of ruble revenue from selling goods abroad. The measures are supposed to be implemented by 2024.
It's important to note that the de-dollarization of the Russian economy doesn't mean the elimination of the dollar and won't affect deposits according to the Finance Ministry. 22% of all deposits in Russian banks are foreign-currency deposits. But that percentage is shrinking. The same is happening to the state investments. The dollar percentage in the Russian foreign exchange reserves decreased by 2% over the past year.
Vladimir Putin: “It is not just us, believe me. We see what's happening across the world. Look at how the foreign exchange reserves of various countries, including the United States' closest allies, are shrinking. Dollar assets are dwindling. In order to make the global economy more sustainable and predictable, and settlements more efficient and reliable, alternative options will be found”.
Following the Russian authorities, Europe has also begun to de-dollarize. The reason was Washington's threats to impose sanctions against EU companies for working with Iran.
According to the plan of the EU Commission, the euro must replace the dollar in key markets. For that purpose, Europe will create its own SWIFT, expand the pool of euro-assets for international investments, and develop the financial infrastructure in the region. Europe is doing that to present to the world an alternative to the dollar.
Konstantin Korishchenko, professor of economics: «Today, it can only be the euro, because the Japanese yen is in a long-term crisis and can hardly suffice for that purpose. The pound is too small for that role. The euro is perfectly fine. Speaking of the yuan, first of all, China has a strict exchange control policy. First, you purchase yuan. Then, you have to go to the Central Bank of China and request permission for every operation you wish to conduct».
According to First Prime Minister Anton Siluanov, in the future, Russia might join the process of the creation of the European alternative to the SWIFT payment system.