Russia Sanctions And The Dollar World Reserve Currency: Avalanches Begin As Snowflakes
While Russia does what the US has always done with regards to their threatened national interests (e.g. the petrodollar, oil-gas), the situation in Ukraine is ratcheting up as the West continues escalating sanctions against Russia who is responding with their own ‘tit-for-tat’ moves and counter-moves, a very dangerous game being played by world super powers.
Ukraine has been in the news for weeks and weeks as the metaphorical snowflakes have been piling up on the slopes. The question is, when will the slope suddenly and violently give way into a roaring avalanche? And if it does, are you prepared for the consequences?
What could possibly go wrong?
In this situation, Russia and China have become ‘friends’. Russia’s foreign ministry recently announced that China is largely “in agreement” with them on Ukraine. Russian Foreign Minister Sergei Lavrov reportedly discussed the situation with his Chinese counterpart, Wang Yi, and claimed they had “broadly coinciding points of view.”
China refused to vote in favor of sanctions against Russia.
While the mainstream media focus is on the conflict between Russia and Ukraine, they are ignoring the possibility of disastrous economic consequences from this avalanche in the making.
What about the status of the U.S. dollar as the world’s reserve currency?
Is there growing doubt about the viability or necessity of the US dollar as an intermediary for foreign exchange of goods?
For example, the chief economist of Russia’s largest bank recently said the Chinese yuan could become an additional world reserve currency with the US dollar and the euro. Did you know that China has been buying up massive quantities of gold? Perhaps as a ‘backing’ for future currency endeavors on the world stage?
It is not beyond the realm of possibility that we might see other countries teaming up with Russia and China looking for some revenge against the U.S. and looking to hurt the dollar.
There are signs such as Iran and Russia strengthening their ties. Iran’s Mehr news agency recently stated the need for “further expansion of economic ties between Tehran and Moscow, particularly in the energy and commerce spheres,”
For example, Moscow has recently been discussing the trade of 500,000 barrels a day of Iranian oil for Russian goods with Tehran – a deal reportedly worth as much as $20 billion.
Another example, the governments of Bahrain and Russia have signed a deal to cooperate on investments, and Bahrain’s decision “suggests Western sanctions may not deter other countries from continuing to expand business ties with Russia,” (reuters.com).
More snowflakes are piling up.
While the fiat dollar ‘may’ remain a reserve currency for the foreseeable near future, its status could very conceivably be hurt or diminished – for more reasons than one.
I read this recently:
“In our world of computers and global finance, there is really not much of a reason to have a world reserve currency. Anyone from any country should be able to quickly settle up through currency conversion.”
If a company from Canada is buying something from Japan, why do the two have to use the U.S. dollar as an intermediary? The Canadian company can pay in Canadian dollars, which can quickly be converted back into yen. Or the Canadian company can exchange its Canadian dollars for yen first and then make the purchase.
As long as the currencies are floating freely and can be bought and sold on exchanges, I don’t see much need for the U.S. dollar. The only time a problem may occur is when a company does business in a country that either doesn’t have a freely floating currency or has an extremely erratic currency.
And there’s this:
The IMF has become rather a haven of discredited Keynesian thinking, aka the endlessly meddling interventionist superstate policies beloved of declining Europe, and indeed Obama’s America. The consensus on financing bodies appears to be breaking down as the West clings desperately to the reins of the IMF and World Bank. In exasperation, the BRICS nations are pushing forward with alternative institutions and are building their own parallel IMF.
The paradigm is shifting. The world reserve model is being challenged — and why not?
Why should other nations be forced to use US dollars to trade between themselves? What business is it of the United States government to intervene with the trade between countries thousands of miles away (as though distance makes any difference anyway)? I’m an American, and I support the founding principles of this country – and I’m simply questioning the logic…
The dollar is destined to become weaker.
China, Russia, and others appear to be slowly turning away from the dollar, and the process has sped up recently with the targeted sanctions against Russia. The logical result is that Russia is being forced to NOT use the U.S. dollar, which will only speed up the process of nation-to-nation deals and arrangements. With regards to the US dollar as a world reserve currency, the United States is shooting themselves in the foot.
So, what does this mean for you and I as Americans?
It means that there may be more price inflation in our future when some of those foreign held US dollars start flocking home.
The worst thing though is how this could lead to a magnified form of StagFlation — a stagnant economy while the value of the dollar declines. Not good for growth…
As the snowflakes pile up,
at one point will that one single snowflake unleash the avalanche…?