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article imageOp-Ed: Russia taking steps to 'de-dollarize' its financial dealings

By Ken Hanly     May 14, 2014 in Business
Moscow - In response to western sanctions Russia is making moves in the financial and trade spheres that could have a long term impact on the dominance of the US dollar and US financial institutions in the future.
Some of the measures that Russia has taken to reduce its dependence on the US dollar are detailed in this article. including the increasing use of local currencies in trade deals but also involving proposals that energy giant Gazprom issue bonds in Chinese yuan rather than dollars. But there is other evidence that Russia is pushing on towards the eventual goal of a "de-dollarized" world.
The Russian Ministry of Finance is pushing plans to drastically increase the role of the Russian ruble in export payments while reducing the share of dollar-transactions. Russian government sources claim that the Russian financial sector is "ready to handle the increased number of ruble-denominated transactions".
A recent meeting chaired by Igor Shuvalev who is first Deputy Prime Minister dealt with the issue of de-dollarization and there was a subsequent meeting chaired by the Deputy Finance Minister. At the meetings there was discussion of a legal mechanism that could be used to enforce changes to the currencies to be used in trading transactions called the "currency switch executive order". Using executive orders the Russian government could force Russian corporations to trade a percentage of some goods in rubles.
For such orders to be practical there must be willing trading partners who will accept payment in rubles. Even at present China and Iran are willing to do so. Putin is scheduled to visit China on May 20. Expect announcements of energy deals in rubles and yuan.
Other moves by Russia including the setting up of its own credit card system and requiring international companies such as Mastercard and Visa to pay hefty security fees to operate in Russia. In response to US moves to supply gas from US production Russia along with Iran and Qatar is moving to revive a natural gas cartel: If Russia and Qatar start coordinating their export policies, the two countries can exert tremendous influence on the global natural gas flows and prices, given that both countries are the top two biggest natural gas exporters in the world. Together with Iran, they control over 57% of the world's natural gas reserves and that is a very conservative estimate. Qatar is usually a close ally of the US but when key economic interests are threatened by US actions even allies refuse to play by the US playbook. The Emir of Qatar even praised what he called the compelling and consistent policy of the Russian Federation in international and regional affairs. This is not the sort of rhetoric that Washington wants to hear.
There is already some evidence that Russia is also dumping some of its holdings of US treasuries as recent figures are anomalous: But in the last couple of weeks, there’s been a sharp, unexpected drop in the amount of U.S. government bonds the Fed is holding for foreign accounts. From $3.02 trillion in December, the total fell to $2.973 trillion on February 26, to $2.959 trillion on March 5, and $2.855 trillion on March 12. That’s a decline of $104 billion in one week, or 3.5 percent, and a fall of $118 billion in two weeks. According to the Wall Street Journal, total foreign Treasury holdings at the Fed are at a 15-month low. These developments do not seem to have frightened investors or hurt stock prices. New highs have been reached on US exchanges. However, these events taking place behind the scenes will no doubt in time erode US global financial power. Note that the enclosed video ignores the relevance of factors such as mentioned here in explaining the weakness of the dollar.
More about russian trade, Dollar dominance, China Russia trade
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