Since Russia’s invasion of Ukraine nearly one year ago, the United States pressed upon its European allies the necessity of both economic and financial sanctions (forget the scissors and paste measures after annexation of Crimea in 2014). Germany led the way in dragging its feet on sanctions, of course. This was not surprising. It has not been a nation state for some time, but a state servicing a big business combine (a Fichtean nightmare). Just as it is now dragging its feet on arms supplies – Leopard tanks currently – to Ukraine, Berlin was of course reluctant to throw away all the economic advantages set in place since 1991 buying Russian energy in return for German manufactures.

Before long Moscow’s motorway-sized main roads were no longer populated by the occasional Chaika chugging along but teeming with smart new BMWs wizzing through. The Americans soon put a stop to that; just as they were determined – until Biden proudly put the gear into reverse in 2021 and then lamely changed it back to where it was in February 2022 – to block the Nordstream pipeline bringing even more natural gas to Germany than it already received (creating a disastrous 65% supply dependence on Russia.)

The next step the Americans demanded was that the Russians be excluded from the Swift international financial settlement system that was dominated by the almighty dollar. And, once again, the Germans fought bravely before total surrender. (The British normally avoid any trouble by giving way in anticipation of abrupt about turns in US policy; the Germans, poor things, have not yet learnt to do this.)

Foreign policy is replete with examples of unforeseen consequences, however (like the grand skedaddle from Kabul). And since they were shut out of the American system, the Russians have assiduously worked at creating an alternative. The year before the invasion, the Russian Central Bank cut its dollar holdings substantially. In the past six months the dollar has been chased out of the economy, and Russian citizens have been encouraged to buy and hold gold instead. An additional innovation on the stocks, originally strongly opposed by the Central Bank, is a digital crypto-currency.

Now Russians have been encouraged to buy and hold the Chinese yuan and to use it in their transactions within Russia.

None of these changes is wholly irreversible, of course. But the longer the Ukraine war continues, the more these changes will be embedded in the system. But does that alone really matter to the US and its allies? Of itself, not at all. But then, as ever, what goes around, comes around.

The Russians may have a complete diplomatic flop on their hands in the West – except for Hungary and Serbia – but further East they have been very busy patching together a framework for an alternative to Swift that is not just a bilateral relationship with big brother China. When Biden insulted the Saudis in 2020 he gave no thought to the likely consequences on ascending to the presidency; just as he gave no thought to the consequences of shutting down US energy resources and then found himself having to kow-tow to the very man he had accused of killing Washington Post correspondent Kashoggi, in order to get cheaper Saudi oil as a substitute for the Russian variety. So the Prince publicly humiliated him. And the Saudis, the Indians and former Soviet republics are looking to build an alternative to Swift. The system Kissinger helped create in the seventies – oil priced exclusively in dollars in return for a gold plated security guarantee to the royal kingdom, inbuilt financial hegemony to replace the broken Bretton Woods system – was smashed overnight.

If the dollar is no longer needed for oil, it will be a matter of time before it is no longer needed for pricing all the other scarce commodities we rely upon worldwide. Then foreign governments will not need to hold vast amounts of dollars. And the fact that when the Wuhan virus struck the United States, the Americans issued more dollars in two years than in the entire history of the country, will come to haunt them. It is expected that within a year or so the greenback will be worth at least a third less than it is now, and thereafter the path is downhill all the way (the British well remember how that happens and the humiliation along with it.) The battle going on may have begun in Ukraine but the new front opened in the international financial system may have far greater long term consequences for us all.

Vedomosti:

4 часа назад / Финансы

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Михаил Кузнецов