Moscow’s latest bold demand may mark the beginning of the end of the dollarized global economy. Writes Uriel Araujo
A sign that a new post-dollar world might emerge can be seen in the fact that the central bank of a huge BRICS country such as Brazil has just quadrupled its exposure to Chinese yuan. Other countries might adopt similar measures. This might be seen in context: on Thursday, March 31, Russian President Vladimir Putin warned that Moscow can halt contracts supplying the European continent with gas unless the EU countries pay in rubles by opening ruble accounts in Russian banks. This demand was imposed on the “unfriendly countries”. Some European governments consider such a demand a breach of the contracts.
In Putin’s words: “What is actually happening, what has already happened? We have supplied European consumers with our resources, in this case gas. They received it, paid us in euros, which they then froze themselves. In this regard, there is every reason to believe that we delivered part of the gas provided to Europe practically free of charge. That, of course, cannot continue.”
The hard truth though is that Europe cannot afford to suddenly lose over a third of its gas supply. In times of war and amid the Western economic blitzkrieg against Russia (as it has been described) detailed legal discussions over contracts must be conducted against the background of political retaliations – a bit of legal and political realism here can be quite welcome.
The Russian decision was a smart move and it is not far-fetched at all to assume that after initial denial Europe will have no choice but to accept it. Politically, the decision can be justified as a countermeasure, considering that European countries have seized over a billion dollars in Russian assets, thus also initially causing the value of the country’s currency to nose-dive (it has been recovering, though). In the long-term, Moscow’s policy might prove itself a fatal blow to the dollar’s hegemony.
Federal University of Rio de Janeiro experts Luís Eduardo Melin, and Ernani Teixeira both describe the weaponized American currency as the “dollar bomb”. Bombing and invading a country may disrupt its economy by the destruction of physical infrastructure, the impoverishment of the population and so on, but it imposes a quite heavy burden on the aggressor itself.
Washington, in its turn, has taken control over the global currency and thus can engage in financial warfare, achieving these very same results without the cost. By doing so, however, the deeply asymmetrical character of the international order is made evident, so whenever the US employ such “dollar bomb” as a weapon of last resort, it is both a show of force and a show of weakness.
Brazilian politician, journalist, and politologist Cesar Benjamin stresses the peculiar situation pertaining to the existence of a fiat currency issued by a national state (the US), which in practice makes the whole world a space of American sovereignty – without new global regulatory institutions. He says: “We can only understand the working pattern of the American economy when we observe it while keeping in mind yet another anomaly: this enormous and highly deficit economy issues the world’s currency – without anything to back it up and without any emission rules. Its debt capacity is incredibly elastic, on a scale almost unthinkable in older times.”
Benjamin adds that “in 1972, as is well known, 28 years after the Bretton Woods agreement, the United States unilaterally broke the treaty and basically reneged its issuance rules. It untied the dollar and gold, thus ending convertibility, and then it devalued the currency, thereby abandoning parity, to recover its economy’s competitiveness. The other countries had to follow a similar path, carrying out their own competitive devaluations, which soon became successive.” So, the Bretton Woods system ceased to exist, giving way to what Benjamin describes as a “non-system” of unbacked currencies and floating exchange rates. This scenario gave the American, in practice, a kind of right of seigniorage over the global economy – without the limitations of any issuance rules. This served well American hegemony aspirations and such must be understood within the framework of a larger project with economic, military, political and even cultural dimensions. The main problem here is the dollar being the sole global currency.
Banker and economist Alasdair Macleod, a stockbroker and member of the London Stock Exchange, comments the Russian latest rubles-only policy, and argues that Nixon and Kissinger used a similar strategy to create the Petrodollar in 1973: by convincing Saudi Arabia to only take dollars as payment for oil back then, Washington was then able to achieve dollar supremacy in the post-Bretton Wood world. Russia however is merely responding to sanctions and to the theft of its reserves. Putin has famously observed that financial reserves can be stolen and so he expects many countries to convert paper and digital assets into “real reserves of raw materials”. By stating so, Putin has reaffirmed the primacy of the real world over financial fictions.
Ricardo da Silva Carvalho, a University of Sao Paolo’s economist, stresses that the current Western narrative (according to which the Russian economy is extremely fragile) does stand up to scrutiny: it has “a robust and steady Treasury, a low debt, low tax burden, lots of reserves” – although some of them have now “been stolen” by the US and EU. This is why Russia is holding on even under massive financial attack. In fact, despite sanctions, the Russian ruble and banks are showing signs of recovery.
To sum it up, this recent Russian currency move must be seen as a hard response against severe and unprecedented sanctions against Russian businessmen, companies, and banks. It also acquires a deeper meaning: the United States have been weaponizing the financial system for quite some time – in fact, one could say it has been doing so for the last half century. Moreover, Moscow’s latest bold demand may mark the beginning of the end of the dollarized global economy.
Uriel Araujo, researcher with a focus on international and ethnic conflicts.
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