by Waseem Shehzad (News & Analysis, Crescent International Vol. 50, No. 5, Dhu al-Qa'dah, 1442)
America’s policy to impose sanctions on adversaries—real or imagined—is beginning to backfire. Used as a blunt instrument that most adversely affect ordinary people in targeted countries, Washington’s opponents have decided to hit back. American unilateralism will not go unchallenged.
This is being witnessed in countries ditching the dollar and moving to other currencies both for holding their reserves as well as in trade. While the move away from the dollar had started two decades ago, it has picked up speed in recent months. The latest country to embark on the full-scale dumping of US dollars is Russia. Fed up with American intelligence agencies’ allegations that Moscow was behind corporate cyberattacks in the US, Russia’s sovereign wealth fund (officially known as the National Wellbeing Fund—NWF) has decided to dump all of its dollars and dollar-denominated assets.
Russia’s Finance Minister Anton Siluanov made the announcement on June 3 at the annual St. Petersburg International Economic Forum. “We can make this change rather quickly, within a month,” Siluanov told reporters. These will be moved to euros or yuan or simply buy precious metals like gold. Russia’s central bank has increasingly favored gold for its own reserves, as have several other countries.
The sovereign wealth fund has assets worth about $186 billion but the transfer will affect $119 billion in liquid assets (Russia’s total of dollar reserves), Bloomberg reported. These declined from a high of $200 billion in 2018. Russia’s gold assets on the other hand have doubled from about $60 billion in 2018 to $120 billion in June 2020. These figures are a little outdated. Russia’s gold assets were $130.855 billion in April 2021, the last date for which data was available.
Hitherto, the US has had a free ride and made the rest of the world pay for its profligate ways. The fraud begins with the deceptively-named Federal Reserve Bank (FRB). Its primary function is to print dollars but is not controlled by the US government. It is a private entity run by a private board that is not answerable to the regime in Washington much less to the American people.
In the rest of the world, the printing of currency is tied to either gold reserves or other assets. It is a governmental decision because its consequences are borne by it as it affects the purchasing power of people. Printing too much paper money causes inflation but the US circumvents this by two means. First, about 64% of central bank reserves worldwide are held in US dollars (it used to be above 80% until the year 2000 when the euro came into circulation). Second, in 1971 then US president Richard Nixon delinked the dollar from gold. And after the oil embargo of 1973-1974, the regime in Washington convinced Saudi Arabia, the major oil producer, to charge for oil in US dollars. The term petrodollar came into existence.
This has resulted in accruing enormous benefit to the US. The dollar is in great demand to pay for the precious commodity that every country needs. Thus, while the US federal reserve (a private entity) prints acres of reams of dollars, the cost of this is borne by the rest of the world. Similarly, much of the global trade is conducted in US dollars.
No more. This is changing as the Russian announcement makes clear. Currently, the Russian wealth fund holds 35% of its liquid assets in dollars, worth about $41.5 billion. Its euro holdings are about the same magnitude. The rest are spread across yuan, gold, yen and pound sterlings.
With the move away from dollars, the fund’s assets will be as follows: euros, 40%; yuan 30%; gold 20% and yen and pounds, 5% each, according to Siluanov.
There are other moves afoot that signal countries ditching the dollar. Last April, Russia’s Deputy Foreign Minister Alexander Pankin said that countries in the Asia-Pacific region, including China and Japan, as well as those in Africa and Latin America have become interested in Moscow’s proposal to use non-dollar and local currencies for payment settlements.
“Russia is developing enhanced cooperation on the matter with its partners from the Asia-Pacific region, where the readiness to switch to mutual settlements in national currencies or other currencies apart from the dollar is quite high,” Pankin was quoted by Russia’s Sputnik News.
He added that Moscow has been involved in efforts to synchronize its national payment systems with those of China and Japan to facilitate the removal of the US dollar from trade settlements. Russia has already removed the dollar from dealings with allied countries, including with China and Iran.
Pankin further said that switching to non-dollar payments could be implemented in settlements between members of blocs in Eurasia regions including the Eurasian Economic Union (EAEU) and the Commonwealth of Independent States (CIS).
The demise of the dollar is nigh, as is the demise of the US as the self-proclaimed superpower. The world would definitely be a much better place without both.