Two for the Price of One: De-dollarise and Reduce American Hegemony

As America’s influence in the world slowly declines, the de-dollarisation that goes along with it will benefit Russia and the rest of the world

Mon, Jul 13, 2015
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Bury the dollar, and reap the rewards

Russia has made no secret of the fact that it would like to see the rouble more widely used, and a reduction in the use of US dollars.

Putin and Medvedev have many times referred to a desire to see the rouble as a reserve currency. In order for this to become more of a reality, Moscow needs to continue its development as a regional financial hub.

The managed decline of American hegemony via economics needs to be continued carefully to avoid a war. Thankfully, bankrupt America doesn't have the capability to effectively win a large war any more. What we see is the lower-cost route of regime changes, funded coup d’états and constant meddling abroad.

The world needs to think how to stop America's continual world terrorism. The peaceful way to do this is to continue to actively de-dollarise; which has been happening for the last decade anyway. Send the dollars back to America and you create inflation there which erodes America's economic power. It is a better option than bombs.

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Last year, even Nigeria converted $4.3bn of its reserves from dollars to Chinese yuan. Kingsley Moghalu, the deputy governor of Nigeria said, “The future of international economics and trade will shift in large part to business with and by China”. You know there is change in the air when even Africa is dumping the greenback.

Many readers here will remember when the dollar was widely used in Russia. It isn't used anything like as much any more. The rouble has been stronger and pretty stable for some time; excepting the recent blip caused by sanctions from which it will recover.

Against the British pound, the rouble has been historically more stable than the dollar. For the last decade or so – before the Ukraine crisis and sanctions – the rouble mostly hovered between ₽45 and ₽55 to the pound.

During the same period, the dollar has swung between $1.36 and $2.11 to the pound, making it significantly more volatile than the rouble. Even the euro has lurched between €1 and €1.50 to the pound. That is significant volatility. Volatility we didn't see in the rouble.

One reason America has pushed so hard for sanctions against Russia, was in an attempt to destabilise the rouble and hinder Russia's financial development. However, they didn't reckon on Russia's ability to substitute almost any import from national manufacture. Nor did they reckon on Russia’s newly-created National Card Payment System (co-badging with Japan's JCB). As de-dollarisation continues, the impact of sanctions will become less noticeable across the whole Russian economy.

The Russian economy is fundamentally rather sound, it is run using sensible principles with low debt. Sanctions did not have the effect that America hoped for and expected. The benefits will be seen more clearly when sanctions are lifted, or when the Russian economy has completed the shift away from its western alignment. The strength built up while diversifying, working against the heavy weight of sanctions, will lead to a much stronger Russian economy later on.

All that is necessary for the dollar to be used less is for anything other than the dollar to be used more. Russia has an ally in China in this regard. Both countries seek to increase the profile of their currencies, and both are actively following a programme of de-dollarisation.

You can see how the friendship between Russia and China is developing. The president of China was at Putin's elbow at the Moscow Victory Day parade. The Chinese army participated in that parade. There are new oil and gas deals and joint military operations in the Mediterranean. The Asian Infrastructure Investment Bank (AIIB) has now come to fruition along with the BRICS Development Bank. These are all signals that show America where China sits: Next to Russia. In more ways than one.

With a burgeoning China/Russia friendship and the Chinese economy overtaking the American one, American aggression is going nowhere fast in the region.

Putin has often spoken of the American attempt to create a unipolar world and appointing itself leader. He pointed out that a unipolar world is simply a means of justifying dictatorship over people and countries.

The more the west pokes the Russian bear, and the more economic sanctions it throws at it, the more Russia will be forced away from dollar trading and into alternatives which involve countries such as China, Iran and India. That trade will be conducted in roubles or yuan. The yuan is among the top ten traded currencies in the world. Usage now exceeds the Swiss franc.

Only this week As Bloomberg pointed out, the combined economic output last year of Brazil, Russia, India, China and South Africa almost matched the US’s gross GDP. Only in 2007, the US economy was double the BRICS.

Russia is the largest exporter of gas in the world and the second largest exporter of oil. It isn't much of a stretch to see how Russia, with China's help, would be able to give Uncle Sam a major financial headache very quickly if they wanted to.

The dollar, at one time America's strength, has become the tool to create a managed decline of its influence. We are seeing over time, the US as a declining power, the end of a unipolar world and a slow de-dollarisation taking place. If anything, this makes the US more dangerous as it won’t go down without a fight. Make no mistake, the US will go down kicking, screaming and lashing out.

It's a process. A process the world now needs. The only way to wind down constant US wars, regime changes, terrorism and aggression across the world, without WW3, is to devalue and undermine the currency. And relegate America and its dollar to a regional power.

Stuart Smith can be followed on twitter at: https://twitter.com/RussianHQ

 

 

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