The de-dollarization of Russia pushes more than symbolically
The Ukrainian crisis shows few signs of resolution. The United States and the European Union have imposed a new round of sanctions on Russia, including in the financial field, aimed at increasing Russia’s financing costs and weakening its economy.
Russia began “de-dollarizing” its economy years ago, to minimize the impact of financial sanctions the United States and European Union had threatened to impose on the country. Unhappy with the dominance of the US dollar over the global economy despite the decline of the US economy, Russia has implemented de-dollarization policies to preserve its monetary sovereignty, offset the impact of financial sanctions imposed by the US and the EU and to make the international financial order more dynamic.
Global debates over the possible collapse of the US dollar have been going on for almost 50 years. In recent years, the debates have become increasingly fierce. Yet the hegemony of the dollar continues, to a large extent.
How dedollarization policies will play out
According to data from the International Monetary Fund, the share of the US dollar in world foreign exchange reserves was 59% in 1995, rising to 59.02% in 2020. It will therefore be very difficult for Russia to end the dominance of the dollar on the global financial order. Furthermore, there is a huge gap between the economic strengths of Russia and the United States, with the former’s GDP being $1.71 trillion and the latter’s nearly $23 trillion in 2021.
Faced with these facts, what are the prospects and the importance of Russia’s de-dollarization policy?
Russia and some other countries have introduced de-dollarization policies because the United States uses the dollar as a weapon to impose sanctions on countries, and the main anti-sanction measure is de-dollarization.
As the United States imposes sanctions on other countries at short notice, in order to demand their pound of flesh, more and more countries come together to issue common dedollarization policies. With around 10% of countries and a quarter of the world’s population suffering because of US sanctions, the trend towards de-dollarization is intensifying across the globe.
After the global financial crisis of 2008, the US economy continued to widen, although the Federal Reserve continued to resort to quantitative easing. After the outbreak of the COVID-19 pandemic in 2020, the excessive issuance of US dollars increased significantly, causing dollar bonds to lose credit. This led to the decline of the dollar’s status and influence in the global economic system, prompting Russia and some other countries to phase out dollar obligations by increasing the share of the euro or other currencies in their reserves. change.
In global currency competition, the dollar and the euro are generally balanced. Countermeasures against the “dollar trap” can lead to a multipolar monetary configuration. Just as the British pound gradually declined with the British Empire, the dominant role of the dollar as a global currency can also be undermined sooner or later.
However, it is difficult for countries to take concerted dedollarization measures since their interests diverge. And the United States uses the differences of interests to confront them one by one.
Thus, the rivalry between the United States, which is taking steps to maintain dollar hegemony, and countries like Russia, which have launched de-dollarization policies, will create deep political and economic uncertainties. In addition, Russian-American relations will become even more conflictual, especially in the areas of economy and finance, which will lead to more uncertainties in the international economic and financial order.
However, the international payment system could undergo many changes. In the future, the international payment structure could be a combination of many options, including SWIFT (Society of Worldwide Interbank Financial Telecommunication) and payment systems followed by the EU, China, Russia and other economies. .
In fact, the interconnection between the payment systems of the EU, China and Russia could be at the center of the economic and financial work of all countries to avoid dollar hegemony in the future.
Dollar hegemony lasts, but maybe not forever
But the Russian ruble cannot replace the US dollar as an international currency in the near future. It is realistic to believe that Russia would take the lead in building a new world financial order. Russia still lags the United States and developed European countries in efficient allocation of market resources, which reflects their financial strength, capital market perception, size of economy, infrastructure and the abundance of financial products. Russia therefore still has a long way to go to catch up with advanced Western economies.
The large gap between Russia and the economies of these regions will be an important factor affecting Russia’s dedollarization policy.
However, gold and digital currency will be important tools in Russia’s dedollarization campaign. Many countries see gold as an important tool for “de-dollarization”, and Russia and some other countries have accumulated huge amounts of gold to secure their economies.
In addition, digital currency, as a product of blockchain and digital technology, is a distinct virtual product of the digital age and sets the direction of future development. And digital currencies issued by central banks will contribute to the dedollarization drive.
Russia has made key achievements in the field of digital currency, with the Russian law on digital financial assets coming into force in 2021 and Moscow leading the legislative work on the “digital ruble” in the second half of 2021. These developments will help Russia gain some benefits from the digital currency and further promote its de-dollarization drive.
The significance of Russia’s de-dollarization campaign is that it is the most drastic of the de-dollarization measures taken by countries using other currencies. Russia has not only implemented domestic de-dollarization measures, but is also taking strict measures in financial information exchange and international energy settlement currency. Due to Russia’s resolute de-dollarization measures and vigorous efforts to deepen international cooperation, more and more countries are following in its footsteps to de-dollarize their economies or assisting it in its de-dollarization drive.
Therefore, we can say that Russia’s de-dollarization campaign has had a global impact.
The fact that some countries want to de-dollarize their economies shows the dissatisfaction with the hegemony of the US dollar in the global financial and payment systems, the concerns over the excessive issuance of dollars, the call to change the system of Bretton Woods based on the dollar and the need to modify the current international economic and financial orders, in order to make them fairer and more balanced.
Although the dedollarization campaign cannot end the influence of the dollar on the Russian economy in a short time, Russia has shown the world that the hegemony of the dollar can be challenged and perhaps weakened at long term.
Opinions do not necessarily reflect those of China Daily.
The author is Deputy Secretary General of One Belt One Road Center of Chinese Academy of Social Sciences.