The Ukrainian war shapes the climate of foreign and financial policy. The East/West poles are more pronounced than they have been since the Cold War. Russia and China face off against the USA. The relationship is tense. This also affects monetary policy.
That’s the only way to explain why Russia and China, along with the emerging countries India, Brazil and South Africa – forming the so-called federation of Brics countries – are working on their own currencies. The dominance of the US currency is a thorn in their side. They want to break with the dollar and create a counterbalance to the International Monetary Fund and the World Bank.
“Anti-Dollar Coalition”
Plans for a common currency had been circulating for some time. China has been working for several years to make its financial system more independent from the West. With the outbreak of the Ukraine war and sanctions against Russia, the “anti-dollar coalition” has now gained new momentum.
In recent years, Russia has increasingly abandoned the dollar and expanded its financial reserves. However, given the fierce international backlash against the invasion of Ukraine, this is unlikely to be enough to keep the country’s economy buoyant.
Response to Visa and Mastercard withdrawal
Russia is increasingly seeking proximity to China. Concrete example: US credit card providers Visa and Mastercard have been removed from the Chinese market. China established its own credit card organization. Pay your name union. It has already issued billions of credit cards. They are internationally recognized.
So it’s not surprising that after the sanctions, Russian banks also want to work with Unionpay. Especially since big players like American Express, Visa and Mastercard gave the cold shoulder to President Vladimir Putin (70) and pulled out of Russia.
Global “de-dollarization”
However, the main reason for the projected common currency is commodity trade, which is predominantly traded in dollars. For example, when buying and selling natural gas, 80 percent of bank transactions are done in dollars, which is especially important for Russia. Russia and China don’t like it. Commodity exporters from Brics countries should therefore increasingly use their own currencies when trading. And so start the global “de-dollarization”. (pbe)