Sino-Russian currency war on Atlantic powers gets a Ukrainian stimulus (The Sunday Guardian)
Both Russia and China have been working on alternatives to SWIFT, with China’s CIPS at the top of the scale, with Russia close behind.
New Delhi & New York: The declaration of a financial war against Russia by the US, EU, UK and Switzerland after the invasion of parts of Ukraine by Russian forces on 24 February 2022 was predicated on a rapid climbdown by the Kremlin in the face of the financial firepower it was subjected to. After more than three weeks of conflict, such a retreat still seems distant. The backwash of the rapidly cobbled together list of sanctions on the economies of the sanctioning countries is increasing, and will soon begin to do so exponentially. The rest of the world, of course, is irrelevant, given that the “International Community” comprises solely of the entities mentioned above, the US, EU, UK and of course Switzerland. Should NATO succeed in prolonging the agony now being endured by the Ukrainian population by a few months, the resulting economic downturn would dwarf not just the Great Depression of the previous century. This is the risk that the world is facing as a consequence of tactical plans mapped out less through use of the brain than of the glandular instincts of the many venerable thinkers within the Atlanticist military machine. Given NATO’s obsession with Russia, it is unsurprising that so much attention has been paid to Ukraine, the country which has as its capital the Jerusalem of the Russian Orthodox Church, Kyiv. Once (if ever) Ukraine falls as firmly into NATO’s overall grip as firmly as on the Czech Republic or Slovenia, the country and its capital would be invaluable at engineering a regime change not merely in the Kremlin but in the Russian Orthodox Church, the leadership of which backs the deeply religious Vladimir V. Putin in his “righteous” war on “Ukrainian apostates”. Ensuring that the Russian Federation under Putin (who has proved a great disappointment to the Atlantic Alliance in comparison to Mikhail Gorbachev and Boris Yeltsin), loses its war in Ukraine is critical to the geopolitical success of the post-1992 project of converting Moscow into a compliant and complicit partner of the US-UK-EU partnership. This still formidable alliance has been joined by Switzerland, which did not feel any moral impulse to move away from its neutrality during the Nazi occupation and brutalisation of Europe that began in the 1930s and ended in 1945, but which has now finally found its moral compass. The once neutral country has joined explicitly with the US, UK and the EU in its (so far non-kinetic) war on the Russian Federation. International institutions that have been headquartered in Switzerland because of its presumed neutrality need to re-evaluate their locations and move to more impartial shores, such as India. Switzerland can no longer be described as neutral, despite choosing to remain so during the two previous World Wars that took place in the 20th century. Apart from promoting a peaceful resolution of the conflict in Ukraine by transferring billions of dollars and weapons to the (largely irregular) Ukrainian forces, NATO through its key members has launched a financial war on Russia that it hopes would prove fatal to the present regime in Moscow and once again bring into office a replacement that (as in Ukraine since 2014) is a reliable accessory to the interests of NATO. This is an alliance that remains fixated on what it was set up for, dealing with Russia as The Enemy, much to the delight of the Chinese Communist Party.
Bureaucracies routinely find new reasons to perpetuate themselves and grow, and after its disastrous kinetic efforts in Iraq, Libya, Syria and Afghanistan, NATO has retreated to the only cause that the organisation and the band of academics and think tanks nourished by it know, which is to contain Russia. The problem is that the US-UK-EU strategists who have scripted the campaign against Russia since shifting focus to Ukraine in 2009, while acknowledging that Putin is no Gorbachev or Yeltsin, fail to understand that he is no Khrushchev or Brezhnev either. It was the fear of kinetic conflict with the US in particular that prevented military escalation by the USSR even in the matter of moving to take over the whole of Berlin in the days when the Vozd (Stalin) was still around in the Kremlin or the nearby Dacha. Or in not daring to expand the war in Afghanistan in the 1980s to the country that needed to be attacked the hardest from the air and seas by Soviet forces, Pakistan under General Zia. After going through the battlefield experiences of NATO in the Muslim countries mentioned above, Vladimir Putin has indicated that he would not blink in the manner that Nikita Khrushchev did in 1962 over Cuba, but play any game of chicken until the other side either destroyed itself and the rest of the world or chickened out. This is not the insanity or thuggishness diagnosed in Putin by psychologists of eminence such as Joe Biden or Boris Johnson, but cold strategic logic based on a study of available data on the actual 21st century combat operations of the Atlanticist alliance. The Sino-Russian alliance has become the cornerstone of the strategic ambitions of CCP General Secretary Xi Jinping, who early on saw the need to dethrone the US dollar as the reserve currency of the world, and who has been working together with Putin to succeed in this effort. Beginning with George W. Bush, continuing with Barack Obama and now Joseph Robinette Biden Jr, the oft-used but since then turbocharged weaponization of the US dollar has been affecting global confidence in USD as a safe and stable reserve currency, not in the “International Community” as defined by Washington, London or Brussels but in the rest of the world, which are by implication therefore not part of the “international community”.
CHINA AND RUSSIA ACTIVE IN DE-DOLLARISATION
Along with Xi Jinping on a parallel track, President Putin has quietly been working on a de facto de-dollarisation, a process the acceleration of which US-EU-UK-Switzerland financial sanctions has made imperative. From at least 2013 (trigger: sanctions on Iran) and ramping up in 2014 (trigger: Crimea). This is being achieved through boosting stocks of gold, such that Russia and China now have possibly the highest gold reserves of any country in the world. In short, both Russia and China have been preparing for a post-SWIFT world for some time. Once Prime Minister Narendra Modi took charge in 2014, so has India, with the consequence that Indo-Russian trade can be shielded from US and other Western financial sanctions involving the use of their currencies in such trade. As for the de-dollarisation that has been forced on Russia by President Biden from last month, even before the Biden sanctions, the share of USD in Russia’s trades was below 56% before February 2022. This may be compared to 90% in 2014. Both Russia and China have been working on alternative to SWIFT, with China’s CIPS at the top of the scale, with Russia close behind. Now that sanctions that would have the (presumably unintended) effect of scaring away the Rest (as distinct from the West) from the US dollar, the euro, the Swiss franc and the UK pound, swap trades between the Rest using their own currencies are certain to accelerate, so that currencies with a high geopolitical risk factor are bypassed. Among the last pillars holding up USD as the global reserve currency is the pricing of international oil trade in USD. Now that petroproducts have been sanctioned by NATO, it is unlikely that a situation that has persisted since 1971 would last for much longer. Another USD pillar is crypto, where the dominant Bitcoin is still priced in USD, although recent curbs on that crypto asset by the sanctioning countries may change that situation. Saudi Arabia and other OPEC producers are in talks to arrange payment in non-NATO (or Swiss) currencies, while purchasers of Russian oil and gas in the Rest would need to use alternative currencies, given that sales in USD have been banned by the White House. How such self-defeating steps by the US, Switzerland, UK and EU are being carried out is clear. Why all this is happening is another question. Bringing Ukraine into the grip of the West would not seem worth a global loss of confidence in Western currencies within the Rest. Worse, should Russia re-price its abundant natural resources in currencies other than the Big Four mentioned above, that would have an immediate consequence on the viability of any of these currencies as a reserve for the Rest. If yesterday the target was Iran and today Russia, tomorrow it could be any of the Rest, for whatever imaginary or actual reason proffered by the West for its actions.
REAL RESOURCES COUNT FOR MORE
Ironically, it is not so much Russia that has abandoned the USD, it is the USD that has abandoned Russia. It is not Putin who forced Western brands to shut down in his country, but the leaders of those countries themselves. Given the dynamic of the escalatory steps taking place, it seems only a matter of time before Russia’s debt to the West gets repudiated rather than repaid, and assets of the departed companies seized. If (as in the case of several countries) more than half or even two-thirds of the currency reserves of a country within the Rest can be eliminated at the stroke of a pen, the concept of a neutral currency goes out of the window. Before Biden and Johnson began a process that may lead to the death dance of the US dollar and the UK pound, the self-advertised “liberal” Prime Minister of Canada confiscated the bank accounts of several of his citizens who had been (in Trudeau’s view) unpatriotic enough to send even as little as $5 for the truckers’ protest against not the continuance of Canada as a unified country but the Justin Trudeau Vaccine Mandate. Confidence in a bank or currency is not so much rational as it is psychological. It is not based on currency that is presently being created limitlessly in the West, but on resources. Once India gains access to Russian resources and monetizes them in its own currency, it would be on a much stronger financial footing than West-biased “rating agencies” endlessly warn about. For them, it is not inherent soundness of an economy but fealty to the shifting sands of Western global interests that determine rankings that are still surprisingly being taken seriously in India, especially by financial institutions. What any economy in the Rest needs are not so much dollars, pounds, euro or francs that are capable of being rendered worthless by actions outside the sovereign boundaries of non-Western countries but the real resources that they gain access to and use. Russia may have a policy-driven famine of currencies of the West but has real resources in abundance. These are what a modernising India needs, which is why Prime Minister Modi has ignored the condescending warnings of Western leaders to shoot the economy in the foot in the same way as they are doing by some of their measures.
THE WAR COMES TO THE WEST
Given that he has lived off the exchequer for more than four decades as Senator, Vice-President and now President of the US, Joe Biden can be forgiven for not being able to factor in the effect that the commodity inflation caused by the Biden-Johnson sanctions on the Putin regime. Although the West has among the least prepared monetary regimes in history, with debt to GDP ratio having already exceeded World War II levels, with interest rates close to zero, although the Federal Reserve Chairman seems to have reflexively raised interest rates in a Pavlovian manner. Such a rise in rates will not affect commodity-driven hikes caused by geopolitical factors, but reduce the rate of recovery of the US economy in time for the Republican Party to garner the consequences during the 2022 midterms. Now that the USD is getting priced loose from its status as the currency used for petroproduct sales, and prices of resources abundant in Russia and Ukraine are soaring, the costs of the war to Putin (and Xi, assuming he does not commit hara-kiri of his career by obeying Biden’s command to decouple from Russia) are already much lower than the geopolitical benefits being caused to the West by the blowback caused by the NATO war on Russia. Not that Crown Prince Mohammad bin Salman can be faulted for his pivot from the West, given the demonisation of him by that construct, on a scale now being matched by the abuse being hurled by the West on Putin. Now that the previous biggest customer (the US) has become your biggest competitor, it makes sense to not destroy OPEC by agreeing to throw Russia out. And to get closer to your biggest customer since the past few years, China. As for USD, a currency incapable of buying anything in a spreading geographical zone is en route to becoming valueless. As and when sense prevails within NATO and a sanctions rollback begins despite large tracts of formerly Ukrainian land going to Russia (in the way much of Mexico went to the US in the 19th century), the costs of this war to the West and the benefits to China and Russia (in descending order) will become apparent. In the 1990s, financial sanctions may have been effective. In the 2020s, they may end up doing more harm to the sanctioning countries than to the countries sanctioned. The bad news is that such a realisation may come about when it is too late to avoid damage, not only to the West, but to large swathes of the Rest as well.