Some Russian firms are trying to deal in something other than dollars. Even if they succeed, their quest will only be a testament to the dollar’s standing.
It’s not clear whether the move from the dollar is a real trend or just talk. There is certainly some talk. Deutsche Bank’s Russia chief and the chief executive officer of Russian state bank VTB were quoted by the Financial Times on Monday as saying there was growing interest in using the Chinese yuan and other Asian currencies, in large part to avoid possible sanctions. Last month the CEO of Gazprom’s oil division said that many clients had agreed to switch from payment in dollars to payment in euros and yuan.
Russia may follow Iran, another target of U.S. official ire, in promoting a de-dollarization of the energy and commodities markets. But sanctions are not the only reason to break free of the dollar. Rising economies such as China would like to escape the sway of U.S. monetary policy and swings in the dollar’s value.
The dollar, however, looks almost as powerful as ever. Otherwise, Russian firms wouldn’t be so worried. The United States doesn’t make it into the top five destinations for Russian merchandise exports, buying less than 3 per cent of the total, according to the most recent World Trade Organization figures. Yet three-quarters of Russia’s exports are fuels and agricultural and mining products, which are all still usually denominated in dollars.
Little wonder if Russian companies want to deal in yuan with China, Russia’s second-biggest trading partner. But while this may circumvent the U.S. currency, the alternative still shows the extent of America’s global sway. After all, the yuan is informally linked to the dollar, while the Hong Kong dollar – another alternative said to be under consideration – is explicitly pegged to the U.S. currency.
The Americans’ exorbitant privilege will not last forever, even if U.S. politicians become less irresponsible. When the new economic powers become powerful enough to impose a new arrangement, they will do so. But so far, the dollar remains firmly on its perch.
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