Page 35 - bne_May magazine 2023_20230503 BRICS

bne May 2023 Cover story I 35
Death of the dollar bne IntelliNews
Russian Deputy Prime Minister Alexander Novak said on April 25 that Russia is now settling more of its international trade deals with yuan than it is with dollars.
The unintended consequence of the US’ decision to weaponise the dollar and use it as part of the extreme sanctions regime on Russia has been to shock the world’s central banker community and undermine confidence in the dollar as the default foreign exchange currency of trade and reserves.
The result has been to give impetus to the long-mooted desire to break the dollar’s monetary hegemony, so that there is for the first time some real political will behind making the change.
The dollar has been the foundation on which global trade has been built since the Bretton Woods agreement in 1944 and that foundation is now starting to crumble. While developed markets are confident that the US will never sanction their use of the dollar, the same is not true for the global second-class citizens of the emerging markets. The EMs are now rushing into gold as the ultimate store of reserves value and actively rolling out
programmes to settle their international trade deals in national currencies.
The switch away from the dollar will take a long time, but the process has begun.
De-dollarising Russia
Russia has been de-dollarising for years. The Central Bank of Russia (CBR) has been actively increasing its share of gold as a monetary reserves since 2007 and since the annexation of Crimea it has been actively selling off its dollar cash and securities. Today the central bank has no dollars left in its reserves and by the end of this year it intends to hold only yuan (60%) and gold (40%).
That will make Russia unique amongst the world’s big economies, as no one else would dare to concentrate its store of sovereign of wealth in so few monetary instruments. But since the imposition of the CBR sanctions in
the first days of the war it has been cut off from using the dollar – the world’s preferred means of exchange.
Russia is still actively exporting and needs some sort of currency to settle its bills. Of the currencies on offer, the Chinese yuan is the leading choice
and Beijing has also been actively promoting the internationalisation of its legal tender.
But Moscow is not alone in wanting to reduce the role of the dollar. In addition to China, India and Brazil have also both started programmes to use their own currencies in trade deals. Brazilian President Luiz Inácio Lula da Silva has even suggested setting up a pan-South American currency to facilitate trade on the continent – a Latin American equivalent of the euro.
That is still a while away and energy deals in particular are driving the current switch. Russia accepts more payments for energy exports in rubles than anything else since the Kremlin forced the gas-for-rubles deal on its European customers last March.
The increase in ruble usage was primarily due to natural gas supplies to “unfriendly” countries shifting to rubles in May 2022 following the introduction of the new rules, according to the CBR.
According to the Russian central bank, the yuan's share in Russia's import settlements in 2022 jumped to 23% from 4%.
www.bne.eu