Western sanctions led Russia to greatly increase trade with Asia, while devastating Europe’s economy. The US tech war against China is damaging its own industry.
by Renate Bridenthal
Part 6 - Western sanctions accelerate development of new financial systems
One of the ways to avoid primary and secondary sanctions is by trading in local currencies, rather than by using SWIFT (Society for Worldwide Interbank Financial Telecommunications), a member-owned system made up of banks and financial institutions worldwide, widely used for transactions that are denominated in dollars.
SWIFT blocks payments that breach U.S. sanctions. Thus, more and more countries are trading in other currencies.
Russia trades with India in rubles and rupees, and with China in rubles and renminbi.
Also trading in national currencies are members of the Shanghai Cooperation Organization, which includes China, India, Pakistan, Russia, Iran, and numerous Central Asian states, making up half the world’s population.
SWIFT blocks payments that breach U.S. sanctions. Thus, more and more countries are trading in other currencies.
Russia trades with India in rubles and rupees, and with China in rubles and renminbi.
Also trading in national currencies are members of the Shanghai Cooperation Organization, which includes China, India, Pakistan, Russia, Iran, and numerous Central Asian states, making up half the world’s population.
Alternative financial networks are being formed. The BRICS countries (Brazil, Russia, India, China, South Africa) are working to develop a new reserve currency based on a basket of their national currencies.
China has formed CIPS (Cross-Border Interbank Payment System), a SWIFT-like payment network to internationalize the renminbi. Its co-founders included even some Western banks like Citi, Deutsche Bank, HSBC, along with numerous Asian and African banks. With about 1,300 banks in all, it is a challenge for the future.
China is slowly edging its Renminbi into becoming an international currency, which would push the dollar into being only one member in a basket of currencies, rather than the dominant currency used in trade.
Finally, there is the growth of digital currencies – electronic state-backed national currencies that act like cash, not to be confused with blockchain cryptocurrencies.
National digital currencies will allow countries to trade directly, without having to go through mechanisms like SWIFT.
China has formed CIPS (Cross-Border Interbank Payment System), a SWIFT-like payment network to internationalize the renminbi. Its co-founders included even some Western banks like Citi, Deutsche Bank, HSBC, along with numerous Asian and African banks. With about 1,300 banks in all, it is a challenge for the future.
China is slowly edging its Renminbi into becoming an international currency, which would push the dollar into being only one member in a basket of currencies, rather than the dominant currency used in trade.
Finally, there is the growth of digital currencies – electronic state-backed national currencies that act like cash, not to be confused with blockchain cryptocurrencies.
National digital currencies will allow countries to trade directly, without having to go through mechanisms like SWIFT.
The decline of dollar hegemony is expected, but with a long time horizon of two or three decades.
However, the weaponization of finance has cost the U.S. a loss of trust. When foreign reserves can be frozen, as they have been for Russia, Venezuela, Iran, and Afghanistan, then no country can feel that its assets are safe.
Many central banks, including China’s, have been buying gold for their reserves and selling U.S. securities.
However, the weaponization of finance has cost the U.S. a loss of trust. When foreign reserves can be frozen, as they have been for Russia, Venezuela, Iran, and Afghanistan, then no country can feel that its assets are safe.
Many central banks, including China’s, have been buying gold for their reserves and selling U.S. securities.
Comments
Post a Comment