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Sanctions, ironically, could boost the ruble

By Xu Wenhong | China Daily | Updated: 2022-04-21 07:31
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File photo shows the White House and a stop sign in Washington DC, the United States. [Photo/Xinhua]

The United States and its allies including many European Union countries have imposed innumerable sanctions on Russia in response to Moscow's "special military operation" in Ukraine. These sanctions, especially those removing Russian banks from the Society for Worldwide Interbank Financial Telecommunication system (SWIFT), freezing nearly $300 billion assets of the Russian central bank, and barring US and European capital markets from providing finance for Russian companies and individuals caused the drastic decline of the ruble and collapse of the Russian stock market.

That in turn prompted Russian President Vladimir Putin to sign a decree on March 31, requiring countries importing Russian natural gas to pay in rubles. The new system payment regime was implemented on April 1.

About 40 percent of the EU's natural gas comes from Russia, with Germany importing nearly 55 percent of its natural gas requirement from Russia. And so far the Vatican City, Hungary, and some other countries have expressed their willingness to pay in rubles, which means the Russian currency could become a new global international payment currency.

First, before Putin signed the new decree of "payment in ruble", Russia had introduced the practice of linking the ruble with gold-1 gram of gold being equal to 5,000 rubles. In comparison, the US dollar is a fiduciary currency, but it has established a link with oil. However, with the over-issuance of the US dollar, the increasingly high level of US national debt and the weaponizing of the dollar, more and more countries have adopted direct or indirect de-dollarization measures for the purpose of diversification to avoid possible risks in recent years.

Yet Russia's move is the most radical and direct manifestation of the de-dollarization efforts of countries.

Second, Moscow is likely to expand the ruble payment system to cover all Russian products soon. According to Vyacheslav Volokin, Duma chairman, and Dmitri Peskov, spokesperson for the Russian president's office, Russia will extend the ruble payment system to all commodities produced in Russia, including oil, grains and fertilizers.

These products are all necessities and essential to economic development, and since many countries are heavily dependent on imports from Russia to meet their requirements of such products, they may have no choice but to agree to the new payment system.

Third, Russia could expand the new payment system to all countries. Only 36 percent of the global population lives in the countries which have imposed sanctions on Russia, 30 percent in countries that have vowed neutrality, and 32 percent in countries which oppose the sanctions against Russia.

So once the ruble's exchange rate stabilizes, Russia may compel or persuade all countries to adhere to the ruble payment system, in order to establish the ruble as a global international payment currency.

Thanks to the recovery of the ruble's exchange rate and the Russian stock market index, the Russian government enjoys relatively high domestic support, despite some anti-war and anti-government protests.

More important, due to the emergence of the ruble payment system, global international payments are likely to be made in other countries' currencies, too, in the future, leading to the fragmentation of the international monetary system.

In fact, the Venezuelan government created Petro with the help of digital technology to receive payments for its oil exports after the US intensified the use of the dollar as a weapon. And the fact that now Russia has introduced a new global international payment system could mean the beginning of the decline of the dollar and US hegemony.

As for European countries, since they have imposed sanctions on Russia under pressure from the US, they will have to agree to Russia's payment requirement. Especially because the supply of US shale gas which President Joe Biden has promised will not meet the needs of European countries even in the short term, and European countries moving away from Russian energy dependence will have no obvious effect on Moscow until at least 2030.

In contrast, high inflation, and the energy and food crises could cause shortages and raise the living costs in European countries, weakening their position in global economic competition and depreciating the value of the euro.

The accelerated fragmentation of the international monetary system will increase the operating costs of the world economy, reducing the competitiveness of some countries and the world economy could face a long winter.

And we all know which country to blame for that.

The views don't necessarily reflect those of China Daily.

The author is deputy secretary-general of the One Belt One Road Center at the Chinese Academy of Social Sciences.

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