Russia and China are working on an alternate international financial system
Russia and China led international financial system will pose serious challenge to American dominated financial system
Both Russia
and China are said to be increasingly looking to move away from using the US
dollar as the main currency of international trade, instead using their own
denominations to underpin the booming volume of Moscow-Beijing trade.
Russia and
China will develop shared financial structures to enable them to deepen
economic ties in a way that foreign states will be unable to influence
announced by Russia after talks with Chinese president Xi Jinping.
China and
Russia have been gradually moving towards such an arrangement since the Global
Financial Crisis of 2008 revealed the risks of excessive reliance on the US.
However, American economic sanctions against both Moscow and Beijing
appear to have intensified the search for alternatives.
Putin’s
foreign policy advisor Yuri Ushakov told Russia Today (RT) that “particular
attention was paid to the need to intensify efforts to form an independent
financial infrastructure to service trade operations between Russia and China. We
mean creating an infrastructure that cannot be influenced by third countries,” the
advisor has said.
Last week,
US Under Secretary of State Victoria Nuland said that the White House, along
with a number of Western European nations, was mulling completely isolating
Moscow from the global financial system should Russian troops dare to invade
Ukraine.
Just the day
before, Bloomberg had suggested that Washington could target the country’s
major banks and even disconnect Moscow from the SWIFT network.
These
economic instruments of power enable Washington to run an empire. It can manage huge trade deficits, collect
data on its adversaries, give favourable treatment to allies, and crush its
adversaries with sanctions.
The America
is using its financial system and control over global financial sector as a
foreign policy tool by imposing sanctions against the countries that refused to
fall in line with US imperialist foreign policy. The IMF, World Bank and Asian
Development Bank are also important financial tools for the America to dictate
its terms on the countries that need loans and financial assistance.
The reduced
reliance on the US dollar as a reserve and transaction currency is immensely
challenging as the dominant role of the US dollar has defined the international
financial system for more than 75 years.
The dollar
has continued its strong position for three main reasons: the huge size of the
US economy, the preservation of the dollar’s value by keeping inflation low,
and the open and liquid financial market.
As the US economy is in relative decline,
inflation is out of control, and its financial markets are used as a weapon –
the foundations for the enduring role of the dollar are quickly coming to an
end.
A financial
partnership between China and Russia, the world’s largest energy importer and
the world’s largest energy exporter, is an indispensable instrument for
dethroning the petrodollar. In 2015, approximately 90% of trade between Russia
and China was settled in dollars, and by 2020, dollar-denominated trade between
the two Eurasian giants had almost reduced by half, with only 46% of trade in
dollars.
Russia has also been leading the way in cutting the share of US dollars in its foreign reserves. The mechanisms for de-dollarizing China-Russia trade are also used to end the use of the greenback with third parties with advancements being seen in places such as Latin America, Turkey, Iran, India, etc.
The US has been
pumping out dollars to the entire world for decades, and at some point, the
tide will change as the sea of dollars return home with increasingly diminished
value.
The
Americans first expelled Iran and North Korea, and in 2014, Washington began
threatening to expel Russia from the system as well. Over the past few weeks,
the threat of using SWIFT as a weapon against Russia has intensified.
China has
responded by creating CIPS and Russia developed SPFS, both being
alternatives to SWIFT. Even several other European countries have banded
together with an alternative to SWIFT to curb Washington’s extra-territorial
jurisdiction and thus continue trading with Iran.
A new China-Russia financial architecture
should integrate CIPS and SPFS, and make them more available to third parties.
If the US expels Russia, then the decoupling from SWIFT would intensify
further.
China and
Russia have also developed their own rating agencies and replaced the dominant
position of Visa and MasterCard in their respective countries. This new
financial architecture is complemented with an energy partnership and a
technological partnership as neither China nor Russia wants to be reliant on
American high-tech industries as they move into the fourth industrial
revolution.
Furthermore, China and Russia seek to avoid
US-dominated transportation corridors. China has invested trillions of dollars
into its Belt and Road Initiative for new land- and sea corridors, while Russia
has advanced a similar but more modest program that includes developing the
Arctic as a maritime route in partnership with China.
Funding and
managing these high-tech programs and transportation corridors will have
positive synergy effects for the further development of a new international
financial architecture.
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