As the United States continues to pile on an ever-growing list of sanctions on to Russia, the country is fighting back by abandoning the US dollar. Although they have been expressing their desire to break away from the hegemony of the U.S. petrodollar and the global dollar-based payment systems for years, Russia’s deputy foreign minister, Sergei Ryabkov, said this week that they are accelerating those efforts, to “get rid of the dollar.”
“The time has come when we need to go from words to actions, and get rid of the dollar as a means of mutual settlements, and look for other alternatives,” he said in an interview with International Affairs magazine.
Over 60 percent of global reserves and 80 percent of global payments are currently denominated in U.S. dollars, according to James Rickards, author of Currency Wars. This gives the U.S. extreme control over other countries’ imports and exports and they are able to force countries into submission using sanctions.
However, those days of global monetary control appear to be coming to an end, especially as other countries aside from Russia abandon U.S. dollar as well.
“Thank God, this is happening, and we will speed up this work,” Ryabkov said, explaining the move would come in addition to other “retaliatory measures” as a response to a growing list of US sanctions. Russian Energy Minister Aleksandr Novak recently noted that a growing number of countries are interested in replacing the dollar as a medium in global oil trades and other transactions, according to RT.
“There is a common understanding that we need to move towards the use of national currencies in our settlements. There is a need for this, as well as the wish of the parties,” Novak said.
This year, the Russian government has also drastically reduced their holdings of United States Treasury bonds, with Russian ownership of U.S. bonds declining from $96.1 billion in March to $48.7 billion in April—and then further reducing their holdings to just $14.9 billion in May; an 11-year low.
As the Free Thought Project has recently reported, Russia has been buying large amounts of gold during its gradual sell-off of U.S. Treasury bonds, and it recently overtook China as the world’s biggest holder of gold with $80.5 billion worth.
The reason gold is so critical is that it cannot be manipulated by U.S.-based economic warfare, as it cannot be frozen out as other forms of digital and paper fiat can be.
Gold can simply be loaded onto pallets and shipped to another state to make a payment, thus bypassing targeted economic sanctions that are currently being used by the United States as a means of attempting to force geopolitical compliance by Russia and other countries. The strategic significance of gold is so great, that even when oil prices and Russian financial reserves were collapsing in 2015, they continued to acquire gold.
Additionally, the U.S. is the only country with veto power at the International Monetary Fund, known as the global lender of last resort. Thus, one of the most crucial weapons wielded by Russia, in its war to free itself from the hegemony of the petrodollar, is gold.
With the petrodollar being utilized as a weapon by the U.S. in a time of increased economic warfare, gold is a clearly a means of bypassing U.S. sanctions.
What’s more, as we previously reported, China has also moved to bypass the U.S. dollar by launching petro-yaun earlier this year.
The Chinese government reportedly plans to allow the crude oil futures contract priced in yuan to be fully convertible into gold.
As TFTP reported at the time, in addition to serving as a hedging tool for Chinese companies, the contract will allow for increased use of the yuan in trade settlement.
These contracts will thus enable China’s trading partners to pay with gold or to convert yuan into gold without the necessity to keep money in Chinese assets or turn it into US dollars, according to Bloomberg. However, China has already agreed to stop using the dollar in global trade.
Essentially, the new benchmark will allow exporters, such as Russia, Iran or Venezuela to avoid US sanctions by trading oil in yuan that is convertible to gold – thereby negating the hegemony of the petrodollar.
It seems that the U.S. is slowly losing its power to sanction other countries into submission and it is at the expense of your paycheck. As other countries begin to dump the U.S. dollar to avoid being sanctioned by America, an inevitable inflation crisis will ensue and the government’s hubris may bring on a new great depression.
“It is more of a game changer for the US. As soon as other nations have a real credible alternative to the US dollar, they can dump dollars and switch to the yuan which can spark a dollar crisis. If that happens, not only will there be inflation from the tariffs, but also from the flood of dollars,” Ann Lee, Adjunct Professor of Economics and Finance at New York University and author of the book ‘What the US Can Learn From China’, said.