Way to go, the EU should follow: Ditching the dollar, Russia’s long term response to Washington

Ditching the dollar: Russia’s long-term response to Washington

 

Russia will respond to new US sanctions with the help of an unexpected decision: Moscow intends to reduce dependence on the dollar and American payment systems.

New US sanctions against Russia have become the largest since early 2014. The law, signed by US President Donald Trump, hits the energy sector, which is extremely important for the Russian economy. In addition, the document provides for the possibility of imposing sanctions on the state debt of the Russian Federation in six months, and this would be a serious blow to the country’s economy.

Nevertheless, a strong statement by the Foreign Ministry surprised many. Initially, the Foreign Ministry proposed to reduce the number of US diplomatic personnel in Russia and limit the use of certain properties.

Deputy Foreign Minister Sergei Ryabkov said that “Of course, we are stepping up work related to import substitution, reducing some dependence on American payment systems, from the dollar as a settlement currency, and so on. Now this becomes an urgent necessity,” the diplomat said.

He noted that Russia should create “efficient economic schemes, where dependence on the dollar, from the American monetary and financial system was less.” If this is not done, then “we will always sit on their hooks – exactly what they need.”

The authorities’ desire to reduce dependence on the dollar is commendable, but it will be difficult to do so. The fact is that Russian reserves in considerable volume are placed in American securities.

Because of this, you can not completely abandon calculations in dollars, although you can start the process of reducing dependence. The Central Bank, for example, can very accurately reduce the volume of dollar reserves. But the most important is the transition to settlements with consumers of Russian energy resources in other currencies. Similar initiatives were voiced with China, but so far the process is very slow.

Convincing clients in Europe to pay for gas and oil in rubles will be difficult, but, for example, but they will switch to the euro with joy. Given the general rejection of anti-Russian sanctions in the EU, it will also help improve relations with European countries.

At the same time, the statement of the Foreign Ministry completely contradicts the latest actions of the Russian Federation. According to the data of the Ministry of Finance of the United States, in January-May 2017, Russia increased investments in US Treasury securities by 26.2% or $ 22.6 billion in monetary terms, the total amount of investments reached $ 108.7 billion.

But on payment systems, Russia took a significant step forward by launching the “Mir” system. In fact, it theoretically allows to push out Visa and MasterCard from the Russian market.

The refusal of the dollar or a significant reduction in its use throughout the economy will take a long time, but the indication of Moscow’s intentions and successive steps will force Washington to think about the consequences of further tightening of pressure on Russia.

 
In the words of President Putin – “the US is about to snap the very branch it’s perched on.”
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