Russia’s sudden war against Ukraine was swiftly followed by
a series of sanctions imposed by the US and Europe that isolated and cast out
Russia from the global financial system. It was a very public demonstration of
the vast array of financial weaponry the West is able to wield.
اضافة اعلان
After weeks of this, Russian President Vladimir Putin
declared that the West was waging “economic war”, and in response began to
utilize some of Russia’s own financial weaponry.
This week will see the first real test. Last week, Putin
warned “unfriendly” countries – by which he really meant European countries –
that they would need to start paying for their natural gas in roubles, rather
than in dollars or euros. He gave the Russian central bank until the end of
March to figure out how that would happen.
If it goes ahead, it will be no idle threat. European
countries collectively purchase 40 percent of their natural gas from Russia,
paying as much as $800 million per day. It is an unparalleled move – one to
which the EU has reacted defiantly, although that defiance may eventually be
tempered by self-interest.
Russia’s latest move is part of a much longer war it has
been waging against the dollar, which remains the currency in which most oil
and gas trade is denominated.
Western sanctions in response to Russia’s annexation of
Crimea in 2014 exposed a crucial weakness in its attempt to oppose the West:
the Western hegemony over the financial system.
Since then, Russia has taken steps to reduce its exposure to
the dollar, foreseeing exactly the sort of wide-ranging sanctions recently
imposed. By one estimate, the share of Russia’s exports denominated in dollars
dropped from 80 percent in 2014 to around half today. In the same period,
Russia’s central bank halved its reserves of dollars, shifting to the euro, the
yuan and other currencies. By 2019, Russia held a quarter of all the world’s
yuan reserves.
But dethroning the dollar as the world’s reserve currency is
not something that can happen overnight, and not something that can be done by
one country. Russia’s long battle against the dollar is more of an insurgency
than a war.
The move to a post-dollar world can only happen with widespread adoption of another currency – so far, few other countries (with the exception of Iran, which is also heavily sanctioned by the West) appear interested.
It is an insurgency, though, that has already started, and
one in which Russia has a major supporter, China. For years, Russia and China
have sought to wean themselves off the dollar, an attempt known as
de-dollarization. The two countries took a major step in that direction in
2019, when they agreed to settle all trade between them in their respective
currencies. The swift damage inflicted on the Russian economy may make Beijing
wonder if it can withstand similar sanctions – if, for example, it sought to
absorb Taiwan by force – and whether it needs to go faster.
Yet, a post-dollar world is easier to imagine than to
create, especially for China, which seeks not only to replace the dollar as the
world’s reserve currency, but to replace the US as the global superpower.
Historically, the two have gone together, but it is a goal that cannot be
achieved without enormous political upheaval – upheaval that even China may not
be prepared for.
The history of global currencies is somewhat limited. In the
modern era, there has only really been one changeover, when Britain’s sterling
was overtaken by the US dollar after World War II – and then only because
Britain was terribly indebted by two devastating wars in four decades.
For the yuan to overtake the dollar would take a similar
change, and China would be unlikely to escape the consequences.
Beijing also has a very different perception of how it can
usurp the superpower, one that does not involve invading multiple countries. As
much as Beijing may wish to move to a post-dollar world, it is still – to a far
greater extent than Russia – tied into the Western-built global trading system.
It would also need to persuade others to come along. The
move to a post-dollar world can only happen with widespread adoption of another
currency – so far, few other countries (with the exception of Iran, which is
also heavily sanctioned by the West) appear interested. The overwhelming majority
of global trade is still conducted in dollars, euros or British pounds.
Taken together, this means an overnight shift from one
global currency to another is unlikely. Much more likely is a gradual shift to
a multi-polar financial system – one in which other currencies like the euro
and yuan as well as gold or a newly created, state-backed digital currency
plays a role.
It is this possibility that means the current holder of the
world’s reserve currency needs to tread carefully. For Washington, extensive
sanctions against Russia may in fact have the effect of giving extra weight to
the euro, something Europeans would welcome. America has to balance punishing
Russia with not creating incentives for the more widespread adoption of rival
currencies.
Russia may not be able to split the transatlantic alliance
by using the rouble as a weapon. Yet the promise of a greater role for the euro
may tempt European countries where threats have failed.
The writer is currently writing a book on the Middle East
and is a frequent commentator on international TV news networks. He has worked
for news outlets such as The Guardian and the BBC, and reported on the Middle
East, Eastern Europe, Asia and Africa.
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