Russian President Vladimir Putin's recent announcement that the United States and other Western currencies will inevitably lose their leading position in global cross-border transactions should come as no surprise to those who have been following Russia's economic policies in recent years.
In his annual address to the Federal Assembly, Putin stated that Moscow will work with its allies to create a secure system of international settlements that is not reliant on the US dollar or the euro.
Putin commented that the US dollar and the euro are no longer the default currencies for international payments due to Western states' existing strategies. He further clarified that Russia is being compelled to decrease its transactions in dollars and other Western currencies because of their past Western associates. This situation has resulted in Moscow's decision to pursue a de-dollarization policy and to encourage the use of national currencies in international trade.
The Role of Sanctions in Accelerating De-Dollarization
The process of de-dollarizing the Russian economy began in 2014 when Western nations introduced sanctions against Moscow over the invasion of Crimea. Since the beginning of the Ukrainian invasion, restrictions have caused the situation to develop quickly, especially since the United States and its allies blocked over $300 billion worth of Russian foreign exchange reserves and other resources.
Despite the challenges, Putin has made it clear that the de-dollarization of the Russian economy is a strategic priority. He has emphasized the need to strengthen the role of national currencies, particularly the ruble, in global trade. Since the beginning of the year, the proportion of ruble transactions in Russian foreign trade has risen significantly, making up nearly one-third of all commercial settlements in the nation.
The Growing Trend Towards National Currencies in International Trade
The shift towards national currencies in international trade is not limited to Russia. Other countries, particularly those in the developing world, have also been seeking to reduce their reliance on the US dollar and the euro. For instance, China has been promoting the use of the renminbi in international trade, and several African countries have been exploring the possibility of establishing a common currency.
The decline of the US dollar and the euro in global cross-border transactions is not necessarily a bad thing. It reflects the growing economic power and influence of other countries, particularly those in Asia and Africa. It is also a reflection of the increasing multipolarity of the global economy.
However, the transition away from the US dollar and the euro will not be a smooth one. It is likely to be accompanied by economic and geopolitical tensions, particularly between the US and countries that are seeking to reduce their reliance on the US dollar.
Moreover, the dominance of the US dollar and the euro in global finance has been one of the key pillars of the global economic order since the end of World War II. The transition away from these currencies could have far-reaching implications for the global economic and financial system.
In conclusion, Putin's announcement that the US and other Western currencies will inevitably lose their leading position in global cross-border transactions should be seen as a reflection of the changing economic landscape of the world.
The de-dollarization of the Russian economy is part of a broader trend toward reducing reliance on the US dollar and the euro in international trade. While the transition away from these currencies will not be easy, it is likely to reflect a more multipolar and diverse global economic order.
What are the potential economic and geopolitical implications of the de-dollarization trend that Putin has predicted?