The ruble recovered the value prior to the sanctions. It promotes the creation of an alternative global monetary sphere to the dollar, based on the Chinese renminbi. Possibilities and costs of the financial battle.

This week the ruble recovered its value prior to the invasion of Ukraine. The management of the Russian Central Bank and the demands to pay for gas in rubles revived the demand for the Russian currency while Vladimir Putin is looking for alternatives to consolidate a monetary exchange block with India and China independent of the dollar.

For some, this is an accelerated step towards the consolidation of a new world order in which China and the renmimbi (yuan) question the international power of the United States and the dollar, which is threatened by high inflation as a universal reserve of value. . New emerging world order that serves as a shield for Russia to mitigate Western sanctions and battle the euro and the dollar.

And if it is not a new order, it is at least a “new disorder”, as Martin Wolf, the editor of the Financial Times, called this new configuration of multipolarity of economic blocs with two gravitational centers: “the Chinese renminbi can be an adversary of the US dollar, without substituting it.

System from which, according to the analyst, “two monetary systems can emerge, one Western and the other Chinese, operating in different ways and with uncomfortable overlaps.”

China accumulates more than two decades of consistent advances through currency swaps, which already total more than 700,000 million dollars, to filter into the international reserves of countries historically under the aegis of the United States and into the current accounts with investments in infrastructure through the route of silk.

The truth is that since Bretton Woods came out there were more years with high inflation than without it and that did not threaten the hegemony of the dollar, but it is also true that no other country had the intention of disputing that role. Even China was not interested in an appreciation of its currency that could compete with the United States. The competitiveness of the renminbi was the spearhead of an export campaign -at first without productivity or quality- to guarantee a new geopolitical position as the undisputed supplier of the West.

Now, instead, China accumulates more than two decades of consistent advances through currency swaps to seep into the international reserves of countries historically under the aegis of the United States (which already total more than 700,000 million dollars) and into the current accounts with investments in infrastructure through the Silk Road; and, above all, in its geopolitical priorities of trade balance.

Not surprisingly, for example, it is the main trading partner of each Mercosur country. And since 2016 it has also managed to get its currency accepted within the basket that defines the value of the IMF’s Special Drawing Rights.

“I agree with Wolf that a stage of certain monetary disorder is coming. But from there to the dollar being abandoned, I don’t see why. Neither China nor Russia have financial strength or the ability to become centers of world trade and finance. Europe itself has Frankfurt and London, but neither the euro nor the pound displaces the dollar in the world. Imagining the ruble or the yuan as a store of value sounds like voluntarism without empirical basis. At least in the short term,” he said. to LPO the economist and professor at the University of Salvador, Héctor Rubini.

A stage of certain monetary disorder is coming. But I don’t see the dollar being abandoned. Neither China nor Russia are financially sound or capable of becoming centers of world trade and international finance. Imagining the ruble or the yuan as a store of value sounds like voluntarism without empirical basis. At least in the short term.

It should be remembered that the first wave of economic sanctions against Russia did not make a dent. Putin not only decided to invade Ukraine while Russia held the rotating presidency of the United Nations Security Council, but he did so by making sure he had enough international reserves to be able to continue honoring the public debt and guaranteeing the level of imports. And furthermore, he did it after securing some strategic support from Xi Jinping. An armor against foreseeable economic sanctions from Europe and the United States.

Only the second wave of sanctions -which were more difficult to adopt on the part of Europe- hit the ruble. The blocking of Russian accounts in the rest of Europe and the exclusion of all Russian banks from the Swift system complicated the confidence of nationals abroad in the value of the ruble. The ruble quickly lost 30% of its value and was trading practically at par with the Argentine peso. And it kept falling. Putin’s response was immediate: closure of the stock market so as not to reflect the fall in Russian assets, capital controls to stop the outflow of foreign currency and a specific order for the president of the Central Bank, Elvira Nabiullina: take all measures currency to rescue the ruble from the collapse.

Despite Nabiullina’s refusal -which resulted in a resignation rejected by Putin himself- the policy of the Russian Central Bank was forceful: it more than doubled the interest rate to 20% and broke with free conversion through a strict exchange rate trap for at least half a year to cut off the demand for dollars after the bleeding of the first days. Thus, he achieved a rapid appreciation of the ruble, but at the cost of a contractionary policy that, it is forecast, will see a deep recession in the Russian economy, something that Nabiullina always avoided.

Added to this was Putin’s requirement that Russian energy commodities, in particular the gas that feeds more than half of German consumption, be paid in rubles and not in euros or dollars. This led to a triangulation of the foreign exchange settlement flow through the renmimbi and rupiah: China and India became strategic financial, as well as commercial, partners for Russia.

From there, the initiative arose to form a new bloc with the rest of the countries excluded from the orbit of the United States, including Iran. And also Saudi Arabia that is willing to take the Chinese currency as its currency instead of the dollar.

A third wave of Western sanctions, simultaneous to the second although not diplomatically coordinated, was perhaps the most symbolic and painful in the short term for the Russian population inside the borders: multinationals with Western headquarters decided one by one to lift their operations in Russia. From banks and fast food chains to clothing brands, Uber and Ikea suspended their operations in the country with immediate consequences on employment and way of life. To this was added the refusal of several suppliers to supply external services to the country, anticipating the requests of the German chancellor to deprive Russian manufacturing of industrial supplies.

Recovering the ruble at the cost of sinking the economy into a recession breaks with the logic of having its own currency, which is to be able to absorb external shocks with a cushioning tool that preserves the level of activity and well-being as much as possible. of an economy.

However, recovering the ruble at the cost of sinking the economy into a recession breaks with the logic of having its own currency, which is to be able to absorb external shocks with a cushioning tool that preserves the level of activity and welfare of an economy. Almost like the principle of safety against impacts of modern bodies: that, instead of resistant hulks that transmit all the force of the crash to the interior of the cabin, they seek that the exterior of the vehicle deforms and absorbs most of the impact with such to keep the occupants safe.

This irrationality of Putin recently had a curious interpretation by the economist Paul Krugman. For him, the ruble is a very visible banner that is difficult to manipulate (there will always be a “free” exchange rate that reflects the true exchange rate) and Putin cannot afford to give up that banner to world public opinion and give him reasons. the West to believe that its sanctions are hurting the Russian economy. On the other hand, Putin will always be able to falsify public statistics and deny that there is a recession or underestimate poverty and unemployment derived from the violent rise in interest rates that Nabiullina implemented.

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