The geopolitical landscape has become increasingly complex as the United States and Western Europe engage in a game of checkers, while Russia and China strategize in chess. This disparity is clearly observable in the ongoing financial conflict between NATO allies and the emerging Sino-Russian coalition.
In response to Russia’s actions, the West initiated a series of sweeping sanctions aimed at crippling its economy. Central features included cutting Russian banks from the SWIFT financial messaging system and blocking the Russian Central Bank from accessing its foreign reserves. Soon after, directives to ‘freeze and seize’ assets belonging to Russian oligarchs followed suit.
Media outlets like NPR enthusiastically lauded this collective initiative, celebrating the brilliance of the allied leadership before gauging its effectiveness. The notion that such a strategic and unified action could fail was dismissed outright.
However, President Putin had prepared his countermeasures. To stabilize the ruble, the Bank of Russia began purchasing gold from local banks at a fixed rate of 5,000 rubles per gram, effectively tying the ruble to gold. This action curtailed the ruble’s depreciation against the U.S. dollar, as gold is predominantly traded in dollars.
In retaliation against sanctions, Putin mandated that foreign purchasers of Russian gas must pay in rubles. This is particularly significant due to Russia being the world’s largest exporter of natural gas, with Europe relying on it for roughly one-third of its total consumption.
By linking the ruble to gold and requiring gas payments in rubles, Putin has, in essence, connected the prices of natural gas and gold. This strategy can equally apply to Russian oil and vital exports such as wheat.
Undermining the Dollar
This strategic coupling of the ruble to gold and then to energy transactions is fundamentally transforming the global trading framework. It is accelerating shifts in the international monetary environment.
The consequences of these developments have been articulated by Credit Suisse analysts, Zoltan Pozsar and Alasdair Macleod via GoldMoney.com.
Since 1971, the U.S. dollar’s status as the global reserve currency has been primarily supported by oil. The petrodollar regime has persisted due to the global reliance on U.S. dollars for oil trade and the U.S. government’s, along with its military’s, ability to stifle threats to dollar dominance. Power dynamics have dictated the rules.
However, that foundation is now wavering. Could the era of the U.S. dollar’s dominance be drawing to a close?
The primary response from U.S. leadership appears to be a commitment to hasten the dollar’s decline. Former Secretary of State Hillary Clinton, a strategic player in this scenario, recently reiterated the Biden administration’s stance:
“To stop the bloodshed and terror in Ukraine, and to protect Europe and democracy, we must impose even greater costs on Putin. There are additional banks that can still be sanctioned. We must escalate pressures on gas and oil. So now is the time to intensify that pressure.”
The conflict in Ukraine is indeed heartbreaking and the suffering of innocents is unacceptable. As Bill Browder, a prominent critic of Putin, asserts, “Putin is evil.”
Yet, at this juncture, sanctions have proven significantly less effective against Putin than arms like Javelins and Stingers. Will intensifying sanctions yield notable changes?
Perhaps. Perhaps not.
Regardless, escalating sanctions are poised to weaken the dollar’s stronghold. Here’s how…
Is It Game Over For Washington Checkers Players?
In response to being cut off from SWIFT, Russia has developed an alternative: the System for Transfer of Financial Messages (SPFS), overseen by the Bank of Russia.
This system, which resembles the U.S. FedWire system, is robust within Russia. Additionally, the Bank of Russia is actively working to connect SPFS with other nations such as China, India, and Iran. This effort includes plans to integrate SPFS with China’s Cross-Border Interbank Payment Systems (CIPS). While losing access to SWIFT complicates immediate cross-border payments for Russia, it may accelerate the adoption of CIPS among countries resistant to Western influence.
Though the integration of CIPS is still in its infancy, trading patterns, particularly in oil, are progressively seeking alternatives to the dollar. According to Reuters:
“China purchases three times more oil from Saudi Arabia than the United States, making China Saudi Arabia’s largest trading partner, accounting for nearly 20 percent of the kingdom’s exports, up from 5 percent two decades ago.”
Furthermore, the Wall Street Journal reports:
“Saudi Arabia is actively discussing with Beijing the possibility of pricing some of its oil sales to China in yuan.”
Compounding these issues, consumer price inflation, as measured by the Consumer Price Index (CPI), has surged recently, recorded at 8.5 percent. Some analysts suggest that when using methodologies from the 1980s, inflation could be closer to 17 percent.
Our estimates suggest that the official CPI might exceed 10 percent as summer approaches. With Washington’s strategies seemingly aimed at undermining the dollar, we may face double-digit inflation for the next decade, or even longer.
Introducing a new gold and commodity-backed financial system into this volatile mix could ultimately lead to the premature end of the Washington checkers players’ dominance.
[Editor’s note: The surveillance systems intended to monitor individuals are now being designed for financial oversight. This reality is deeply concerning. Over the past six months, I have researched ways everyday Americans can safeguard their wealth and financial privacy. For more information on these practical steps, I invite you to explore the Financial First Aid Kit. Find out more about this unique resource here!]
Sincerely,
MN Gordon
for Economic Prism
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