GENERICO.ruEconomicsGood riddance: why the cessation of trading in the dollar and euro turned out to be a plus for...

Good riddance: why the cessation of trading in the dollar and euro turned out to be a plus for Russia

But toxic currencies will not give up their positions quickly

On June 12, it became known that the United States, and after them the EU, imposed sanctions against the Moscow Exchange and a number of other Russian organizations, which is practically led to the cessation of trading in the dollar and euro on this exchange platform. The Central Bank of Russia stated that “the world has not collapsed” and “everything is under control.” I generally agree with the regulator’s opinion, but I will add on my own that the Russian economy as a whole gains, rather than loses, from the next stage of the “divorce” with toxic currencies.

But toxic currencies will not give up their positions quickly

The Central Bank, keeping a good face despite a not very good game, convinces us every day that nothing terrible has happened and “we can handle it” (which is true). From his comments it is clear that after the introduction of reserve sanctions in the new conditions, the domestic regulator intends to determine the ruble exchange rate based on data from over-the-counter trading platforms. Against this background, in the opinion of the Central Bank, the balance of inflow/outflow of foreign exchange earnings in dollars and euros, respectively, from export operations and the use of these currencies to finance imports, becomes especially important. That being said, it's hard to argue with that. However, I would like to ask: why all these linguistic exercises? Does the dollar want to leave us? Very well! Good riddance!

Determining the exchange rate through the formation of a balance of supply and demand for currency on the stock exchange seems to be a clear anachronism, if not more precisely, obscurantism. Is money a commodity like oil, grain, or securities? Of course not! Money is a form of capitalization of the achievements of the national economy. Money is an indicator of the efficiency of the creation of goods and services, and the money supply is a general reflection of everything available, previously produced, in the economy. In essence, money is a sign that the economy is working, and its volume reflects the effectiveness of this work.

The average daily volume of the entire currency mass traded simultaneously on the Moscow Exchange in 2023 was about two trillion rubles per day. The volume of exports in 2023 exceeds forty trillion rubles, and, for example, the total revenue of our enterprises (the entire economy) in 2023 is about a quadrillion rubles. That is, the exchange rate of the fourth economy in the world is determined at auctions, which represent tiny fractions of a percent of the total volume of our entire economy. Am I the only one who finds this strange?

I will add to this that the total volume of exchange trading in dollars and euros on the Moscow Exchange is also negligible in the total volume of money supply in these currencies currently used in our economy. I will add that the share of the dollar and euro in the total volume of foreign exchange trading can no longer be compared with trading, for example, in the yuan. Exchange trading in this currency already exceeds half of the total foreign exchange trading volume in 2024. And it is clear that now the share of the yuan, as well as the currencies of other friendly countries, will only grow.

By and large, the dollar and euro from the point of view of foreign trade and the international economy are no longer a currency for us, either from the point of view of a means of payment or from the point of view of a means of storage. In the liquid part of gold and foreign exchange reserves, the dollar and euro are now gone, if we do not remember (and we will not forget about it) about the “frozen” approximately 300 billion US dollars of our reserves, blocked in unfriendly countries.

If we look at the list of our main foreign trade partners, we can confidently say that we are now working only with the countries of the new world majority. At the end of 2023, the top five, that is, the main foreign trade partners of our country, according to the Federal Customs Service of Russia, were China (trade turnover more than $240 billion), India (almost $65 billion), Turkey ($56.5 billion), Belarus ($55 billion) and Kazakhstan ($26 billion). It is noteworthy that Russia’s key economic partners are the leading countries, BRICS, SCO and EAEU, respectively. Economically for us (as well as politically), neither the United States, nor the European Union, nor Japan exists anymore. And where is the need to make transactions in dollars and euros, if the main trade with friendly countries is carried out in national currencies – yuan, rupees, rubles?

In essence, America, by its decision, has fixed the impossibility of influencing our economy through the dollar as an instrument of political and economic coercion. Our actual break with the Western world, which is based on the dollar, is now legally fixed. And what's wrong with that?

De-dollarization, that is, the refusal to use the dollar in international payments and national reserves, will continue. If overnight a country can be banned from using the dollar for political reasons, then confidence in that currency will definitely decline, and trust is a key factor and a basic element in determining an instrument of international trade.

Indicative news in this regard came the other day from the Middle East. Saudi Arabia (by the way, a BRICS member since this year) said that it will not renew the 50-year agreement with the United States on trading its oil exclusively in US dollars. The obligation to use the dollar in oil trading was imposed on Saudi Arabia by the United States several decades ago. At the same time, this agreement expired on June 9, 2024.

But back to our business… What clear benefits do I see from the American demarche with the Moscow Exchange that happened the other day? I will indicate only a few of them.

Firstly, the Central Bank, whether it wants it or not, will return to the discussion and, in the future, to the introduction of a managed ruble exchange rate against the currencies of both major and minor trading partners of Russia.

The role of the regulator, represented by the Central Bank, is to demonstrate the stability of the national currency in any economic conditions, as well as to provide the economy with the necessary amount of financial resources. It is no coincidence that the President of Russia, in his May 2024 decree, outlined the need to increase stock market capitalization in Russia to no less than 66% of GDP by 2030 and no less than 75% by 2036. “Games” around toxic currencies cannot solve this problem. Here, drastic measures are needed to increase the money supply in the economy, and this requires, among other things, a stable ruble that does not depend on exchange trading or on the influx of foreign currency into the economy from exports.

Secondly, national digital currencies will develop even more, and their introduction into economic circulation, especially in the international arena, will definitely accelerate. This applies to the digital ruble and other digital currencies of the BRICS, SCO and EAEU countries. I would like to note that the BRICS digital platform (BRICS Bridge) was presented on June 11 of this year at a meeting of the foreign ministers of the member countries of this global association in Nizhny Novgorod. The digital platform will allow you to instantly and securely make international payments without the threat of pressure or interference from unfriendly “third” countries or international associations. A similar platform called mBridge, created for international payments by China, Thailand and a number of Arab countries, is already operating. The legalization of cryptocurrencies as a means of international payments and mining as a production activity will also play a positive role here.

I will add that the threats of the United States and its “accomplices” to use currency and payment systems for political purposes are “straining” not only states, but also international business. Against this background, just the other day, the co-founder and founder of the Ethereum blockchain platform (the second most important in the world after Bitcoin) Vitalik Buterin proposed to carry out international payments using the “zero-knowledge proof” (ZKP) blockchain scheme to ensure reliability. . When implementing this scheme, according to Buterin, counterparties, while maintaining their anonymity, can practically guarantee secure international payments, verifying themselves and their solvency.

Finally, thirdly, we can speak with all responsibility about the need to increase the status of the Central Bank, giving it both the functions of a mega-regulator and a body responsible for economic growth in the country, which statist economists in Russia constantly talk about. Here you can immediately recall our ideas about Gosplan 2.0, and about the targeted issue of “colored” money to solve the problems of economic modernization and the implementation of infrastructure development projects, and about saturating the domestic market with the necessary liquidity through a fair basic income and other instruments.

< p>In conclusion, I would like to say that the sooner we finally “get rid” of any contacts with toxic currencies, the easier it will be for us to live in modern economic conditions. By and large, there is no reason to use the dollar or euro either in international payments or as foreign exchange reserves. Russia, as the most important part of the global majority and the fourth economy in the world, is quite capable of solving its economic and trade problems on the basis of the ruble or the currencies of friendly countries. Of course, toxic currencies, especially the US dollar, will not give up their positions quickly and will continue to try to ruin the lives of us and our partners for a long time, but the reality has already changed in the most radical way. In the modern reality of a polycentric world, it is much more important to have not dollars or euros, but a dynamically developing sovereign national economy that effectively interacts with reliable partners around the world. I really hope that the Central Bank understands this very well. At the very least, through joint efforts we will remind the Bank of Russia of its real ambitious tasks.

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