U.S. and Western sanctions against Russia may accelerate the adjustment of the global financial system

The conflict between Russia and Ukraine has been going on for more than a month, during which sanctions and counter-sanctions by the United States and other Western countries and Russia have been increasing. Analysts believe that the ongoing conflict between Russia and Ukraine may drag the world into a protracted economic war, accelerate the adjustment of the global financial system, and have far-reaching effects.


International payment system 'decoupled', financial system shaken

Russian President Vladimir Putin said a few days ago that the purchase of Russian natural gas by countries and regions that are "unfriendly" to Russia must be settled in rubles. The new rules take effect from April 1.

Previously, the United States and Europe imposed a number of financial sanctions on Russia, including excluding some Russian banks from the Society for Worldwide Interbank Financial Communication (SWIFT) system, which once caused the ruble exchange rate to plummet. In response, Russia launched a natural gas "ruble settlement order" to stabilize its currency and financial system.

Some analysts believe that a country's currency may be devalued or even abandoned due to inflation, short-selling, and sanctions, but energy and commodities are "hard currencies." As a resource-rich country, Russia's "Ruble Settlement Order" is not only a countermeasure against Western sanctions, but also an attempt to get rid of the Western-dominated payment system.

Russian Foreign Minister Sergei Lavrov said during his visit to India on the 1st that Russia and India have implemented a ruble-rupee trade payment mechanism, and will use their own currencies for trade in oil, military equipment and other commodities, and intensify efforts to get rid of dollar-based payments system.

Russian Presidential Press Secretary Peskov said in an interview with Russia's Channel 1 live program on the 3rd that the policy of using rubles to pay for Russian natural gas will also apply to the export of other commodities in the future. Yushkov, chief analyst of the Russian National Energy Security Foundation, believes that the international trade settlement system may face reconstruction at that time.

Fragmentation of the international financial ecosystem increases economic costs

Since the conflict between Russia and Ukraine, the "political demarcation" between Western countries and Russia has spread to the economic and financial fields, forcing companies to "choose sides", bringing headwinds to economic globalization and significantly increasing the cost of global economic operations.

On the one hand, many Western companies, including financial institutions, have decided to withdraw from the Russian market; on the other hand, more and more Russian companies are facing Western sanctions, or being restricted or even cut off from Western economic and financial ties.

Russian Minister of Economic Development Reshetnikov said on the 1st that the depositary receipts of some large Russian listed companies overseas will be returned to the Moscow financial market. Earlier, some European and American stock exchanges announced that they would suspend the trading of depositary receipts of Russian-listed companies.

Bindia Vakir, CEO of supply chain consulting firm Resilinc, believes that the global supply chain will no longer be efficient in the future, which may push up global inflation, increase the burden on people's livelihood, and drag down the world economy.

In a report released by the United Nations Conference on Trade and Development in late March, it lowered its forecast for world economic growth this year from 3.6% to 2.6%, and pointed out that the conflict between Russia and Ukraine was the main factor behind the downward revision.

Larry Fink, chief executive of BlackRock Inc., one of the world's largest asset management groups, has expressed concern that the conflict between Russia and Ukraine could jeopardize the process of globalization.

The Associated Press reported that in the past few decades, the free trade brought about by economic globalization has benefited many countries, and developed countries in particular have enjoyed the supply of low-cost commodities, thus ensuring economic growth and market stability. Today, the world may be saying goodbye to the era of low inflation.

The diversification of the international foreign reserve structure weakens the position of the dollar

Today's international monetary system is mainly dominated by the US dollar, and the status of the US dollar was established in the context of changes in the international balance of power after World War II and the rise of the United States' national strength. As the main currency for global trade settlement and foreign exchange reserves of central banks, the US dollar has become an important tool and economic weapon for the United States to influence global finance, energy and even the lifeline of the economy.

The adjustment of the Fed's monetary policy has repeatedly impacted the international financial market, significantly affecting global cross-border capital flows, asset pricing and exchange rate stability. The U.S. fiscal and monetary policy "releases water" to drive prices soaring, and exports inflation to the world through the dollar's status as an international reserve currency, and then "collects water" to encourage capital to flow back to the U.S. market, which is gradually recovering, eventually causing many countries to suffer from hyperinflation and capital outflows.

As the United States has launched huge quantitative easing measures in response to the crisis in recent years to help depreciate the dollar and erode the economic fruits of other countries, more people believe that "de-dollarization" has gradually become a realistic need in the international financial system. "Petrodollar" and "foreign" The status of saving US dollars is being challenged. In the Russia-Ukraine conflict, the practice of "weaponization" of finance by Western countries has further raised questions from all parties.

International Monetary Fund first vice-president Gopinath said recently that financial sanctions launched by the West against Russia after the conflict between Russia and Ukraine may weaken the dominance of the dollar. In global trade, many countries will use other currencies more, and the reserve assets held by central banks will be further diversified.

The British "Financial Times" article said that in the past 20 years, the dollar's share in international reserves has dropped from more than 70% to less than 60%. The decision by the United States and its allies to freeze Russia's foreign exchange reserves has sparked a heated debate over the future of the international monetary system, accelerating the erosion of the dollar's dominance.

Article source: Xinhua Finance