The dollar reserve system is facing its greatest threat yet.
Russian Finance Minister Anatoly Siluanov said on Saturday that the five BRICS countries – Brazil, Russia, India, China and South Africa – could mitigate the backlash of Western sanctions against Russia on their economies by pooling their efforts and using a range of financial instruments at their disposal.
“The current crisis is man-made and BRICS countries have all the instruments necessary to mitigate its consequences for the national and global economies,” Siluanov was cited as saying by the Russian Finance Ministry.
The minister blamed economic sanctions on Russia for “destroying the foundation of the existing international monetary and financial system based on the US dollar” and urged BRICS to rely more on their national currencies in foreign trade, integrate payment systems and create an alternative to the SWIFT payment messaging platform.
Siluanov on Friday told a ministerial meeting with BRICS that the global economic situation had worsened substantially due to the sanctions, a statement from his ministry said on Friday.
“This pushes us to the need to speed up work in the following areas: the use of national currencies for export-import operations, the integration of payment systems and cards, our own financial messaging system and the creation of an independent BRICS rating agency,” Siluanov said.
As The Statesman reports, central banks of the BRICS countries have already agreed to conduct the fifth test of a banking mechanism that will allow them to jointly pool “alternative currency” reserves to shield their economies from outside shocks, the ministry said.
Siluanov’s comments echoed Dmitry Medvedev’s comments on Telegram.
The Deputy Head of Russia’s Security Council warned of the geopolitical consequences of Western sanctions and the weaponization of the US dollar reserve system:
“Their result will be a destroyed international order and extremely difficult consequences for the world economy and the life of individual countries,” adding that:
“It will be clear to everyone that the supposed effectiveness of sanctions is an absolute lie.”
Perhaps even more ominously, Medvedev believes that anti-Russian sanctions can be regarded as an act of aggression:
“The whole combination of the legal and political circumstances prompts the conclusion that sanctions in the current situation can be qualified as an act of aggression against Russia and a form of hybrid war,” Medvedev wrote, adding:
“In the first place, when they are aimed at undermining economic independence, and, consequently, state sovereignty, which endangers the very existence of the state. As a matter of fact, as our opponents say, it is a declaration of economic war.”
If this all sounds like the rantings of a biased politician under the control of Russia’s propaganda arm, that maybe so… but it is also clear to many that the ‘weaponization’ of the dollar (payment system) could well have serious unintended consequences.
For instance, First Deputy Managing Director Gita Gopinath of the International Monetary Fund (IMF) told The Financial Times, that the recent financial sanctions imposed on Russia for its invasion of Ukraine are threatening to weaken the dominance of the U.S. petrodollar as the world currency,
Russia had been planning for years to reduce its dependence on the petrodollar since the United States imposed sanctions in retaliation for its annexation of Crimea in 2014.
The current crisis in Ukraine has only accelerated those plans… and it now seems the entire BRICS group may be ready to cross the chasm as Bretton Woods III begins to form.
The implications, needless to say, are staggering (and, worse, while ZoltanPoszar does not explicitly state it, he clearly believes that world war is coming):
Empires fall and rise. Currencies fall and rise. Wars have winners and losers.
When Wellington beat Napoleon, the trade was to buy gilts. I am no expert on geopolitics, but I am an interest rate strategist and I think the level of inflation and interest rates and the size of the Fed’s balance sheet will depend on the steady state that emerges after this conflict is over. Three is a magic number:
The four prices of money are managed via Basel III and central banks as DoLR.
The four pillars of commodity trading are shaped by war, hopefully not WWIII.
The new world order will bring a new monetary system – Bretton Woods III.
A BRICS-based payment system would be the ultimate challenge to the dollar-hegemon-based system in place today. Even if this is nothing but talk, it underscores the fact that the dollar is on shaky ground. US policymakers would be wise to consider future dollar weaponization carefully.