Putin Signs ‘Death Warrant’ For US Dollar

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It went unnoticed but Putin’s ‘Gas for Rubles only’ decree was signed on July 4th – American independence day. The latest rubles decree impacts sovereign debt.

Russian President Putin yesterday (July 6) issued a decree concerning the payment of Russia’s foreign currency debt in rubles. Starting from July 6, Russia’s payments on foreign currency debt will be considered completed by Moscow if they are made in rubles. This also affects settlements on Eurobonds.

Putin’s decree reads that ruble payments will be made “For the purpose of fulfilling government debt obligations denominated in government securities, the nominal value of which is indicated in foreign currency…”

In practice, from now on, the calculation will be made at the rate in the Russin domestic market. Even if the recipients consider the debt obligations not properly performed, nothing will change.

It should be noted that the decision is temporary, and has been created in response to economic sanctions pressure. This implies the situation could be altered should sanctions on Russia concerning its ability to trade in US dollars and Euros be changed.

Russia’s economic media, like the West’s, able to ramp up rhetoric to alarming levels, have reacted, with Tsargrad (a conservative news media platform, banned in the West) stating that “It is noteworthy that the decision to pay in rubles is, in fact, a death sentence for the dollar. The process of the slow death of the hegemony of the American national currency began on 4th July when President Putin signed a decree on payments in rubles for gas supplies. Now the process is irreversible.”

It could be a coincidence, but remains a side note of value to note that Putin’s ruble-gas decree was signed on American independence day. It will not have gone unnoticed in the Kremlin.

It remains to be seen how accurate such ‘death to the dollar’ statements are, however, it is also true that many powerful countries globally view Washington’s use of both the US dollar and the global SWIFT banking platform as trade weapons as going beyond their intended use and being diverted as instruments to enforce US foreign policy. Economists will be looking to see the impact of the two Russian decrees concerning payment in rubles for gas and sovereign debt with interest, although opinions will no doubt vary as such situations have never occurred before. The crux of the matter is essentially whether Russian and Chinese analysts have spotted weaknesses in the US system that Washington is either unaware of or has not spotted.

Strength though is probably on the US dollars side, as China has repeatedly stated that global trade cannot function without the US dollar. But on the other, that doesn’t mean that China doesn’t want the RMB Yuan to improve its status as a reserve currency either. One suspects a likely scenario over time is the gradual reduction of the US dollar in percentage volumes of global trade, an issue that will require increasing use of Fintech and digital transactions to accomplish – and which is on the way. The other scenario is increasing use of currencies such as the RMB Yuan as part of currency baskets and in bilateral trade. It is telling that Russia has now essentially divested itself of US dollar holdings and replaced those with Chinese RMB. It may not be the ‘death’ of the US dollar, but it may well be the beginning of the end for it being the vastly preferred choice – an issue that ironically the rise of the Euro has helped in educating the West and global players that there are in fact alternatives.

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Russia Briefing is written by Dezan Shira & Associates. The firm has 28 offices throughout Eurasia, including China, Russia, India, and the ASEAN nations, assisting foreign investors into the Eurasian region. Please contact us at russia@dezshira.com for Russian investment advisory or assistance with market intelligence, legal, tax and compliance issues throughout Asia.

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