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Will Russia sanctions dethrone ‘King Dollar’?



A rebellion is brewing.

The United States dollar has ruled the financial world for nearly eight decades since the end of World War II. Now, another war is setting the stage for many countries to explore a move away from the dollar for trade, raising questions over the currency’s future dominance.

Russia’s invasion of Ukraine in February 2022 triggered a wave of US-led financial sanctions against Moscow. The two most powerful among them have been the decision by Western governments to freeze nearly half ($300bn) of Russia’s foreign currency reserves and the removal of major Russian banks from SWIFT, an interbank messaging service that facilitates international payments.

These sanctions, which some have called the “weaponisation” of the dollar, have predictably made Russia and China, the two biggest geopolitical rivals of the US, promote their alternative financial infrastructures.


But it isn’t just Beijing and Moscow. From India to Argentina, Brazil to South Africa and the Middle East to Southeast Asia, nations and regions have accelerated efforts in recent months towards arrangements aimed at reducing their dependence on the dollar. At the heart of these de-dollarisation initiatives is the fear in many capitals that the US could someday use the power of its currency to target them the way it has sanctioned Russia, according to political economists and sanctions experts.

So can these moves actually dethrone the currency, often referred to as “King Dollar” in financial circles, from its perch as the top dog in global trade?

The short answer: The dollar’s dominance is unlikely to change in the near future, and it will remain the principal currency of international trade and transactions, analysts told Al Jazeera. No other currency is close to replacing it. But its stranglehold on the global financial system could weaken if more countries start trading in other currencies and reduce their exposure to the dollar.

J.L. Ilsley, Canadian finance minister, U.S. secretary of treasury, Henry Morgenthau Jr., president of the conference and M.S. Stepanov, deputy people's commissar of foreign trade of the Soviet Union, from left to right, are pictured conversing during the United Nations Monetary and Financial Conference July 2, 1944, at the Mount Washington Hotel, Bretton Woods, New Hampshire, USA. The conference started yesterday. (AP Photo)
From left, JL Ilsley, Canadian finance minister; US Secretary of Treasury Henry Morgenthau Jr; and MS Stepanov, deputy people’s commissar of foreign trade of the Soviet Union, are pictured at the United Nations Monetary and Financial Conference on July 2, 1944, in Bretton Woods, New Hampshire, where countries decided to peg their currencies to the dollar [File: AP]

How the dollar became – and stayed – king

A majority of global trade takes place in dollars, which took centre stage towards the end of World War II.

In 1944, representatives of 44 nations met in Bretton Woods, New Hampshire, to repair the world economy after the war. It was agreed that the US, as the world’s largest economy, would fix the value of the dollar to gold and other countries would in turn peg their currencies to the dollar. Countries now had to hold dollars in reserve to maintain their exchange rate, making it the dominant global currency.

The Bretton Woods regime collapsed by the 1970s because the US no longer had sufficient gold to back its dollars. Still, the dollar was by then deeply entrenched as the reserve currency used by other nations. The US’s deep and flexible financial market, comparatively transparent corporate governance norms and the dollar’s stability ensured that the currency has remained dominant, even though countries are no longer obligated to fix their currencies to the dollar.

To be sure, talk of de-dollarisation isn’t new. Questions about the dollar’s dominance arose when the Bretton Woods system fell apart, when the European Union launched the euro in 1999 and then again after the 2008-2009 financial crisis.

The dollar’s dominance survived those storms. Today, nearly 60 percent of foreign exchange reserves maintained by the world’s central banks are held in dollars.

Still, that marks a decline from about 70 percent in 2000, pointing to a gradual shift within the global financial order, according to experts. While the euro’s share has gone up only marginally since its launch – from 18 percent to just under 20 percent now – China’s renminbi, also known as the yuan, has grown the fastest since 2016, even though less than 3 percent of global reserves are held in that currency.

“We are clearly moving towards a more multilateral world as shown by the falling share of the US dollar in forex reserves,” Alicia García Herrero, a senior fellow at the Brussels-based think tank Bruegel, told Al Jazeera.

Over the past year, the incentives for countries to turbocharge that shift away from the dollar have only increased.

A protester holds a placard reading "No SWIFT for Russia" during a rally against Russia's invasion of Ukraine on February 26, 2022, in Frankfurt am Main, western Germany. (Photo by Yann Schreiber / AFP)
Protesters rally against Russia’s invasion of Ukraine on February 26, 2022, in Frankfurt am Main, Germany. US-led sanctions against Russia cut the country off from the SWIFT international transaction system [File: Yann Schreiber/AFP]

The financial world’s ‘nuclear option’

The US-led sanctions freezing Russia’s ability to use half of its reserves as well as limiting the ability of Russian banks to conduct transactions using the critical SWIFT system have spooked many countries, experts said, giving new impetus to efforts at de-dollarisation.

“The accelerator this time really is the sanctions imposed on Russia,” said Zongyuan Zoe Liu, a fellow for international political economy at the New York-based Council on Foreign Relations. She described the decision to kick Russia out of the SWIFT system as “like using the nuclear option” in the finance world.

SWIFT’s centrality in international banking is often compared to Gmail’s in the sphere of email communication. “In the integrated global financial system, this [cutting Russia off from the use of SWIFT] means you rob them off their blood vessels,” Liu told Al Jazeera.

Countries such as China, already in the crosshairs of US sanctions in sectors such as semiconductor trade, worry such measures could be used against them in the future and could impact the very functioning of their economies, analysts said.

That’s why the world’s second largest economy is “trying to actively move away from the US dollar”, Ahmadi Ali, a sanctions expert and executive fellow at the Geneva Centre for Security Policy, told Al Jazeera.

Once out of SWIFT, “you lose the ability to transact across borders easily,” he said. “You risk being cut out of the global supply chains and it could damage the economy of that country as a whole.”

A bank employee count China’s renminbi (RMB) or yuan notes next to U.S. dollar notes at a Kasikornbank in Bangkok, Thailand, January 26, 2023. REUTERS/Athit Perawongmetha
A bank employee counts Chinese yuan notes next to US dollars at a Kasikornbank in Bangkok, Thailand. Several countries are looking to move away from their dollar dependance, and China is pushing the yuan as an alternative [File: Athit Perawongmetha/Reuters]

Time for yuan-isation?

China has been getting rid of its US Treasury bonds, which are among the tools countries use to keep dollar reserves, It now holds $870bn in US debt, the lowest amount since 2010. It has also been negotiating deals with other countries to trade in the yuan.

In February, the central bank of Iraq, a major oil supplier, announced it would allow trade with China to be settled in yuan for the first time. Bangladesh’s central bank made a similar announcement in September. That same month, members of the China-dominated Shanghai Cooperation Organisation agreed to increase trade in their local currencies. Apart from China, the bloc consists of Russia, India, Pakistan, Uzbekistan, Kazakhstan, Tajikistan and Kyrgyzstan. And in December, China and Saudi Arabia carried out their first transaction in yuan.

Russia, meanwhile, has decided to store all its oil and gas surplus revenue in 2023 in yuan as it increasingly turns to the Chinese currency for its forex reserves.

Sanctions are not the only ways in which an overwhelming dependence on the dollar can hurt nations.

Dollar-denominated debt exposure of smaller economies and plans to boost regional trade have also led countries to move away from the dollar, Ali said. The US dollar is at a value more than 10 percent higher than at the start of the Ukraine war in February 2022 and 30 percent higher than a decade ago. At one point in October, the dollar was at its highest mark since 2000.

That appreciation in the value of the currency makes dollar-denominated debt much more expensive to repay. For countries that buy large volumes of fuel, food and other essential commodities from other nations, this also dramatically increases their import bills.

That’s why it isn’t just China and Russia trying to cut their exposure to the dollar but a flood of nations, including close friends of the US that are looking for alternatives.

Brazilian President Luiz Inacio Lula da Silva, left, and Argentina's President Alberto Fernandez embrace at the government house in Buenos Aires, Argentina, Monday, Jan. 23, 2023. (AP Photo/Gustavo Garello)
Brazilian President Luiz Inacio Lula da Silva, left, and Argentine President Alberto Fernandez embrace in Buenos Aires, Argentina, on, January 23, 2023. On the eve of the meeting, the two leaders announced plans for a common currency that will be used for trade [Gustavo Garello/AP]

Cutting out the dollar

Last week, the ambassador of the United Arab Emirates (UAE) to India said the two countries were trying to finalise a deal to trade in their currencies, the dirham and rupee. The UAE is among India’s top trade partners.

In January, an Indian Ministry of Commerce official told reporters that Russia, Sri Lanka, Bangladesh and Mauritius were all keen to trade with India in the rupee.

Southeast Asia’s major economies are plotting the creation of a mechanism whereby mobile apps can be used to trade between these nations in their local currencies without needing to rely on the dollar as an intermediary.

And in an announcement that made global headlines, the presidents of Brazil and Argentina said in January that they would set up a common currency to settle trade transactions.

Despite these efforts, experts are not convinced that any currency can dethrone the dollar anytime in the near future.

“The only currency that can replace the US dollar in the long run is the renminbi, but for it to ever take up that role, the currency has to be fully convertible,” Herrero said. “I don’t think that will happen in the foreseeable future.”

A currency becomes fully convertible when it can be exchanged freely into other currencies for all purposes – in financial markets, trade or on global foreign exchange markets. However, the yuan is convertible only for limited purposes, such as trade, restricting its allure despite the ever-increasing impact of China on the global economy.

Some experts believe that while the moves towards de-dollarisation won’t replace the dollar with another dominant currency, they could carve out other options to allow non-dollar trade transactions.

Just how far they’ll succeed though is hard to tell at this point, Ali said.

Countries such as Argentina and Brazil, for instance, are commodity-based economies and the US dollar dominates commodity trading. When dealing with other countries, they will remain dependent on the dollar, Liu said. And many countries, such as Saudi Arabia and the UAE, still have currencies pegged to the dollar, she pointed out.

Escaping the dollar’s grip won’t be easy for these nations.

FILE - A man buys food at a restaurant in Cairo, Egypt, March 22, 2022. For decades, millions of Egyptians have depended on the government to keep basic goods affordable. But a series of shocks to the global economy and Russia's invasion of Ukraine have endangered the social contract in the Middle East's most populous country, which is also the world's biggest importer of wheat. It is now grappling with double-digit inflation and a steep devaluation of its currency. (AP Photo/Amr Nabil, File)
A man buys food at a restaurant in Cairo, Egypt, with the Egyptian pound. It, like most currencies around the world, have suffered devaluations against the dollar during the Ukraine war, making imports costlier, and Egypt is the world’s biggest importer of wheat [File: Amr Nabil/AP]

‘Lubricant’ or ‘weapon’?

Globally, the dollar is seen as a safe haven asset by investors, especially during economic crises, because of the high confidence in the US economy. That assurance shows in the increased demand for dollars at such times.

But that demand is also what led to the devaluation of most currencies against the dollar in 2022 during the war in Ukraine.

There are inescapable advantages of carrying out trade in a single currency, such as the dollar, Liu said. It helps reduce transaction costs and is responsible for the highly integrated nature of the global financial system, she said, calling the dollar “a lubricant in international trade and  finance”. Trade in multiple currencies increases the risks of currency volatility.

A fragmented system of international trade will make transactions inefficient, Liu warned. Yet if the increasing use of sanctions cuts economies off from global finance mechanisms and supply chains, that fragmentation might become inevitable.

“If the question is whether a more diversified currency system is good or bad, I will say it’s better that we have one standard currency to do business as it has worked well so far,” Liu said. “But the condition for that would be that the United States does not weaponise the dollar.”


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As economy faces potential recession, Liberals to release 'tricky' budget Tuesday – Financial Post



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OTTAWA — The federal Liberals are set to unveil a budget on Tuesday intended to showcase their plans to keep Canada competitive amid the clean energy transition while supporting Canadians who are struggling with affordability.

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Finance Minister Chrystia Freeland has promised to accomplish as much over the last few weeks, while also pledging to keep the budget fiscally restrained.

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But that balancing act isn’t expected to be easy. A slowing Canadian economy could weigh on government coffers.

“It’s going to be very tricky for the federal government,” said Randall Bartlett, a senior director of Canadian economics at Desjardins.

The Liberals are expected to invest considerably in Canada’s clean energy transition, in an attempt to keep Canada competitive with the United States as it launches its own aggressive measures.

The Inflation Reduction Act, signed into law last August by U.S. President Joe Biden, invests nearly US$400 billion in everything from critical minerals to battery manufacturing, electric vehicles and clean electricity, including hydrogen.

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Ottawa has also promised big bucks for health care. It recently signed 10-year funding agreements with provinces on health-care transfers, and that spending is expected to be accounted for in the budget.

And with the cost of living still a top economic issue for many Canadians, the Liberals have signalled the budget will include new affordability measures.

“In the weeks to come, for those Canadians who feel the bite of rising prices the most acutely, for our most vulnerable friends and neighbours, our government will deliver additional, targeted inflation relief,” Freeland said in Oshawa, Ont. on Monday.

But Bartlett said the federal government has to balance its big-ticket spending priorities with an uncertain economic outlook.

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Many economists are forecasting that Canada could enter a recession this year as high interest rates weigh on the economy. Since March 2022, the Bank of Canada has aggressively raised interest rates to crack down on high inflation.

As global price pressures ease and interest rates dampen spending in the economy, inflation has been slowing. Canada’s annual inflation rate has tumbled from 8.1 per cent in the summer to 5.2 per cent in February.

Even as inflation becomes less of a problem, though, a slowing economy means less government revenues to finance spending.

According to a report from Desjardins, new spending measures alone wouldn’t necessarily put federal finances on an unsustainable path. But if significant new spending is paired with a worse-than-expected economic downturn, that could spell trouble for the federal government, the report says.

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“Planning for an optimistic future and spending accordingly now could lead to very challenging circumstances going forward,” Bartlett said.

The federal government also runs the risk of fuelling inflation with excessive spending, making the Bank of Canada’s job of cooling inflation more challenging. Freeland has repeatedly said she doesn’t plan on doing that, noting the federal government can’t compensate all Canadians for the rise in prices.

Bartlett said the federal government so far has done a good job balancing the need to help low-income Canadians while avoiding adding fuel to the fire.

“My concern is this that (if) they continue to layer this on top of additional spending for other other initiatives … it’s not only going to make potentially the Bank of Canada’s job more challenging, but it’s also going to just increase the size of the deficit at a time when the economic outlook is very uncertain,” he said.

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There is some ambiguity around how the government will approach tax policy in this year’s budget.

Some policy experts have suggested that increasing tax revenues might be part of the solution when it comes to stabilizing federal finances. A shadow budget put together for the C.D. Howe Institute, an economic thinktank, recommended increasing the GST tax rate.

But Bartlett said raising taxes might be a tough sell for Canadians, especially because the federal government has had mixed results on some of its key areas of investment, such as its national housing strategy.

“If we continue to see increased spending, and that requires tax increases to to afford that spending, there’s going to be … increased scrutiny by the public on whether or not we’re getting the bang for the buck,” Bartlett said.

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On the political front, the Liberals also have to contend with New Democrat priorities as outlined in the party’s supply-and-confidence agreement with the Liberals. It agreed to support the minority government in key votes until 2025 — including on federal budgets — in exchange for movement on shared priorities.

In the upcoming budget, NDP Leader Jagmeet Singh has said he wants to see the government extend the six-month boost to the GST rebate, introduced last fall, which temporarily doubled the amount people received.

Singh has also said he’d like to see federal funding for school lunches.

Per the parties’ agreement, the Liberals have already agreed to create a federally funded and administered dental care program this year that would replace the dental benefit for children in low-income families that was rolled out in the fall.

The deal also commits the Liberals to passing legislation on a national pharmacare program by the end of 2023 — although there’s been no sign of movement on that yet.

This report by The Canadian Press was first published March 26, 2023.


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Property Sector Biggest Overhang for China Economy: Hong – Bloomberg



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Property Sector Biggest Overhang for China Economy: Hong  Bloomberg


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Prices are High: Yet Inflation has dropped to 5.2%



The Inflation rate remains relatively high at 5.2% but it has declined reasonably since the interest rates began to rock and roll upwards.

Will the decision be made to raise rates further or drop them? I believe the rates will stay where they are or go up a further point. America will be increasing its rates in an effort to quell its own inflation, and our government will follow suit as usual. A Federal election may well be announced once the inflation rate in Canada has halved itself. Interest rates will be allowed to decline and the public will show their support for the Liberals in kind.

More importantly, why are prices still extremely high while inflation continues to drop? Greed and Shrinkflation of course. Any manufacturer knows the marketplace in Canada and the US has rebounded since mid-summer 2022. Supply chain problems aside, the decline of needed products that once were earmarked for North American Markets have been redirected to China and Indian needs. This is deliberate of course, allowing those manufacturers in Asian Markets to demand higher prices. Products within the retail sector have gone up in price or the price remains the same while the product has been reduced in size. After 2020-2021, most retailers did increase their prices and realized that our markets still were prepared to purchase what was needed, so they will retain their higher prices until forced to change their pricing structure in the near future.

Has this increase in slowing the economy work? North America’s Economy has been booming since mid-summer 2022. Growth rates in the US show promise, and Canada’s Economy has benefited from the boom to the south. America’s President Biden continues to sell its America First purchasing policy putting Canada’s Liberal Government into a fear fest spin. Trump’s “make America great again has been followed by Biden’s purchase American 1st”. Federal Agencies must purchase American manufactured products and services 1st, before giving foreign firms a chance to bid. Canada’s begun to apply taxes on various products in an effort to pay down their massive public debt. Beer and most forms of booze and other items that fall into the luxury tax sector are being targeted.


Have you noticed that most media outlets have refused to offer an attitude of clarity with regard to higher prices and inflation? Why are prices so high? Most so-called specialists claim various reasons why, while others insist grocers are not making loads of money, surviving on a 2-4% profit margin.
Would it not be nice to see a media broadcaster or journalist come out with something like this…

“The Public is being taken for a ride by basically everyone within the retail-manufacturing sectors”
“It’s greed baby, with a side of massive profiteering”.

Canadian and US Corporations are taking our funds to the bank, and we are letting them do so. The public continues to buy what they want on credit while complaining all the more. And did our government demand that essential items needed by the public be made locally, and not imported from some distant land? Words with no follow-up, propaganda with no real power behind them. Instead of going after the wayward profiteering firms, our governments are canceling funding programs for the businesses most damaged by the pandemic(restaurants and Mom & Pop Stores) and also pursuing some individuals that asked for CERB. Governments are and will continue to create new taxes and tax us, while they let the wealthy hide their fortunes in banking centers throughout the world. The government is so comfortable that it will pursue a policy of taxation that strikes at the most vulnerable, our elderly, who also have within their bank accounts @ 3.2 trillion Canadian and much more in America. The average Canadian Boomer is worth @$206,000 and the government and many corporations want some of that.

Like Premier Ford said last year…Ontario is back in business. So to the taxation hikes to come.

Why do our governments allow corporations to blind us with advertising propaganda while their hands are in our pockets, robbing us blind? The very basics of foodstuff, energy demands, and housing needs are pushing many towards a credit crisis never seen before. If the public fails, so do their public governments.

Steven Kaszab
Bradford, Ontario

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