Unintended consequences: Sanctions on Russia hurt US dollar dominance


B00Mer
+1
#1
Unintended consequences: Sanctions on Russia hurt US dollar dominance



The US dollar, the dominant global currency since 1944, may lose some of its luster due to the American-led sanctions against Russia over the turmoil in Ukraine. The greenback has been fading in favor since the global financial crisis in 2008.

The US-led sanctions against Russia may have backfired on the US because it threatens to “hasten a move away from the dollar that’s been stirring since the global financial crisis [in 2008],” Rachel Evans at Bloomberg wrote. In an unexpected turn of events, Hong Kong’s central bank has bought more than $9.5 billion since the start of July “to prevent its currency from rallying as the sanctions stoked speculation of an influx of Russian cash,” she noted.

“OAO MegaFon, Russia’s second-largest wireless operator, shifted some cash holdings into the city’s dollar,” according to Bloomberg. “Trading of the Chinese yuan versus the Russian ruble rose to the highest on July 31 since the end of 2010, according to the Moscow Exchange.”

In March, after Crimea voted to secede from Ukraine and join Russia, the US and European Union imposed visa restrictions on Russians and Crimeans whom they considered “most directly involved in destabilizing Ukraine, including the military intervention in Crimea.” America and the EU expanded their economic punishment later in the month, as well as twice in April, once in May and twice in July, according to Debevoise & Plimpton, an international financial law firm.

In the latest round of sanctions, issued on July 29, the European Union imposed broader sanctions to “limit access to EU capital markets for Russian State-owned financial institutions, impose an embargo on trade in arms, establish an export ban for dual use goods for military end users and curtail Russian access to sensitive technologies particularly in the field of the oil sector.” President Barack Obama announced the US would also be “blocking the exports of specific goods and technologies to the Russian energy sector,” “expanding sanctions to more banks” and “suspending credit that encourages exports to Russia.”

But the move may backfire on the US, according to Rachel Evans at Bloomberg, who wrote that the sanctions against Russia “threaten to hasten a move away from the dollar that’s been stirring since the global financial crisis [in 2008].“

Evans points to Hong Kong, where the central bank has bought more than $9.5 billion since the start of July “to prevent its currency from rallying as the sanctions stoked speculation of an influx of Russian cash,” she wrote. “OAO MegaFon, Russia’s second-largest wireless operator, shifted some cash holdings into the city’s dollar. Trading of the Chinese yuan versus the Russian ruble rose to the highest on July 31 since the end of 2010, according to the Moscow Exchange.”

The dollar’s dominance has shrunk over the last 13 years, from 72 percent of global currency reserves to 61 percent today. It began at the Bretton Woods Conference in July 1944, when delegates from 44 Allied countries met in New Hampshire to hammer out a way to regulate the international monetary and financial order after the conclusion of World War II. Each signatory agreed to adopt a monetary policy that maintained the exchange rate by tying its national currency to the US dollar and to prevent competitive devaluation of its money. At the time, the dollar was pegged to the price of gold. In 1971, President Richard Nixon took the US off the gold standard, and the American banknote became the reserve currency around the world. Certain commodities, like oil, are priced in US dollars, regardless of the country of origin.

“The crisis created a rethink of the dollar-denominated world that we live in,” Joseph Quinlan, chief market strategist at Bank of America Corp.’s US Trust, which oversees about $380 billion, told Evans. “This nasty turn between Russia and the West related to sanctions, that can be an accelerator toward a more multicurrency world.”

The wording of the economic penalties may also negatively impact the greenback’s standing as the world’s reserve currency.

Historically, US sanctions prohibit companies from using US dollars in the targeted country (like Iran or Sudan), Frances Coppola wrote in Forbes in mid-July. But the present sanctions on Russia focus on “US persons” providing companies with long-term financing in any currency. Some of the targeted businesses include those in the energy industry, including Rosneft and Novatek, and those in the financial industry, like Gazprombank (the financial arm of gas giant Gazprom) and the Russian state development bank.

“It is perhaps not obvious why an energy company would want to borrow in Euros, since oil and gas are priced in dollars,” Coppola wrote. “But borrowing in Euros could be a way round the sanctions.”

Banks could also use derivatives “or even just basic foreign exchange facilities,” she added. But with the EU joining in on the sanctions, Euro funding may be “rather hard to come by.” But, Coppola noted, “It’s still clever.”

source: rt.com/usa/178500-russian-san...ampaign=chrome (external - login to view)

Russia to ban all US agricultural products, EU fruit & vegetable imports - watchdog (external - login to view)
 
gopher
+3
#2  Top Rated Post
This came up on another thread but it confirms that such stupid actions have their consequences. There is absolutely no need to get involved in another nation's affairs and only serves to bring about counter measures that cause more domestic harm. The 2008 economic down turn came as a result of international boycotts against the USA for its creation and widening of the needless wars in the Middle East. And no doubt there will come more consequences for this needless intrusion into Russian politics.
 
MHz
#3
The US can't survive, let alone survive and fight a major war. Who picks the US leaders anyway? They didn't win in Iran, Iraq, or Afghanistan or Libya either. lol
Finland’s Dairy Industry May Lose Over $500 Mln on Russian Import Restrictions - Reports | Politics | RIA Novosti (external - login to view)
Russia Plans to Increase Food Imports from Latin America | Politics | RIA Novosti (external - login to view)
 
gopher
+2
#4
Very glad to see more people in CC realizing that these intrusions into foreign affairs are counter productive. For the longest time this forum was filled with pro war fanatics who wanted the USA to be the policeman of the world as they demanded further intrusion into Syria, Egypt, expansion of both of Bush's stupid wars, and more wastage of dollars on the Pentagon. Funny thing is they also demanded lower taxes and never came up with a plan to finance their wars. Not surprisingly now that we have all seen that these ridiculous wars are counter productive (as affirmed by conservative Jesse Ventura and Glenn Beck) these pro war hysterics refuse to take back what they said previously.
 
MHz
#5
Even when the only thing you do is over-police yourselves the expense damages society so it is always under stress.
Russia has a choice about who they do business with. Cutting out the West is not a big deal, Europe is going to start thinking the costs outweigh the effort and the cost involved. Russia can weather a boycott, the EU cannot enter a slump as they are already in one.
Good the sooner it happens the sooner our recovery begins.
Products on Russia’s Import Ban List | Politics | RIA Novosti (external - login to view)

Juices, beer, wine and other liquors and soft drinks, including carbonated drinks, vinegar, pure alcohol and tobacco products are not subject to the import ban.
The restrictions do not apply to coffee, tea, drinking chocolate, chocolate, sugar or spices. Cereals, flour, malt, starch and products containing these, such as pasta, bread or pastry, are also exempt from the import ban. Eggs and honey will also be free from import restrictions. The import ban list does not include oil-yielding crops, vegetable oil or butter products, including margarine or wax, yeast, soups and broths, products used in sauces, spices or chewing gum.
The government resolution expressly states that the restrictions do not apply to baby food.


Rebel 'Prime Minister' of Donetsk Says Quits Post as Fighter Jet Shot Down over East Ukraine — Naharnet (external - login to view)

(in part)
The unshaven Muscovite said he wanted to hand the post on to someone originally from the region but pledged to continue work as a deputy prime minister.
Borodai, a fervent Russian nationalist and former journalist, emerged at the head of the rebels in May as one of a handful of key Russian leaders directing the insurgency.
The appearance of Russian citizens at the head of the rebel movement fueled claims that Moscow was backing and arming the insurgency.
Borodai admitted that he had helped steer through the Kremlin's annexation of Ukraine's Crimea peninsula in March but always remained a junior partner to the rebel's top military leader Igor Strelkov, a self-confessed former Russian intelligence officer whose real name is Girkin.
Borodai's replacement Zakharchenko, who is reportedly from Donetsk, served as a field commander under Strelkov and headed an organisation of amateur fight enthusiasts who supported Ukraine's deposed president Viktor Yanukovych.
 
BaalsTears
#6
This is Obama's fault.
 
B00Mer
-1
#7
Quote: Originally Posted by BaalsTearsView Post

This is Obama's fault.



What he said..
 

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