We listed a whole set of advantages in our post yesterday that Russia would nevertheless get from a minor-seeming, technical change. The main one was to require gas buyers to tender payments to Russian banks, since only Russian banks could get their hands on enough roubles to execute the foreign exchange transaction (more on an important fine point soon). There aren’t a lot of roubles trading outside Russia. That would prevent the West from sanctioning more Russian banks, something they seemed intent on doing at last week’s series of European summits. It would also mean the foreign currency payments would be in the hands of Russian institutions, and hence not vulnerable to being “frozen,” aka expropriated.
The fact that the West seems willing to go along, and is now incorrectly depicting the Russian detailed explanation as a climbdown, makes it awfully hard for them to object when Russia, as it floated on Wednesday, extends this procedure to other commodities, like oil, lumber, wheat, metals, and fertilizer. That means in having payments from “unfriendly countries” on contracts denominated in their currencies be made to an account at an unsanctioned Russian bank with the customer also effectively ordering the currency exchange to roubles.
One additional advantage of this procedure: it greases the skids for Russia requiring future contracts to be set in rouble terms, not in “unfriendly country currency” terms. Expect Russia to be smart enough not to do this right away. And expect them to do this first on a long-term contract for a must-have commodity. Gas again seems like the prime candidate but another suitable contract expiration might occur at a propitious time.…
While this may seem like getting into the weeds, it is becoming imporatant going forward as countries de-dollarize and decouple from the system that gives the US effective control of the world economy through world trade. It was already coming for some time. Henry C. K. Liu and Michael Hudson were writing about this years ago, for example. Now the speed of transition is accelerating.
Naked Capitalism
Putin Edict on “Gas for Roubles” Consistent With Original Description (and Our Take); Western Officials Nevertheless Claim a Walkback
Yves Smith
13 comments:
De dollarizing will be seen as meaningless a term as Russia requiring payments in Rubles I think. As I understood Neil’s recent post every company gets paid in the currency they reside in eventually. It’s all about which middle men (financial firm) gets the most “juice” out of the exchange. This is going to be purely about which international trading bank gets the most profits from enabling the transactions. None of us should cry about some of our banks missing out on their part of the game, that money does very little towards GDP I would posit. Most of that activity funds bonuses of the 1%ers in the banking world is my guess. It’s a zero sum game in this arena. The total amount of “juice” just gets redistributed. American banks might get less in a less dollar centric world but none of us should sweat about it. Will be more activity in currency markets perhaps as traders have a lot more variables to consider.
Maybe just maybe an end result of all this will really expose the true costs of importing versus exporting. This may end up proving Moslers rule to be true
It’s all about which middle men (financial firm) gets the most “juice” out of the exchange. This is going to be purely about which international trading bank gets the most profits from enabling the transactions. None of us should cry about some of our banks missing out on their part of the game, that money does very little towards GDP I would posit. Most of that activity funds bonuses of the 1%ers in the banking world is my guess. It’s a zero sum game in this arena. The total amount of “juice” just gets redistributed. American banks might get less in a less dollar centric world but none of us should sweat about it. Will be more activity in currency markets perhaps as traders have a lot more variables to consider.
While none of us (who are not bankers or dependent on banks) should sweat it, as Sen. Dick Durbin said of Congress (government, really), "The banks own the place." US dominance is largely dependent on US financial dominance. As Michael Hudson has pointed out, if the US financial institutions gain a foothold in China on a "free" (free of government) playing field they will end up in control of China, which is the US plan for "opening up." In a modern capitalist world, finance rules. Finance people think in terms of rents they can extract from every transaction. This goes on mostly behind the scenes though, so few notice.
This is not necessarily nefarious, although it can be and often is. Rather, it is just now capitalism works and has since modern finance emerged in Venice banking, beginning in the 12th c. and flourishing in the 15th c. Emerging capitalism was based on credit-based money from banks and modern capitalism was based on the development of finance. The USD is now the pillar of the system, which bestows on the US "exorbitant privilege." That is was challenged by De Gaulle and other Europeans, leading to Nixon abandoning the gold standard for international finance. Now this floating dollar system is being challenged principally by Russia and China as part of the struggle for multipolarity over US unipolarity and Western neoliberal, neoimperial, and neocolonial dominance. And the US is not even masking anymore that "Western" means American.
De-dollarization has two chief effects.
1. Where the US is not a middle man in a transaction, as it would be in dollar-mediated transactions through US controlled institutions, US power will be diminished somewhat. But as long as the US has the power to impose secondary sanctions with consequences to back it up, that power will continue to exist indirectly. The only way around that is either national or regional autarchy, or else a faction like the Global South/East that is autarchic enough to evade US control of important resources.
Eliminating the economic options, or reducing them significantly, leaves the US with chiefly military alternatives to impose its will.
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2. If the US lost control of global reserve currency dominance, US debt would appear to be less secure unless the US tightened ship fiscally, that is, practically speaking it would reduce "fiscal space," unless, of course, there were a mass conversion to broad understanding of MMT, which is unlikely. What this would mean practically is that the multiplier would become more important, that is, the rate of economic growth relative to changes in debt would be more closely watched. This would mean that public investment that produced growth would have to predominate over military and welfare spending.
Neither of these are a big deal in reality but they are in perception and "perception is reality." "Perception is reality" is the basis of information control, for example. Whoever controls the narrative controls mass perception of reality. The purpose of free speech, free press, free assembly, etc. are important in equilibrating the mass perception of reality with actual reality. These rights are needed to restraint the tendency of democratic governance toward tyranny (as Aristotle pointed out). The slide toward tyranny is a major issue now in the US and UK, and some European countries like France.
Power is in large part perception, which is why soft power is significant. The US has been hemorrhaging soft power for some time and relying more and more on hark power. That is an indication of growing geopolitical weakness.
Ideas on this?
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I agree with everything you just wrote, Tom. However, it is the soft-power / hard-power link that is the key. Hudson's language is not in contradiction to Neil Wilson's, but the way he discusses middle-eastern and other vassals financing the US military complex, by recycling US military spending through Wall Street, tends to obscure his other point on how US hard power intimidates and forces those countries to do so. As he notes, the vassal princes are all too eager to do this, of course, since the arrangement profits them personally, but the military spending is in the first instance to keep a comprador class in place in each vassal state
I don't perceive Washington as ever using 'soft power'. This "we're the good guys" routine is just that. All sides do it.
I fully agree Tom that perception plays a huge role in these situations and the narrative will have an affect on behaviors/reactions of markets and some power will be shifted. I just think that kind of how many Brits are finding out that Brexit ain’t all it was touted by those pushing it, I think de dollarizing will show to be less impactful than is being suggested. If foreigners stop holding our debt, that’s a win isn’t it?
Yes ofc it’s a win if you are a US material productive person.,,
btw Neil’s post on this is #1 on planet earth but he won’t get any credit because Art Degree morons..,
“Hudson's language is not in contradiction to Neil Wilson's,”
To paraphrase the champ Easton, PA Assassin Larry Holmes Hudson couldn’t hold Neil’s jockstrap..,
“ US debt would appear to be less secure unless the US tightened ship fiscally,”
Most of the “debt!” is offshore retained earnings of US multinationals employing corporate US tax reduction schemes..,
To get the deficit down you’d have to change the us corporate tax laws.,,
The thing that is really funny right now is watching you alleged anti war people make excuses for Putin who started a war! 😂
Making excuses? Putin seems to think that de dollarization would be a real punishment to us and most US MAGAts would agree. Sounds like the pro Russia/Putinisagenius MAGAts are excusing him, so long as it hinders the US while Biden is president. Fuck off Matt
"btw Neil’s post on this is #1 on planet earth.."
Agree, Matt. Neil's posts have been outstanding.
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