Will Russia Sanctions Accelerate Inflation, Devalue US Dollar and Strengthen Chinese Yuan?

[RiazHaq]

Will Russia Sanctions Accelerate Inflation, Devalue US Dollar and Strengthen Chinese Yuan?

Russia is a commodities superpower. The nation's Eurasian landmass is rich in all kinds of natural resources from food to fuel to metals. To...

www.southasiainvestor.com

Russia is a commodity superpower. The nation's Eurasian landmass is rich in all kinds of natural resources from food to fuel to metals. To punish Moscow for invading Ukraine, the US and G-7 nations have imposed sanctions on Russia. These sanctions have effectively removed Russian commodities from the global supply chain, triggering double digit price increases in food, fuels and metals. Will the G-7 actions leave the US dollar much weaker? Will the Chinese currency, backed by commodities, gain strength at the expense of US dollar and Euro? Will the era of commodity-backed money return? In a note to clients, Credit Suisse investment strategist Zoltan Pozsar has answered some of these questions. He says "this (Russia) crisis is not anything we have seen since President Nixon took the U.S. dollar off gold in 1971". "After this war is over, "money" will never be the same again", he adds.

Post World War II History:

The current global financial system was created in Bretton Woods located in the US State of New Hampshire. Over 700 delegates representing 44 countries met in Bretton Woods in July 1944. The Bretton Woods System, now referred to as Bretton Woods I, required a currency peg to the U.S. dollar which was in turn pegged to the price of gold. This system collapsed in the 1970s but created a lasting influence on international currency exchange and trade through its development of the IMF and World Bank. Zoltan Pozsar believes it is now time for Bretton Woods III. What is Bretton Woods III? Here's how Zoltan Pozsar explains it:

"From the Bretton Woods era backed by gold bullion, to Bretton Woods II backed by inside money (Treasuries with un-hedgeable confiscation risks), to Bretton Woods III backed by outside money (gold bullion and other commodities)".

Russia's Commodity Exports. Source: Bloomberg

Commodity Superpower:

Russia is a vast country. Russian landmass extends from Europe to East Asia. It is one of the largest suppliers of oil, gas, metals and wheat. Russia is also major exporter of fertilizer. China will likely take advantage of the western sanctions to buy up Russian commodities at lower prices.

Pozsar argues that while Western central banks cannot close the gap between Russian and non-Russian commodity prices as sanctions lead them in opposite directions, the People’s Bank of China can “as it banks for a sovereign who can dance to its own tune.”

“If you believe that the West can craft sanctions that maximize pain for Russia while minimizing financial stability risks and price stability risks in the West, you could also believe in unicorns,” Pozsar wrote.

Bretton Woods III:

Pozsar argues that the Bretton Woods II collapsed when the G7 countries seized Russia’s foreign exchange (FX) reserves, leading to a rise of outside money – reserves kept as commodities – over inside money – reserves kept as liabilities of global financial institutions.

"We are witnessing the birth of Bretton Woods III – a new world (monetary) order centered around commodity-based currencies in the East (Chinese Yuan) that will likely weaken the Eurodollar system and also contribute to inflationary forces in the West,” Zoltan wrote.

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Will Russia Sanctions Accelerate Inflation, Devalue US Dollar and Strengthen Chinese Yuan?

Russia is a commodities superpower. The nation's Eurasian landmass is rich in all kinds of natural resources from food to fuel to metals. To...

www.southasiainvestor.com

 

[Han Patriot]

People also don't realise China had been quietly storing gold. The new RMB will. Be gold backed.

 

[Abdul Rehman Majeed]

People also don't realise China had been quietly storing gold. The new RMB will. Be gold backed.

Every currency need to be backed by some physical commodity.

 

[CrazyZ]

Russian war in Ukraine came at the worse possible time for USA monetary policy. Inflation will cause the federal reserve to jack up interest rates. That could very likely cause a big crash in asset values and lead to recession.

 

[RiazHaq]

To evade western sanctions, #India and #Russia are exploring the possibility of using #China’s yuan as a reference currency to value the #rupee-#ruble #trade, It'll cover #oil purchase from Russia, availability of ships, insurance cover for imports, etc. https://www.livemint.com/industry/e...payment-options-for-crude-11647198060477.html


This assumes importance given the Western sanctions on Russia and PJSC Rosneft Oil Co. stating that Indian companies can acquire stakes in Russian projects and purchase Russian crude oil.


Rosneft’s production cost per unit is considered to be among the lowest globally.

“Rupee-ruble trade is very much on the cards. We are working on a currency arrangement to facilitate trade, especially as we also plan to increase oil purchase from Russia," said one of the two Indian government officials cited above, requesting anonymity.

The rupee-ruble trade mechanism will allow Indian exporters to be paid in rupees for their exports to Russia instead of dollars or euros.

Under this arrangement, a Russian bank is required to open an account in an Indian bank while an Indian bank opens an account in Russia.

Incidentally, the rupee-ruble payment mechanism with Russia has been attempted earlier on a small scale for a few items such as tea.

“We can look at a floating exchange rate system. A third currency can be taken as a point of reference, maybe yuan," said the official. He added that the arrangement would not require the exchange rate to be pegged to any currency, especially as the ruble has been depreciating. The ruble has fallen by as much as 39% this year against the dollar.

The local currency trade mechanism is key to resuming trading with Moscow as India buys a lot of defence and nuclear products from Russia, while India exports pharmaceuticals, engineering and agriculture items.

Payments worth close to $500 million to Indian exporters for goods already shipped to Moscow remain stuck.

Meanwhile, the Reserve Bank of India is consulting banks, including UCO Bank, to appoint a third party for facilitating payments. UCO Bank acted as a facilitator when sanctions were imposed on Iran.

Queries sent to India’s ministries of finance, petroleum and natural gas on Sunday remained unanswered till press time. Also, emailed queries to spokespeople for the Reserve Bank of India on Sunday evening wasn’t immediately answered.

Under the currency arrangement, the Russian currency will be converted into rupees at a specified exchange rate, and the money will be deposited into an Indian bank account.

“We are yet to finalize the Russian and Indian banks," said another government official.

Russian oil-related exports to India is close to $1 billion, but the exports are still very small given that the South Asian country imports 85% of its oil and 55% of natural gas requirements.

“Increasing oil purchases from Russia is definitely being considered at a discounted price. But we need to resolve a few issues to make that happen. One is we need to figure out the availability of shipping vessels. The other pertains to the high insurance premiums for imports from Russia," said the second government official. “High premiums will erode all the benefits of the discounted price. Also, the refining capability and cost will need to be assessed as we buy a different blend," the official added.

He added that India need not worry about buying oil from Russia as long as Europe continues to buy from there.

While the European countries have exempted Russian banks involved in energy trade from sanctions due to their heavy dependence on Russian oil, the US has announced a complete ban on the import of all Russian oil products from 8 March.

Oil prices have been elevated since Russia invaded Ukraine last month. On 7 March, Brent touched $139.13 per barrel, the highest since 2008. On Friday, the May contract of Brent on the Intercontinental Exchange closed at $112.67 per barrel.

 

[OldenWisdom...قول بزرگ]

While Europe combines it's market and currency in one Eurozone... other struggling or up-and-coming do not... for any number of reasons. However, if they could or had done so... would have saved their people from a lot of grief. Instead they allow themselves to be coerced and cajoled into doing favors for powers that be...

These existing structures and their strings will always impact the enslaved nations... till they themselves put an effort to change their course.

 

[Han Patriot]

To evade western sanctions, #India and #Russia are exploring the possibility of using #China’s yuan as a reference currency to value the #rupee-#ruble #trade, It'll cover #oil purchase from Russia, availability of ships, insurance cover for imports, etc. https://www.livemint.com/industry/e...payment-options-for-crude-11647198060477.html


This assumes importance given the Western sanctions on Russia and PJSC Rosneft Oil Co. stating that Indian companies can acquire stakes in Russian projects and purchase Russian crude oil.


Rosneft’s production cost per unit is considered to be among the lowest globally.

“Rupee-ruble trade is very much on the cards. We are working on a currency arrangement to facilitate trade, especially as we also plan to increase oil purchase from Russia," said one of the two Indian government officials cited above, requesting anonymity.

The rupee-ruble trade mechanism will allow Indian exporters to be paid in rupees for their exports to Russia instead of dollars or euros.

Under this arrangement, a Russian bank is required to open an account in an Indian bank while an Indian bank opens an account in Russia.

Incidentally, the rupee-ruble payment mechanism with Russia has been attempted earlier on a small scale for a few items such as tea.

“We can look at a floating exchange rate system. A third currency can be taken as a point of reference, maybe yuan," said the official. He added that the arrangement would not require the exchange rate to be pegged to any currency, especially as the ruble has been depreciating. The ruble has fallen by as much as 39% this year against the dollar.

The local currency trade mechanism is key to resuming trading with Moscow as India buys a lot of defence and nuclear products from Russia, while India exports pharmaceuticals, engineering and agriculture items.

Payments worth close to $500 million to Indian exporters for goods already shipped to Moscow remain stuck.

Meanwhile, the Reserve Bank of India is consulting banks, including UCO Bank, to appoint a third party for facilitating payments. UCO Bank acted as a facilitator when sanctions were imposed on Iran.

Queries sent to India’s ministries of finance, petroleum and natural gas on Sunday remained unanswered till press time. Also, emailed queries to spokespeople for the Reserve Bank of India on Sunday evening wasn’t immediately answered.

Under the currency arrangement, the Russian currency will be converted into rupees at a specified exchange rate, and the money will be deposited into an Indian bank account.

“We are yet to finalize the Russian and Indian banks," said another government official.

Russian oil-related exports to India is close to $1 billion, but the exports are still very small given that the South Asian country imports 85% of its oil and 55% of natural gas requirements.

“Increasing oil purchases from Russia is definitely being considered at a discounted price. But we need to resolve a few issues to make that happen. One is we need to figure out the availability of shipping vessels. The other pertains to the high insurance premiums for imports from Russia," said the second government official. “High premiums will erode all the benefits of the discounted price. Also, the refining capability and cost will need to be assessed as we buy a different blend," the official added.

He added that India need not worry about buying oil from Russia as long as Europe continues to buy from there.

While the European countries have exempted Russian banks involved in energy trade from sanctions due to their heavy dependence on Russian oil, the US has announced a complete ban on the import of all Russian oil products from 8 March.

Oil prices have been elevated since Russia invaded Ukraine last month. On 7 March, Brent touched $139.13 per barrel, the highest since 2008. On Friday, the May contract of Brent on the Intercontinental Exchange closed at $112.67 per barrel.

If India still follows US and stopped buying Iranian or Russian oil, their economy would be toasted. Smart move to peg it to RMB and FOLLOW Chinese moves. Russia need our help now more than ever, a friend in need is a friend indeed. Please ship 200 CH4 drones to Ukraine ASAP. That will.show the Turks what are real drones.

 

[RiazHaq]

#India stands with #Russia as Lavrov visits. #Delhi plans to double its imports of Russian coking coal used in making steel. India recently contracted to buy 45,000 tonnes of Russian #sunflower #oil for April delivery after supplies from #Ukraine stopped.

India stands by trade with Russia as Lavrov set to visit

NEW DELHI - Russian Foreign Minister Sergei Lavrov is set to fly to India this week, sources said, finding time to visit to one of the biggest buyers of Russian commodities since the international community began isolating Moscow for its invasion of Ukraine.

There is little sign that buying will slow down any time soon, as more deals get signed. One source said the two countries could discuss smoothening trade payments disrupted by Western sanctions on Russian banks. Media have said he could hold talks in the Indian capital on Friday.

It will only be Lavrov's third visit overseas since Russia's Feb. 24 invasion of Ukraine, after a trip to Turkey for talks with his Ukrainian counterpart earlier this month and a scheduled meeting in China on Thursday.

Russia is India's main supplier of defence hardware but overall annual trade is small, averaging about $9 billion in the past few years, mainly fertiliser and some oil. By comparison, India's bilateral trade with China is more than $100 billion a year.

But given sharp discounts on Russian crude oil since the attack on Ukraine, India has bought at least 13 million barrels, compared with nearly 16 million barrels imported from the country for the whole of last year. Many European countries have also continued to buy Russian energy despite publicly criticising Moscow.

New Delhi has called for an immediate ceasefire in Ukraine but has refused to explicitly condemn Moscow's actions. It has abstained from voting on multiple U.N. resolutions on the war.

India is now considering doubling its imports of Russian coking coal used in making steel, the Indian steel minister said on Sunday. Reuters reported on Tuesday that India recently contracted to buy 45,000 tonnes of Russian sunflower oil for April delivery after supplies from Ukraine stopped. Last year, India bought about 20,000 tonnes from Russia a month.

"India will import more items from Russia, especially if it is at a discount," one senior Indian government official said.

 

[nang2]

People also don't realise China had been quietly storing gold. The new RMB will. Be gold backed.

That would be great. However, gold standard also puts a leash on the government. It can no longer print money to its heart's content. If Chinese leadership has the courage and wisdom to embrace this leash, it would be a great blessing for Chinese people.

 

[Han Patriot]

That would be great. However, gold standard also puts a leash on the government. It can no longer print money to its heart's content. If Chinese leadership has the courage and wisdom to embrace this leash, it would be a great blessing for Chinese people.

Chinese government had been pretty prudent in spending money, deficits are low, and profits from SOEs are high.

 

[nang2]

Chinese government had been pretty prudent in spending money, deficits are low, and profits from SOEs are high.

As long as Chinese government largely pegs its currency with US dollar, it needs to print money the way US prints money.

 

[northeast]

As long as Chinese government largely pegs its currency with US dollar, it needs to print money the way US prints money.

No,RMB is not pegging with US dollar any more,and china is not printing money as crazy as USA.