The US sanctions on Russia after its invasion of Ukraine has generated a strong reverse kick. World’s largest countries with the biggest economies are moving away from payments in the US dollar and increasingly using local currencies for trade. Among these countries are Russia, China, India, Saudi Arabia and Iran.
Russia has managed not to lose its massive oil and gas business even after being removed by the US and its allies from SWIFT, the international financial system for transactions and payments. The country has shifted with remarkable ease to doing business in the rouble instead of the dollar. Russia has entered into an agreement with Beijing to supply coal for the Chinese yuan. Russia has also offered for China to buy crude with yuan. If the two nations agree on this trade, which is very likely to happen, the dollar’s international footprint would further shrink. China is also engaged in discussion with Saudi Arabia for dropping the dollar and choosing yuan for payment for oil. It looks like even Iran may soon follow in the same path and start selling its oil and gas in rial instead of the dollar, dealing yet another blow to America.
The world market has not responded too badly to these changes. Yuan has risen on the news of Saudi Arabia contemplating receiving oil payment in the currency. Rouble, too, has recovered from the initial crash witnessed around the invasion. With news breaking about Russia firming up oil and gas supply deals in rouble, the currency rose from the low of 140 against one US dollar to 80 now. The US anguish over Russia not only slipping out of its fingers, but also succeeding in setting up an alternative payment mechanism at the cost of the dollar was apparent from the statement by US deputy NSA Daleep Singh. Singh, who was in India late last month, warned of “consequences for countries that actively attempt to circumvent or backfill the sanctions”. He appealed against creating mechanisms that prop up the rouble and attempt to undermine the dollar-based financial system. Now that they have a taste of trading without involving the dollar, how far other nations will heed to Singh’s warnings cannot be predicted.