Sylvain Saurel
At the beginning of June 2021, we have just learned very interesting news in terms of geopolitics and the world economy: Russia has just dropped the US dollar.
The Russian Minister of Finance has just declared that the National Wellbeing Fund, its oil fund, will completely divest from its exposure to the US dollar, which still amounts to 40 billion dollars.
Russia’s plan is now to move into the Chinese yuan, the euro, but also gold:
“Today we have about 35% of NWF investments in dollars. We’ve decided to get out of dollar assets completely, replacing investments in dollars with an increase in euros and gold.”
As a reminder, Russia’s National Wellbeing Fund has an approximate size of 120 billion dollars. The decision taken by Russia is therefore significant from an economic point of view but also a geopolitical point of view.
Russia has been aiming to disengage from the US dollar for over a decade
This announcement by Russia is not surprising. Those who have been following international politics for several years now will probably remember the warning issued in 2009 by the then Russian President, Dmitry A. Medvedev, about Russia relying on the US dollar.
Dmitry A. Medvedev’s comments were largely centered around the global financial crisis that the world was experiencing at the time, and the belief that the United States was far more responsible for the situation than many were willing to admit publicly.
At that time, Russia and China had even started to think with other countries about creating a supernational currency to supplant the US dollar. This idea has since been abandoned, but it is amusing to note that Satoshi Nakamoto implemented it with his Bitcoin launched on January 3, 2009.
Now Russia has other goals in mind. The country led by Vladimir Putin wants to protect itself from the risk of American economic sanctions, but also from the pressure that the United States can exert on its economy.
Russia wants to better protect itself from American supremacy in the financial world
Russia is therefore leaving a hegemonic currency and moving towards the Chinese yuan and the euro, whose central bankers will potentially be more favorable, or rather much less unfavorable. Transforming this American dollar into the Chinese yuan will also allow Russia to strengthen its major strategic alliance with Beijing.
In addition to the Chinese yuan and the euro, Russia is also adding the purchase of gold to its National Wellbeing Fund reserves. This decision is even less risky since it is known that gold is a reserve of value recognized for centuries.
If Russia really wants to protect itself from the risks of American sanctions, it will necessarily have to turn to the purchase of physical gold.
The complexity will be greater than exposure to gold via financial products and the fees will be higher, but Russia will be much better protected from the risk that America poses to the whole world with its American dollar.
The systematic use of the US dollar as a weapon is what will cause the fall of its hegemonic status in the next 20 years
Because that is where the problem lies in my opinion. The US dollar has been the world’s reserve currency for a little over a hundred years, but the real problem is that America is using its currency as a weapon to establish its domination over the world.
The United States can afford to do this because it controls the world’s reserve currency. More and more countries are no longer willing to accept this injustice. They are thinking about the best way to get out of the US dollar system.
Getting out of the US dollar system is a complex matter, but it is possible, as Russia has shown.
Over the next twenty years, it seems increasingly likely that the pressure on the US dollar will increase. China has a vested interest in ensuring that the US dollar does not remain the world’s reserve currency. Beijing understands that it will be impossible to become the world’s leading superpower as long as America dominates the global monetary and financial system.
China continues to slowly but surely disengage from American debt. It is still heavily exposed, but the amount is decreasing year after year. China continues to work on its digital yuan project, which should allow it to take the fight to a terrain where it can have the first-mover advantage.
Final Thoughts
If this end of the US dollar’s hegemony over the world is confirmed in the years to come, it will not be without pain. Historically, transitions between world reserve currencies have always occurred violently.
For this transition to be more peaceful, it might be time for the world to move to a neutral, apolitical currency. Leaderless hard money that truly belongs to the people. You probably understood that I meant Bitcoin, which meets all these criteria.
We will see what happens in the future and whether Bitcoin will be able to meet this challenge of establishing a new global reserve currency peacefully. Whatever happens, the domination of the US dollar over the world looks set to end in the decades to come.
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