Additional Posts

Dollar’s disregard “not just a blip; this is a trend”

The sun continues to set on the dollar’s role as the word’s reserve currency — at least in Russia and farther to the east. The sanctions imposed by the West on Russia for its annexation of Crimea have begotten a new cold war between the U.S. and Moscow, some analysts say.

Indeed, “the Eurasian anti-U.S. dollar axis is rapidly taking shape,” Zero Hedge noted. To keep Russia’s economy going, President Vladimir Putin has looked to expand ties with China. The two nations recently signed a deal for Russia’s Gazprom to supply natural gas to China for 30 years.

With that huge deal in place, the dollar is increasingly being shut out of international transactions. When Russia and China aren’t beefing up their gold exposure, they’re looking to do business in nondollar currencies.

“Russian companies are preparing to switch contracts to renminbi and other Asian currencies amid fears that western sanctions may freeze them out of the U.S. dollar market,” London’s Financial Times reported.

“Over the last few weeks there has been a significant interest in the market from large Russian corporations to start using various products in renminbi and other Asian currencies and to set up accounts in Asian locations,” Deutsche Bank’s Pavel Teplukhin told FT. “This is not just a blip; this is a trend.”

Added state-owned bank VTB’s CEO, Andrei Kostin: “Given the extent of our bilateral trade with China, developing the use of settlements in roubles and yuan [renminbi] is a priority on the agenda, and so we are working on it now.”

Another example of the trend was noted by Russian news agency ITAR-TASS (via Zero Hedge), which reported on a deal by a Gazprom subsidiary: “Gazprom Neft had signed additional agreements with consumers on a possible switch from dollars to euros for payments under contracts, the oil company's head Alexander Dyukov told a press conference. ‘Additional agreements of Gazprom Neft on the possibility to switch contracts from dollars to euros are signed. With Belarus, payments in roubles are agreed on,’ he said. Dyukov said nine of ten consumers had agreed to switch to euros.”

If you’re an American, you have to believe in the dollar. But until the U.S. enacts some major reforms, which include, first and foremost, eliminating its monstrous debt problem and taking proactive measures to boost GDP via growing its manufacturing base, the greenback’s role is in jeopardy. With major emerging economies like Russia and China backing away, individual investors should consider currency diversification: that is, trading in some of their dollars for gold.