Pakistani-American Banker Heads SWIFT, The World's Biggest InterBank Payments System

Pakistani-American banker Yawar Shah is the Chairman of the SWIFT Board of Directors. SWIFT stands for The Society For Inter-Bank Financial Telecommunications. SWIFT has been in the news recently for cutting off Russian banks to punish Russia's invasion of Ukraine. Russia is now disconnected from the global financial system used to settle the vast majority of payments in international trade.  

Yawar Shah. Source: SWIFT

In addition to his role as the Chairman of the SWIFT Board of Directors, Yawar is also a Managing Director in the Institutional Clients Group at Citigroup. Before joining Citigroup, Yawar was at JPMorgan for over 20 years. Positions there have included Global Operations Executive for Worldwide Securities Services, Retail Service and Operations Executive, Chief Operating Officer of the Global Private Bank, and General Manager of the Treasury Management Services business. He received his BA from Harvard College and his MBA from Harvard Business School.


Another Pakistani-American, a woman named Saira Malik, has recently been appointed the chief investment officer (CIO) of a $1.3 trillion Nuveen fund.  Saira held a variety of positions since joining Nuveen in 2003. Prior to being named CIO, she was head of global equities portfolio management, and before that, head of global equities research. Previously, Saira was with JP Morgan Asset Management, where her roles included vice president/small cap growth portfolio manager and equity research analyst.

The Society for Worldwide Interbank Financial Telecommunication (SWIFT) was founded in 1973 to replace the telex system. It is now used by over 11,000 financial institutions to send secure messages and payment orders. Disconnecting an entire country from SWIFT is considered the nuclear option of economic sanctions, according to South China Morning Post (SCMP). But even limited action can have a big impact. Any bank disconnected from SWIFT will have a very difficult time sending money to other financial institutions, and its customers will struggle to conduct their business. 

US$ Share of SWIFT Payments. Source: Atlantic Council


The only alternative to SWIFT is China's CIPS, the Cross-border Interbank Payment System. CIPS was launched in October 2015 to boost international use of China’s currency in global trade settlements.  The use of the yuan has increased since its inclusion in the International Monetary Fund’s Special Drawing Rights basket in 2015. In January this year, CIPS had 1,280 users across 103 countries, including 75 directly participating banks and 1,205 indirect participants. The operator said last year overseas indirect participants account for 54.5 per cent of the total. 

Russian Foreign Currency Reserves. Source: Statista


The central banks in western nations and Japan hold the bulk of the Russian foreign currency reserves of about US$630 billion which they have now frozen. But China is the single-biggest foreign holder of Russian central bank reserves as of June 30, 2021. 13.8% of the total of Russia’s reserves, held in gold and foreign currency, are located in China, roughly the same share of assets held in Chinese currency Yuan Renminbi.

Russia's Attempt to Sanction-Proof Economy. Source: Wall Street Journal


Latest round of western sanctions on Russia reinforce a growing perception that the United State is abusing its extraordinary financial power to arbitrarily punish different countries through its unilateral financial sanctions. This power stems mainly from the fact that the US dollar is the main international reserve and trade currency. It allows US to control multi-lateral financial institutions like SWIFT, World Bank, IMF and FATF. Many countries, including major US allies in Europe, are now looking to find alternatives to SWIFT. This has been specially true since former US President Donald Trump existed the JCPOA (Joint Comprehensive Plan of Action) agreed among the 5 permanent members of the UN Security Council (P5) plus Germany. Here's an excerpt of a recent New York op ed by Peter Beinart: 

"By deluding themselves about the extent of America’s might, they are depleting it. A key source of America’s power is the dollar, which serves as the reserve currency for much of the globe. It’s because so many foreign banks and businesses conduct their international transactions in dollars that America’s secondary sanctions scare them so much. But the more Washington wields the dollar to bully non-Americans into participating in our sieges, the greater their incentive to find an alternative to the dollar. The search for a substitute is already accelerating. And the fewer dollars non-Americans want, the harder Americans will find it to keep living beyond their means."

Share of Export Invoicing in US$. Source: Atlantic Council


Chinese analysts see the SWIFT sanctions on Russian banks as a wake-up call for Beijing. “As seen from Russia’s Swift exclusion and the China-US trade friction in recent years, it is necessary to reduce reliance on Swift to ensure financial security,” Dongguan Securities analysts Chen Weiguang, Luo Weibin and Liu Menglin wrote on Monday, according to SCMP.  The move to ban certain Russian banks from Swift is likely to accelerate expansion of CIPS, Beijing’s cross-border payment and settlement system, analysts say. 

Pakistan's State Bank and National Bank are members of both SWIFT and CIPS. CIPS has been used by Chinese and Pakistani banks for trade settlements in Chinese Yuan. In 2018, the China-Pakistan currency swap agreement was extended for three years, and the size was doubled to 20 billion yuan or 351 billion Pakistani rupees, as China became the largest trading partner, and the bilateral trade increased on yearly basis, according to China Economic Net

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Comments

Riaz Haq said…
The United States is open to imposing sanctions on Russia's oil and gas flows but going after its exports now could help Moscow, the White House said on Wednesday as oil prices surged to an 11-year high and supply disruptions mounted.

https://www.reuters.com/business/energy/us-open-sanctioning-russian-energy-sector-white-house-2022-03-02/

After Russia's invasion of Ukraine, the White House slapped sanctions on exports of technologies to Russia's refineries and the Nord Stream 2 gas pipeline, which has never launched. So far, it has stopped short of targeting Russia's oil and gas exports as the Biden administration weighs the impacts on global oil markets and U.S. energy prices.

"We don't have a strategic interest in reducing global supply of energy ... that would raise prices at the gas pump for Americans," spokesperson Karine Jean-Pierre said at a White House news briefing.

The administration warned it could block Russian oil if Moscow heightens aggression against Ukraine. "It’s very much on the table, but we need to weigh what all of the impacts will be," White House spokeswoman Jen Psaki told MSNBC earlier on Wednesday.

The National Economic Council's deputy director, Bharat Ramamurti, told MSNBC that the White House does not want to make a move just yet.

"Going after Russian oil and gas at this point would have an effect on U.S. consumers and actually could be counterproductive in terms of raising the price of oil and gas internationally, which could mean more profits for the Russian oil industry," he said.

"So we don't want to go there right now."


The White House deputy national security adviser, Daleep Singh, told CNN the Biden administration was looking at cutting U.S. consumption of Russian oil while maintaining the global supply of energy.

"There are other producers in the world that could backfill for any Russian oil we don't import," Singh said.

The Biden administration has taken pains to say it has not yet targeted Russian oil sales as part of sweeping economic sanctions it has slapped on Moscow since last week. read more

Even so, traders and banks have shied away from Russian oil shipments via pipeline and tankers, so as not to be seen as funding the invasion, sending energy markets into disarray. read more

And some U.S. lawmakers have pushed legislation that analysts said could lead to higher gasoline prices.

The top Democrat and a Republican on the Senate energy committee floated a bill that would prohibit the import of Russian crude, liquid fuels and liquefied natural gas. The United States imported an average of more than 20.4 million barrels of crude and refined products a month in 2021 from Russia, about 8% of U.S. liquid fuel imports, according to the Energy Information Administration.

Democratic Senator Joe Manchin and Republican Senator Lisa Murkowski are working on getting support for their bill, a Manchin spokesperson said.

The United States did slap sanctions on Russia's oil refineries, banning the export of specific technologies, a move that could make it harder for Russia to modernize those plants. read more

Nearly one week after Moscow invaded Ukraine, U.S. crude oil ended Wednesday at $110.60 per barrel, the highest close since May 2011, while global benchmark Brent settled at its highest since June 2014, at $112.93. read more

Meanwhile, OPEC+ oil producers meeting on Wednesday agreed to stick to their modest output rises, offering little relief to the market or consumers. read more

On Tuesday, the United States and its allies agreed to release 60 million barrels of oil reserves to help offset supply disruptions.

"We want to minimize the impact on the global market place ... and the impact of energy prices for the American people," Psaki said. "We’re not trying to hurt ourselves, we’re trying to hurt President Putin and the Russian economy."
Citizen said…
Strange that nobody is talking about a ceasefire or peace. West's emphasis is on revenge, escalation & crippling sanctions.
West's media reporting is one-sided hence suspect. EU& UK have taken RT Russian TV channel off the air.
Some journos are treating Nuclear threat as a bluff
Riaz Haq said…
Citizen: "Strange that nobody is talking about a ceasefire or peace"


Harsh economic sanctions & propaganda war against Russia are pushing Putin's back to the wall. NATO nations are becoming arms suppliers & safe havens for Ukrainian fighters. It's an extremely dangerous situation that has the potential to trigger WW3
Shams N. said…
[4:04 PM, 3/3/2022] Shams Naqvi: Vladimir Putin didn’t just invade the Ukraine on 24/02/2022, he officially ended the petrodollar system. How? Remember, Russians don’t do anything without a plan. They & China have been prepping for this moment for years & are now ready:

Russia has stated NATO expansion into Ukraine was a red line.

-They knew their invasion of Ukraine would be inevitable and would have strategized that the US/West’s response would be SWIFT $ system exclusions/sanctions.

-Reasonable to expect that Russia’s next step would have been to shut off oil/gas pipelines to Europe, as Russia has built up huge Yuan, gold & commodity reserves.

-This will cause massive price and supply disruptions (war level) to the western markets & monetary system.

- For years Russia & China have looked for ways to re-monetize gold & exit abuses of SWIFT system as a geo-political tool against them, but how to do it, how to exit, without West declaring it an act of aggression or war against West?

- This Ukraine invasion just accomplished that end for them. And the West is doing it themselves.

-Now, freed to declare themselves SWIFT system outcasts by the western govt hands, Russia can now say “we will turn oil pipelines back on, but not for dollars.”

- Russia then declares that Europe or anyone that wants Russian oil (as 3rd largest global producer) or Russian/Ukrainian wheat (1/4 of worlds production) must pay in gold, or use the ruble-yuan gold backed payment system.

- Their leverage as an oil producer (who cuts off supply) will cause almost immediate price shocks to the western world. A good part of the population could immediately be unable to heat their homes.

- Almost equal to the oil shock they’d cause is their ability to cause food shortages and price spikes through the disruption of wheat production.

-Unmentioned in all this is China. Who has been silent & not condemned Russia.That means silent approval & cooperation.

- China will act to soak up Russian production of oil and wheat to soften the blow to their “strategic partner”.

- This will again be through the Yuan-Ruble facility and at some point overtly-stated gold backing of that system by Russia and China.

- The West will of course declare those last two bullets as acts of global aggression and direct threats to the “world monetary system”.

- At this point that there will be a clear fracture of the world’s monetary system into 2 competing East/West  structures, circling back to the initial point that the 50 year global petrodollar system has just officially been ended by Putin.

If the above analysis is indeed correct,then the threat 2 the petro- $ is no different 2 the time of Charles De Gaulle or Gaddafi,but on larger scale.They can't remove Putin as easy as they did with previous leaders who challenged their fraudulent petrodollar monetary system.
[4:04 PM, 3/3/2022] Shams Naqvi: All this is too complex and too risky. They have two other tools.

1. Ransom virus lock on SWIFT.

2. Crypto currency.

The fist one is more simple. Iran recently locked up NASDAQ for hours in retaliation for the US sanctions.

The second option unfortunately hands the ball back to the US. Americans are world’s largest hoarder of crypto.

So option 1 would be their choice.
Riaz Haq said…
Russia #finance & #trade unplugged! In just one week, #Western #financial firms severed ties with #Russia, in some cases going beyond #US #EU #sanctions. It’s opened a new chapter in the history of #economic conflict. #Ukraine #NATO https://www.wsj.com/articles/russia-ukraine-sanctions-banks-finance-11646428069?st=7ld0j519spkl9vq&reflink=desktopwebshare_twitter via @WSJ

Two weeks ago, Russia’s companies could sell their goods around the globe and take in investments from overseas stock-index funds. Its citizens could buy MacBooks and Toyotas at home, and freely spend their rubles abroad.

Now they are in a financial bind. Soon after Russia invaded Ukraine, another war began to isolate its economy and pressure President Vladimir Putin. The first move was made by Western governments to sanction the country’s banking system. But over the course of the past week, the financial system took over and severed practically every artery of money between Russia and the rest of the world, in some cases going further than what was required by the sanctions.

Visa Inc. V -3.35% and Mastercard Inc. stopped processing foreign purchases for millions of Russian citizens. Apple Inc. and Google shut off their smartphone-enabled payments, stranding cashless travelers at Moscow metro stations. International firms stepped back from providing the credit and insurance that underpin trade shipments.

This unplugging of the world’s 11th-largest economy opens a new chapter in the history of economic conflict. In a world that relies on the financial system’s plumbing—clearing banks, settlement systems, messaging protocols and cross-border letters of credit—a few concerted moves can flatten a major economy.

Russia now faces a repeat of one of the most painful episodes in its post-Soviet history—the financial crisis of 1998, when its economy collapsed overnight. In the decades that followed, Russia earned its way back into the good graces of financiers in New York, London and Tokyo. It is all being undone at warp speed and will not be easily put back together.

The ruble has lost more than one-quarter of its value and is now virtually useless outside of Russia, with Western firms refusing to exchange it or process overseas transactions. Moscow’s stock exchange was closed for a fifth straight day on Friday. The Russian Central Bank more than doubled interest rates to attract foreign investment and halt the ruble’s free fall. Two firms that are crucial to clearing securities trades, Euroclear and DTCC, said they would stop processing certain Russian transactions.

With their interest payments stuck inside the country—following the sanctions, Mr. Putin also ordered intermediaries in Russia not to pay—some Russian companies and government entities could default on their bond payments to international creditors. That could make the country toxic for investing for years. Shares of Russian companies, even those without obvious ties to the Kremlin, were booted from stock-index funds, which will further isolate them from pools of Western capital.

Analysts expect Russia’s economy to contract as much as 20% this quarter, roughly the same hit the British economy took in the spring of 2020 during the pandemic lockdowns.


----------------

Russia began trying to sanction-proof its economy. It built its own domestic payments network—called Mir, Russian for “peace”—to function alongside and, if needed, replace those run by Western firms. It shifted its overseas holdings away from the U.S. and its European allies and toward China, which has been relatively more accommodating of Mr. Putin’s efforts to expand his influence and territory. It doubled its gold reserves.

Those efforts to wall itself off may prove insufficient. At least 40% of Russia’s $630 billion in foreign reserves are in countries that have joined in the latest sanctions. The rest, mostly in China, it is free to spend—but only in China. Moving those reserves out of the country would require first converting them into a Western currency like dollars or euros, which no global bank will do.
Riaz Haq said…
#Russian #metals giant Norilsk Nickel, a key supplier of #nickel and #palladium, might be too big to sanction. Norilsk Nickel is a key supplier of nickel and palladium, two metals that are key for #ElectricVehicle batteries and #semiconductors https://www.wsj.com/articles/this-russian-metals-giant-might-be-too-big-to-sanction-11646559751?st=rzatpimfb2jwyeh&reflink=desktopwebshare_twitter via @WSJ

From its base at a former Arctic gulag, Russia’s MMC Norilsk Nickel PJSC digs up a large portion of two metals that are essential to greener transport and computer chips.

So far the U.S. and its allies haven’t sanctioned the company, or its oligarch chief executive, underscoring the dilemma some analysts say governments face in seeking to punish Russia without hurting their own access to key commodities.

The mining company is responsible for about 5% of the world’s annual production of nickel, a key component of electric-vehicle batteries, and some 40% of its palladium, which goes into catalytic converters and semiconductors. Nornickel, as the company is known, also supplies energy transition metals such as cobalt and copper.

The price of those metals has jumped since Russia invaded Ukraine amid concerns that Western sanctions or logistical difficulties stemming from the conflict could choke supplies. On Friday, nickel traded at its highest level for a decade, and is up 37% so far this year. Palladium is up around 57% year to date.


Despite the rally in metals prices, Nornickel’s share price—like that of other Russian commodity companies—has dropped, and is down 17% so far this year. The fall is likely to be more severe, given trading in Moscow listed stocks was suspended several days ago as they began to plummet. On Saturday, Fitch Ratings downgraded Nornickel’s debt to junk, reflecting the tougher environment in Russia and weakened financial flexibility of its commodity companies.

Several Western companies say they are looking to diversify their supply away from Nornickel. That mirrors a trend across several commodities, including oil and steel, as Western buyers steer clear of Russian suppliers amid concerns they could be hit by sanctions or simply have problems getting products out of the country.

A spokesman for Nornickel said the miner is committed to fulfilling its obligations to customers, partners and employees. Chie Executive Vladimir Potanin, who also holds a 31% stake in the company, declined to be interviewed.

Western sanctions in response to the current conflict have so far largely avoided companies that provide the West with oil, gas and other key commodities.

Few companies are as pivotal in large commodity markets as Nornickel, particularly for palladium.

“If we have sanctions and we can’t access that palladium, you have to expect disruption globally,” said Gabriele Randlshofer, managing director of the International Platinum Group Metals Association, a trade group whose members include buyers and suppliers of palladium.

“At the moment all companies are looking at [who supplies them], they have to,” she said.


Among the companies looking for alternative supplies of nickel is Outokumpu Oyj, one of the world’s largest stainless steel manufacturers. The Finnish company said around 6% to 7% of its nickel comes from Nornickel, with the rest coming from recycled steel. “Given the situation in Ukraine, we are looking for alternatives for Russian supply for nickel,” a spokeswoman said.

Germany’s BASF SE, meanwhile, said it would fulfill existing contracts with Nornickel but not pursue any new business with the Russian company. The chemicals giant described Nornickel as an important supplier of nickel and cobalt for its production of cathode materials as well as a source of palladium and platinum.
Riaz Haq said…
Russia Sanctions Could Help Undermine Dollar’s Global Status

By George Pearkes of Atlantic Council

https://www.atlanticcouncil.org/blogs/econographics/ukraine-and-dollar-weaponization/

Aggressive use of dollar weaponization has been signaled repeatedly by US policymakers to meet US goals in the current dispute over Ukraine. Though this would severely impact Russia today, negative feedback to dollar sovereignty will be measured in decades rather than years — and will inevitably arrive.
------

Given the power of dollar sovereignty, it feels inevitable that it would be turned into a weapon in a world that is deeply financialized. Global debt – or, equally accurate, global interest bearing assets – topped $300 trillion in 2021 according to the Institute for International Finance. In that context, the ability to restrict access to financial markets is vastly more powerful than it has been historically.There are restraints on the use of weaponized dollar sovereignty against Russia. A maximalist weaponization of the dollar would have a large enough impact on the Russian or other adversary’s economy that standards of living would plummet. While not as overt as a bombing campaign, the effects of a fully weaponized dollar would be severe enough that a bombing campaign would be an apt comparison for the impact on the civilian population. It’s not clear to what degree American policymakers are willing to impose pain on Russia’s civilian population, but it seems unlikely the most aggressive possible use of dollar weaponization and the cost to ordinary Russians it would impose would not create negative feedbacks to the United States.Another obvious restraint is domestic American interest groups. US companies may be users of Russian natural gas, aluminum, or other exports either in the United States or at overseas production facilities. These interests could dissuade US policymakers from using the dollar as a weapon.The weaponized dollar is already a fact of life in global affairs. The governments of Cuba, Iran, North Korea, and Venezuela can all attest to that fact, as can their civilian populations. In all four countries, dollar sovereignty has been weaponized in a contemporary context. Deeper historical examples abound in Latin America and other parts of the world. At a smaller scale, the wide range of sanctions activity tracked by the Atlantic Council’s Sanctions Dashboard are forms of dollar weaponization as well.It’s only a matter of time before the United States attempts a more aggressive and maximalist use of financial warfare. Whether Russia will be the target after an invasion of Ukraine remains to be seen. However, at least 40 Senators have signaled they favor that course, and the precedent for similar actions from the United States is well established. On January 19th, President Biden said “If they invade, they’re going to pay. Their banks will not be able to deal in dollars”, a reference either to just one of the wide range of dollar weaponization strategies that exist under current law and are being discussed in Congress. While there is no current contender to replace the dollar as the dominant currency in global trade and finance, the weaponization of dollar sovereignty could catalyze a push for a new currency hegemony, or perhaps even a multi-currency global reserve system. Game theorists would call aggressive dollar weaponization for narrow national objectives a “non-credible” threat: a threat to do something a rational actor wouldn’t do, because ultimately it hurts the actor. By using the power of dollar sovereignty, dollar sovereignty risks endangering the reserve status which allows it to be weaponized.Over the foreseeable future of the next decade or so, dollar weaponization will not endanger the US dollar’s unique position as the global reserve currency. The various network effects outlined previously make a near-term shift away from the dollar extraordinarily unlikely. Unfortunately for US policymakers, the long-term is less certain.
Riaz Haq said…
China Considers Buying Stakes in Russian Energy, Commodity Firms

https://www.bloomberg.com/news/articles/2022-03-08/china-considers-buying-stakes-in-russian-energy-commodity-firms


China Considers Buying Stakes in Russian Energy, Commodity Firms
Beijing’s talking with state-owned firms on opportunities
Any deal is to bolster energy, commodity imports: sources
Bloomberg News
March 8, 2022, 3:31 AM PST
China is considering buying or increasing stakes in Russian energy and commodities companies, such as gas giant Gazprom PJSC and aluminum producer United Co. Rusal International PJSC, according to people familiar with the matter.

Beijing is in talks with its state-owned firms, including China National Petroleum Corp., China Petrochemical Corp., Aluminum Corp. of China and China Minmetals Corp., on any opportunities for potential investments in Russian companies or assets, the people said. Any deal would be to bolster China’s imports as it intensifies its focus on energy and food security -- not as a show of support for Russia’s invasion in Ukraine -- the people said.

The discussions are at an early stage and won’t necessarily lead to a deal, the people said, requesting anonymity as the discussions aren’t public. Some talks between Chinese and Russian energy companies have started to take place, according to separate sources.

CNPC and China Petrochemical -- known as Sinopec Group -- declined to comment, according to the companies’ media officials. Chinese state-asset regulator Sasac, Aluminum Corp. of China and Minmetals didn’t immediately respond to requests for a comment. Representatives for Gazprom and Rusal didn’t immediately comment during a national holiday in Russia.

Russia’s war in Ukraine has increased the pressure on Beijing to secure imports as the cost of energy, metals and food skyrocket to unprecedented levels. Worried about the impact surging prices will have on the economy, China’s top government officials issued orders to prioritize commodities supply security, Bloomberg reported last week.

China has vowed to continue normal trade relations with Russia despite a massive corporate exodus from European and American firms. BP Plc, Shell Plc and Exxon Mobil Corp. took the energy industry by surprise by walking away from Russian assets worth billions of dollars.

Meanwhile, China Foreign Minister Wang Yi said earlier this week that China-Russia ties remain “rock solid,” even as Beijing expressed concern about civilian casualties and called for peace talks to end the war. Among China’s current energy investments in Russia, CNPC has a 20% stake in the Yamal LNG project and a 10% state in Arctic LNG 2, while Cnooc Ltd. also owns 10% of Arctic.

The two countries had already been strengthening ties, with Presidents Xi Jinping and Vladimir Putin last month signing a series of deals to boost Russian supply of gas and oil, as well as wheat. Gazprom and Rosneft PJSC were among Russian energy giants sealing agreements as the two leaders met in Beijing ahead of the Winter Olympics.

Still, any investment in Russia is fraught with risks that go beyond the geopolitical balancing act that Beijing faces. Russia has become a nearly un-investable market for global firms as the nation’s economy rapidly deteriorates. Sanctions have wiped billions of dollars from Russian assets and bonds have plummeted as default risks intensify. The yuan has surged against the ruble, raising questions over the strategic relationship of both countries.

An investment by China could help solidify Moscow’s effort to accelerate a so-called “Pivot to Asia” with oil and gas supply deals. China has doubled purchases of Russian energy products to nearly $60 billion over the last five years.

The Power of Siberia pipeline began sending gas to China in 2019, and Gazprom is already in talks with China over another route that could be signed this year, eventually allowing it to ship fuel from gasfields that supply Europe.
Riaz Haq said…
#US #inflation reached a four-decade high of 7.9% in February 2022, with the war in #Ukraine continuing to apply upward pressure on prices

https://www.wsj.com/articles/us-inflation-consumer-price-index-february-2022-11646857681?st=gn1690vhq5t6py5&reflink=article_copyURL_share

A relentless surge in U.S. inflation reached another four-decade high last month, accelerating to a 7.5% annual rate as strong consumer demand collided with pandemic-related supply disruptions.

The Labor Department on Thursday said the consumer-price index—which measures what consumers pay for goods and services—in January reached its highest level since February 1982, when compared with the same month a year ago. That put inflation above December’s 7% annual rate and well above the 1.8% annual rate for inflation in 2019 ahead of the pandemic.

The so-called core price index, which excludes the often volatile categories of food and energy, climbed 6% in January from a year earlier. That was a sharper rise than December’s 5.5% increase and the highest rate in nearly 40 years.


Prices were up sharply in January for a number of everyday household items, including food, vehicles, shelter and electricity. A sharp uptick in housing rental prices—one of the biggest monthly costs for households—contributed to last month’s increase.

High inflation is the dark side of the unusually strong economy that has been powered in part by government stimulus to counter the pandemic’s impact. January’s continued acceleration increased the likelihood that Federal Reserve officials could speed up a series of interest-rate increases this spring to ease surging prices and cool the economy.

The yield on the 10-year Treasury note hit 2% for the first time since mid-2019 on the prospect of tighter monetary policy, while stocks slipped.

Kathy Bostjancic, chief U.S. financial economist at Oxford Economics, said what started as pandemic-specific inflation has now “broadened out across many, many categories both on the goods side of the economy and on the services side.”

“It reflects supply constraints both in the goods market and the labor market but it also is a function of still strong demand, particularly from U.S. consumers,” she added.


On a monthly basis, the CPI increased a seasonally adjusted 0.6% last month, holding steady at the same pace as in December.

Used-car prices continued to drive overall inflation, rising 40.5% in January from a year ago. However, prices for used cars moderated on a month-to-month basis, a possible sign that a major source of inflationary pressure over the past year could be easing.

Food prices surged 7%, the sharpest rise since 1981. Restaurant prices rose by the most since the early 1980s, pushed up by an 8% jump in fast-food prices from a year earlier. Grocery prices increased 7.4%, as meat and egg prices continued to climb at double-digit rates.

Energy prices rose 27%, easing from November’s peak of 33.3%, but a jump in electricity costs was particularly sharp when compared with historical trends.

Higher prices are putting pressure on consumers, with inflation adding as much as $250 a month to living expenses, and businesses, which are scrambling to keep up with rising materials and labor costs.

Alex Mishkit launched her salon, Alex Cher Beauty, a year ago. Since then, she has increased prices to keep up with the rising costs of key supplies. First it was the nitrile gloves, which leapt as much as 30%. Then the price of waxing sticks shot up, followed by the price of wax itself, which rose around 15%.

“To a small-business owner going on her second year, it adds up. So I’m hyper-aware of the slightest increase because every dollar counts,” she said. With overall supply costs running between 10% and 15% more than they were when she opened her doors, Ms. Mishkit in December nervously announced a price increase of around 10%. To her surprise, she said, customers were supportive.
Riaz Haq said…
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Zoltan Pozsar head of short-term strategy at Credit Suisse shocked #WallStreet by his report titled Brent Wood III.
After this Crisis, the US #Dollar should be much weaker and, on the flipside, the #renminbi much stronger, backed by #commodities.
#UkraineRussiaWar

https://twitter.com/emrancaan/status/1502456475570032646?s=20&t=uIByH6hM0xqNwrPmNGSnfw
Riaz Haq said…
FT columnist Gillian Tett recently wrote there was “concern that some emerging market funds will dump non-Russian assets to cover losses on frozen Russian holdings,” amid talk that some overleveraged hedge funds had been wrongfooted and “memories of the 1998 collapse of Long-Term Capital Management are being revived.”

https://www.wsws.org/en/articles/2022/03/07/sanc-m07.html

Economic historian Adam Tooze has commented that Russian reserve accumulation, derived from its oil and gas sales, is a source of funding in Western markets and “part of complex chains of transactions that may now be put in jeopardy by the sanctions.”

Longer-term concerns about the future direction of the international monetary system and the world economy are also being raised. An editorial in the Economist headlined “A new age of economic conflict” said the implications of the sanctions on Russia were “huge” and marked a “new era of high-risk economic warfare that could further splinter the world economy.”

One issue that has been raised is that the sanctions, which demonstrate the enormous financial power of US imperialism because the dollar functions as the world’s major currency, will lead to a bipolar financial world—one based on the dollar and the other on the Chinese renminbi.

There is no realistic prospect that the renminbi can assume anything like the dollar’s global role given the fact that the Chinese financial system is controlled by the state while US markets, by contrast, are open and liquid. Furthermore, at present the renminbi is used to finance only 2 percent of world trade. While there are predictions it could rise to 7 percent in the next few years, it is dwarfed by the position of the dollar which finances 59 percent.

However, as the Economist noted, the sanctions will have long-term effects, the implications of which were “daunting.”

“The more they are used, the more countries will seek to avoid relying on Western finance. That would make the threat of exclusion less powerful. It would also lead to a dangerous fragmentation of the world economy. In the 1930s, a fear of trade embargoes was associated with a rush to autarky and economic spheres of influence.”

While the editorial did not make the point, this fracturing was one of the economic driving forces behind the eruption of World War II.

China will no doubt be carefully examining the implications of the Russian sanctions because in a war, or even a conflict over Taiwan or some other issue, the US and Western powers could freeze its $3.3 trillion of foreign reserves. Other countries, such as India, “may worry they are more vulnerable to Western pressure,” the Economist said.

An article by Wall Street Journal writer Jon Sindreu said the sanctions on Russia, which showed that reserves accumulated by central banks can simply be taken away, raised the question of “what is money?”

He noted that, in the wake of the Asian financial crisis of 1997–98, scared developing countries sought to protect themselves by accumulating foreign currency holdings, raising them from less than $2 trillion to a record of $14.9 trillion in 2021.

“Recent events highlight the error in this thinking: Barring gold, these assets are someone else’s liability—someone who can just decide they are worth nothing,” Sindreu said.

In the 19th century and into the first part of the 20th, the world financial system operated on the gold standard. This system collapsed with the eruption of World War I and attempts to restore it in the 1920s failed, leading to the breakdown of international trading and financial relations in the 1930s and a return to barter in some cases.
Riaz Haq said…
Banning Russia from SWIFT is a big deal. But the real pain comes from sanctions.
Keeping Russian banks from using SWIFT is not the financial nuclear weapon some have suggested.

https://www.washingtonpost.com/politics/2022/03/07/swift-sanctions-russia-ukraine-banking/

While the United States might fear the growth of new messaging services in the future, this case isn’t likely to bring significant blowback. Russia is unlikely to use alternative financial channels, because the existing ones all have problems. For example, executing transactions over telephone or fax, or by using credit or debit cards that fuse communications technologies with transactions. That’s outdated and will not scale to the degree Russia would need.

Alternative financial communication networks are either in their infancy or depend on the SWIFT network. The Bank of Russia created a financial messaging system (FMS) after the 2014 Ukraine crisis — but it includes only 400 users and therefore isn’t that useful. China’s Cross-Border Interbank Payment System (CIPS) has about three times FMS’s users — but SWIFT includes nearly 10 times as many users as CIPS. What’s more, CIPS isn’t an alternative to SWIFT; it depends on SWIFT for international messaging.

Russian banks not facing sanctions may turn to CIPS. But China may be reluctant to welcome sanctioned banks, lest it jeopardize its use of SWIFT.

---------------


Two days after Russia launched an attack on Ukraine, the United States, Canada and European allies agreed to disconnect a handful of Russian banks from SWIFT, the Society for Worldwide Interbank Financial Telecommunication. These “de-SWIFTed” Russian banks would no longer be able to use the financial interface to transfer money.

The long-standing, and controversial, threat to disconnect Russia from the SWIFT network has been touted as a centerpiece of the West’s retaliation. How big is it, really? And how will it affect the United States and its use of financial power in the future?

The limits of de-SWIFTing

SWIFT connects more than 10,000 financial institutions in a communications network where orders are sent and received. This messaging service enables participating banks to settle commercial, financial and foreign-exchange payments. Cutting banks off from SWIFT means they can no longer use the network to exchange information.


But keeping banks from accessing SWIFT is not, on its own, the financial nuclear weapon some suggest. Denying access to SWIFT, for example, does not stop banks from communicating or transacting with the 11,000 financial institutions outside the SWIFT network. Disconnected banks that do not face sanctions are free to use alternative messaging networks to settle payments.

In fact, without sanctions on actual money transfers, denying countries access to SWIFT could undermine the messaging service by encouraging users to rely on other financial communication networks.

Today, SWIFT continues to be dominated by major U.S. financial institutions, with 40 percent of recorded transactions occurring in U.S. dollars. Making the U.S.-centered financial order less attractive is precisely the type of collateral damage the United States seeks to avoid.



Riaz Haq said…
Powell Says War May Speed China Moves to Insulate Against Dollar
Fed chief says China has been working on currency matters
Powell says Ukraine war may serve as accelerant to China moves
Powell: Fed Needs to Be 'Nimble' Amid Ukraine Crisis

Federal Reserve Chair Jerome Powell said the Ukraine war could have the effect of accelerating China’s moves to develop alternatives to the current dollar-dominated international payments infrastructure.

Powell was questioned Thursday in a Senate Banking Committee hearing on how China might view the U.S.-led efforts to isolate Russia’s economy, especially by damaging its ability to use the dollar.

https://www.bloomberg.com/news/articles/2022-03-03/powell-says-war-may-speed-china-moves-to-insulate-against-dollar

Riaz Haq said…
TSMC has suspended all sales to Russia and to third parties known to supply products to Russia while it sorts through the sanctions rules to ensure it fully complies, according to a person familiar with the company’s business, who spoke on the condition of anonymity to discuss sensitive matters.

https://www.washingtonpost.com/technology/2022/02/25/ukraine-russia-chips-sanctions-tsmc/

In a statement, TSMC said it is “fully committed to complying with the new export control rules announced.”


GlobalFoundries, the chip manufacturer based in Malta, N.Y., said it also has begun complying with the rules. The company has a system to review and block any prohibited sales to Russia, said Karmi Leiman, the company’s head of global government affairs and trade, though he added that the size of the company’s sales to Russian buyers is “not material.”

Leiman said the internal review system is similar to the one the company uses for Huawei, the Chinese tech giant that has been a target of U.S. sanctions for several years.


Intel, based in Santa Clara, Calif., said it “complies with all applicable export regulations and sanctions,” including the new Russia-focused export controls.

Russia is vulnerable to the export ban because it doesn’t produce consumer electronics or chips in large quantities, analysts say. In particular, it doesn’t make the highest-end semiconductors needed for advanced computing, an area dominated by Taiwan, South Korea, the United States, Europe and Japan.


TSMC’s participation in the sanctions is particularly damaging because the company is the world’s largest manufacturer of chips, including the most advanced.

Among the chips TSMC is no longer manufacturing and shipping are Elbrus-branded semiconductors that are designed in Russia, according to the person familiar with TSMC’s business.

Russia’s military and security services use Elbrus chips in some computing applications, according to Kostas Tigkos, an electronics expert at Janes, a U.K.-based provider of defense intelligence, who described the loss of TSMC’s help with the chips as “devastating” for Russia.

The Russian government has also been encouraging large domestic companies and banks to use Elbrus chips in their computers because the components are designed in Russia.

Russian drones shot down over Ukraine were full of Western parts

The Semiconductor Industry Association, a trade group representing big chipmakers, said its members are “fully committed to complying” with the new rules “in response to the deeply disturbing events unfolding in Ukraine.”


“While the impact of the new rules to Russia could be significant, Russia is not a significant direct consumer of semiconductors, accounting for less than 0.1% of global chip purchases, according to the World Semiconductor Trade Statistics (WSTS) organization,” the group’s president, John Neuffer, said in a statement.

The United States and other Western nations have long regulated sales to Russia of chips and other electronic components specifically designed for military use. Any such sales already required a government license to proceed, industry experts said.

The new rules largely block the sale of dual-use chips, which have both military and commercial applications, to nonmilitary users in Russia, including those in high-tech industries.

In a novel move that the United States has used only once before — against China’s Huawei — it is also requiring companies worldwide to abide by the rules and block such sales to Russia if they use U.S. manufacturing equipment or software to produce chips. Most chip factories around the world use software or equipment designed in the United States, analysts say.

Riaz Haq said…
U.S. tech dominance could offer leverage over Russia — or backfire
Silicon Valley’s increasingly aggressive stance against Russia could fuel the growth of rivals there and in China, Iran, too


https://www.washingtonpost.com/technology/2022/03/03/us-russia-technology-dependence/


Withholding technology can be a soft-power weapon to potentially turn a population against its leaders. Yet it also can be costly to the U.S. economy, slow to deliver results and scattershot in its effects — much more likely to affect ordinary Russians using their iPhones than generals firing missiles into Ukrainian cities.

There is another cost, as well. The United States’ dominance of global technology, experts warn, was built over generations but could be eroded in just a few years as rival powers — and especially Russia and China — invest billions of dollars to develop alternative technologies at home, in part to decrease U.S. leverage at moments such as these.


Even as Russians furiously buy iPads, Android devices and Windows-based computers, President Vladimir Putin is pushing hard to wean the country from Western technologies. And if Russia and other U.S. rivals succeed, there also could be long-term damage to the ability of American intelligence agencies — particularly skilled in exploiting U.S.-made tech — to track developments in the next conflict, experts say.

The upshot is that although technology sanctions can be unquestionably powerful, it’s a power that, when deployed, can spark backlashes that undermine its long-term utility. Depriving rivals of American-made technology also threatens the future global prospects of an industry that has driven U.S. economic growth for most of this century. The rise of a Russian Google — or a Chinese Facebook or an Iranian YouTube — are not theoretical developments. They are happening already.

“When you cut them off from American tech, they will find alternatives,” said Peter Micek, general counsel for Access Now, a human rights group that lobbies to keep Internet services available to people worldwide.

U.S. officials and technology executives are attempting to navigate this chessboard of risk and reward as they assemble a potent set of punitive moves against Russia.


The result has been growing restrictions on hardware, with Apple joining others in blocking sales to Russia, and moves by major social media platforms to curb the spread of Russian propaganda through its state-funded RT information service — often in response to the demands of Western governments. Digital purchasing tools, such as Apple Pay, also have stopped working as Western sanctions cut off Russian banks for ordinary operations.

But calls by Ukrainian officials to deprive Russians in general of access to social media and even the Internet itself have sparked significant resistance from both the companies and digital rights groups, which argue that the likes of Twitter, WhatsApp and Telegram are key to delivering information in Russia. They often are the only sources of news on the horrors Putin is inflicting on Ukrainians at a time when his control over national news media is nearly total.

The Russian government, meanwhile, has been squeezing these same companies, throttling Facebook and Twitter, and threatening action against Google in retaliation for its YouTube subsidiary limiting access to RT in response to demands by Western governments.

But as this conflict plays out, the idea of depriving Russia of software updates or online support from U.S. companies has not gained traction, even though such moves could gradually erode the functioning of technological tools used every day by the Russian government and its citizens.
Riaz Haq said…
Economic Weapons of Mass Destruction

https://www.project-syndicate.org/commentary/economic-wmds-and-the-risk-of-deglobalization-by-raghuram-rajan-2022-03

By RAGHURAM G. RAJAN


Because Russia's war against Ukraine could not go unpunished, the use of painful, sweeping economic sanctions is clearly justified. In the future, though, these powerful new tools will need to be subject to proper controls; otherwise, they could trigger a reversal of globalization – and of the prosperity that it has made possible.

CHICAGO – War is horrific, no matter how it is waged. Nevertheless, Russia’s unprovoked attack on Ukraine, with its scenes of Ukrainian civilians being murdered or driven from their homes, undoubtedly had to be opposed. In addition to supplying Ukraine with military weapons, governments around the world have deployed economic weapons against Russia. While Russia, an economic midget relative to its military power, may still lash out by expanding the range of military weapons it uses and the territories it targets, it is a risk the world had to take.

Compared to Russia’s indiscriminate bombing, economic weapons will not kill people as quickly, create as much visible destruction, or inspire as much fear. Nonetheless, the unprecedented economic weapons that have been deployed against Russia will be unquestionably painful.

The strictures on Russia’s central bank have already contributed to the ruble’s collapse, and new limitations on cross-border payments and financing have had an immediate impact, weakening confidence in Russian banks. Though trade sanctions (restricting exports of key inputs such as airplane parts to Russia, as well as purchases from Russia) and the exodus of multinational corporations from Russia will have a less immediate effect, they will reduce economic growth and increase unemployment significantly over time. If these measures are not reversed, they will eventually translate into lower living standards, poorer health, and more deaths in Russia.

That we have come to this point reflects a widespread political breakdown. Too many powerful countries are now being led by authoritarian rulers whose reliance on nationalism makes them less willing to compromise internationally and who face few domestic constraints on their behavior. If Russian President Vladimir Putin’s aggression were to go unpunished, more international provocations like his war in Ukraine would become inevitable.



https://youtu.be/yFCpMOCVdAw


Equally problematic is the breakdown of the international order. The United Nations Security Council cannot legitimately act against any of its permanent veto-wielding members (China, France, Russia, the United Kingdom, and the United States). The organization’s impotence translates into impunity for strongmen who flout international norms. Moreover, even if the UN could approve a military response, the will to confront a determined nuclear power militarily would probably be lacking.

Economic weapons, made possible by global integration, offer a way to bypass a paralyzed global governance system. They allow other powers an effective (that is, painful) but civilized way to respond to aggression and barbarity.



But the risks that these weapons can create must not be underplayed. When fully unleashed, sanctions, too, are weapons of mass destruction. They may not topple buildings or collapse bridges, but they destroy firms, financial institutions, livelihoods, and even lives. Like military WMDs, they inflict pain indiscriminately, striking both the culpable and the innocent. And if they are used too widely, they could reverse the process of globalization that has allowed the modern world to prosper.


Riaz Haq said…
Putin and Xi Exposed the Great Illusion of Capitalism
Unless the U.S. and its allies mobilize to save it, the second great age of globalization is coming to a catastrophic close.


https://www.bloomberg.com/opinion/articles/2022-03-24/ukraine-war-has-russia-s-putin-xi-jinping-exposing-capitalism-s-great-illusion

The supply of basic commodities, from wheat to nickel to titanium to oil, has been disrupted. The West is doing everything it can to “cancel” Russia from the global economic system — sanctioning oligarchs, expelling Russian banks from the global financial plumbing, and preventing Russia’s central bank from accessing its reserves. There’s talk of throwing Russia out of the World Trade Organization.

Even when they haven’t been forced to do so by law, Western companies are boycotting Russia and closing down their Russian operations. Russian consumers can no longer use Visa, MasterCard and American Express. The McDonald’s in Pushkin Square is closed — along with 850 other branches. Photos have appeared on social media of Russians standing in interminable queues for sugar and other basic foods or else fighting over remaining scraps, just as they did in the Soviet days. For its part, the Kremlin has hit back by blocking access to Facebook and threatening to imprison or fine anyone suspected of spreading “fake” news, thereby essentially closing down Western news organizations inside the country.

We Didn’t Mean It
The Western policymakers meeting this week will say they have no intention of closing down the global order. All this economic savagery is to punish Putin’s aggression precisely in order to restore the rules-based system that he is bent on destroying — and with it, the free flow of commerce and finance. In an ideal world, Putin would be toppled — the victim of his own delusions and paranoia — and the Russian people would sweep away the kleptocracy in the Kremlin.

In this optimistic scenario, Putin’s humiliation would do more than bring Russia back to its senses. It would bring the West back as well. The U.S. would abandon its Trumpian isolationism while Europe would start taking its own defense seriously. The culture warriors on both sides of the Atlantic would simmer down, and the woke and unwoke alike would celebrate their collective belief in freedom and democracy. McDonald’s would be open again in Pushkin Square — and Keynes’s various serpents would slither out of the garden.


There’s a chance this could happen. Putin wouldn’t be the first czar to fall because of a misjudged and mishandled war. Many of Russia’s most powerful people are seeing their mansions, yachts and private planes confiscated, all for an invasion they weren’t consulted about. Younger Russians, particularly in the big cities, are more liberal than their parents. Russian shoppers don’t want to return to the Soviet era.

Meanwhile in the West, Ukraine has already prompted a great rethink. As German Chancellor Olaf Scholz has proclaimed, we are at a Zeitenwende — a turning point. Under his leadership, pacifist Germany has already proposed a defense budget that’s larger than Russia’s. Meanwhile, Ukrainian immigrants are being welcomed by nations that only a few months ago were shunning foreigners, and, after a decade of slumber in Brussels, the momentum for integration is increasing.

But this turning point can still lead in several directions. The chances of a regime change in the Kremlin remain slim, given Putin’s popularity and terror machine. Western Europe has heard pious words about integration and immigration before. And look at the West’s leaders! Joe Biden hardly conveys an image of world-changing dynamism; after his initial heroics, Olaf Scholz greeted Volodymyr Zelenskiy’s speech to the German parliament with pudding-like inertia; Emmanuel Macron is bent on winning an election while trying to look like Zelenskiy, in hoodie and stubble; while Boris Johnson has dared to compare the Ukrainian resistance to Brexit.
Riaz Haq said…
#India's #payment giant #NPCI has #SWIFT alternative for 32 million #NRIs. UPI (Unified Payment Infrastructure) linkage with other nations will anchor #trade, #travel, #remittance flows between countries & lower the cost of cross-border transactions https://www.livemint.com/news/india/payment-giant-npci-has-swift-alternative-for-32-million-indian-expats-11657074479843.html?utm_source=share&utm_medium=social&utm_campaign=share_via_web

The company that built India’s digital payments backbone plans to make it cheaper and easier for the nation’s 32 million expatriates to bring their money home.

Indians overseas remitted $87 billion last year, the biggest inflow for any country tracked by the World Bank. The remittances market, where it costs $13 on average to send $200 across borders, is ripe for disruption, according to Ritesh Shukla, chief executive officer of NPCI International Payments Ltd.

“We have displaced cash in India to a large extent and are now looking to repeat the success in cross-border corridors," said Shukla. “Overseas Indians can use our rails to remit money inwards straightway into their bank accounts, and for the markets where Indians travel frequently, we will build acceptance for our instruments."


Successful overseas forays by NCPI would give India a home-grown alternative to SWIFT, the Belgium-based cross-border payment system operator, though Shukla stressed that the objective was not to displace existing platforms. About 330 banks and 25 apps -- including Alphabet Inc.’s Google Pay and Meta Platform Inc.’s WhatsApp -- share NCPI’s unified payment interface, which has helped make instantaneous digital transactions a $3 trillion market in India.

NPCI is in the process of connecting the UPI platform to systems in other countries to replicate its domestic success. It is negotiating collaborations with governments, fintech companies and service providers around the world, aiming to reduce transaction costs and enable more small-ticket transactions, Shukla said.

Cutting Costs

“This is going to take the payments world by storm," said Mayank Goyal, CEO of moneyHop, a cross-border banking app that lets users make international remittances through the SWIFT network. The company will seek to integrate UPI rails into the app as it makes cross-border payments easier, Goyal said.

UPI’s linkage with overseas nations will further anchor trade, travel and remittance flows between the countries and lower the cost of cross-border remittances, the Reserve Bank of India said in a report.
Riaz Haq said…
#Russia seeking #oil payments from #India in #UAE dirhams as #Moscow moves away from the #US #dollar to insulate itself from the effects of Western #sanctions. #Ukraine #energy #EU
https://www.reuters.com/business/energy/exclusive-russia-seeking-oil-payments-india-dirhams-sources-document-2022-07-18/

Russia is seeking payment in United Arab Emirates dirhams for oil exports to some Indian customers, three sources said and a document showed, as Moscow moves away from the U.S. dollar to insulate itself from the effects of Western sanctions.

Russia has been hit by a slew of sanctions from the United States and its allies over its invasion of Ukraine in late February, which it terms a "special military operation".

An invoice seen by Reuters shows the bill for supplying oil to one refiner is calculated in dollars while payment is requested in dirhams.

Russian oil major Rosneft is pushing crude through trading firms including Everest Energy and Coral Energy into India, now its second biggest oil buyer after China.

Western sanctions have prompted many oil importers to shun Moscow, pushing spot prices for Russian crude to record discounts against other grades.

That provided Indian refiners, which rarely bought Russian oil due to high freight costs, an opportunity to snap up exports at hefty discounts to Brent and Middle East staples.

Moscow replaced Saudi Arabia as the second biggest oil supplier to India after Iraq for the second month in a row in June.

At least two Indian refiners have already settled some payments in dirhams, the sources said, adding more would make such payments in coming days.

The invoice showed payments to be made to Gazprombank via Mashreq Bank, its correspondent bank in Dubai.

The United Arab Emirates, seeking to maintain what it says is a neutral position, has not imposed sanctions on Moscow, and the payments could add to the frustration of some in the West, who privately say the UAE's position is untenable and siding with Russia..

The trading firms used by Rosneft have started asking for the dollar equivalent payment in dirhams from this month, the sources said.

Rosneft, Coral Energy and Everest Energy did not respond to Reuters emails seeking comment.

Russia wants to increase its use of non-Western currencies for trade with countries such as India, its foreign minister Sergi Lavrov said in April.

The country's finance minister last month also said Moscow may start buying currencies of "friendly" countries, using such holdings to influence the exchange rate of the dollar and euro as a means of countering sharp gains in the rouble.

The Moscow currency exchange is preparing to launch trading in the Uzbek sum and the dirham.

Dubai, the Gulf's financial and business centre, has emerged as a refuge for Russian wealth.

India, also maintaining a neutral position, recongnises insurance cover by Russian companies and has offered classification to ships managed by a Dubai-based subsidiary of Moscow's top shipping group to enable trade.

India's central bank last week introduced a new mechanism for international trade settlements in rupees, which many experts see as a way to promote trade with countries that are under Western sanctions, such as Russia and Iran.
Riaz Haq said…
The dollar sits atop a global monetary order shaken by sanctions
Countries tend to hold certain currencies as reserve assets mostly for economic, not geopolitical, reasons
ISABELLE MATEOS Y LAGO

https://www.ft.com/content/e2a69a2b-8eb1-4164-97ab-7a532cf743a2



"But ultimately, international reserves are held for specific economic reasons, not geopolitical ones: pegging or managing the exchange rate to another currency; paying for imports and international debt service; providing foreign exchange liquidity of last resort to domestic banks. So what will determine the extent of any shift in global reserve allocations is not the portfolio preferences of central bankers or the intrinsic properties of US dollar alternatives. It is whether new currencies come to play an important role in international trade and financial relations. The recent news of China negotiating with Saudi Arabia to pay for oil in renminbi is not, in itself, game-changing. If it finally happens and more of China’s inbound and outbound trade partners follow, it might well be"



-----

Days after Russian troops invaded Ukraine, the G7 and a host of allies in Europe and Asia declared a freeze on the assets of the Central Bank of Russia. The move, unprecedented in its swiftness and scale, instantly incapacitated roughly half of its $630bn in international reserves. Up to this point, central bank reserves had only been frozen multilaterally after abrupt regime change — think of the Bolshevik and Chinese revolutions, or more recently Hugo Ch├ívez’s Venezuela.

Immediately, warnings were uttered about unintended consequences, in particular the stability of the US dollar in the international monetary system. As many have convincingly argued, the Russian reserves freeze alone is unlikely to end the dominant role of the US dollar. But it might, over time, induce major shifts in global monetary relations alongside a broader rewiring of globalisation, making the last 30 years look like a lost golden age.

Prudence and deliberation are in central banks’ DNA. They do not make rash decisions. So while many central bankers privately felt shock or dismay at the reserves freeze, they do not appear to have significantly reallocated assets away from the dollar or euro.

Yet there is consensus among central bank reserve managers that something fundamental has changed: geopolitical considerations now need to be taken into account when assessing the safety and liquidity of a reserve asset. For most, this is an argument in favour of currency diversification, a trend under way already over the past 20 years at the expense of the US dollar and to the benefit of smaller advanced economy currencies such as the Canadian dollar or the Korean won. This might now accelerate, and possibly extend to additional currencies.

Might the renminbi be one of the beneficiaries, as suggested by a recent survey? In fact, when it comes to the attractiveness of Chinese bonds in reserve portfolios after the sanctions on Russia, geopolitics is a clear dividing line. By and large, central bankers I talk to in countries in or close to the sanctioning coalition are reviewing — but not yet retreating from — whatever exposure or planned exposure they had to the renminbi. Others seem more inclined to stick to their holdings and plans to ramp them up further over time.

In the near term there is little practical scope to overhaul trade and financing patterns, even if some countries want to. But other forms of rewiring may develop. Countries that see themselves as politically aligned may try to create a mutual aid system, separate from the sanctioning coalition. China’s recent creation of a renminbi liquidity facility at the Bank for International Settlements can be seen in this light. Discussions could also resurface between large reserve holders from the global south about swap arrangements, like those between the Fed, European Central Bank, Bank of England and a few others in the 2008 financial crisis. Cross-border payment systems to rival Swift will probably continue to grow.

Riaz Haq said…
U.S. Lawmakers Look to Digital Dollar to Compete With China
The Federal Reserve is considering the idea, but in no rush to join a digital-assets space race

https://www.wsj.com/articles/u-s-lawmakers-look-to-digital-dollar-to-compete-with-china-11659925037?mod=Searchresults_pos4&page=1

Lawmakers are pushing the Federal Reserve to move swiftly toward issuing a digital dollar, to combat steps from China and others they say could one day threaten the U.S. status as the global reserve currency.

The bipartisan group of lawmakers, including Reps. Maxine Waters (D., Calif.) and French Hill (R., Ark.), has sought for the U.S. to counter global competitors launching digital versions of their currencies. The House Financial Services Committee, which both serve on, might vote on related legislation as soon as next month.

Ms. Waters has framed competition over new forms of central-bank money as “a new digital assets space race.” The Biden administration and the Fed don’t share a sense of urgency.

-----------

Fed Chairman Jerome Powell has indicated the central bank isn’t in a rush, as it confronts inflation and a slowing economy. Mr. Powell has said it is more important to get the digital dollar right than to be first to market, in part because of the dollar’s critical global role. He has also said the Fed won’t issue a digital dollar without support from elected officials. The White House has largely remained neutral on a digital dollar, with President Biden ordering a study to determine its implications for issues such as economic growth and stability.

---------------

Some in Congress say the U.S. is already behind the curve. Among the Group of 20 major economies, 16 are in the development or pilot phase of a digital currency, according to the Atlantic Council, a Washington think tank. The European Central Bank, on behalf of countries including Germany and France, is exploring designs for a digital euro and preparing to launch a test pilot.

Mr. Hill, the Arkansas Republican, said his concerns were animated in part by China, which began real-world testing of its own central-bank–issued digital currency in 2020. In an interview, he said China’s lending practices in the developing world could make it easier for the country to promote international uses of its digital currency—a potential threat to the dollar-based global economy.

--------

“We should be concerned about China’s predatory practices,” he said.

Chinese authorities haven’t ruled out international use of the e-CNY, the official name for the country’s digital currency, but say it is designed for small-scale domestic use by consumers.

Analysts are looking for signs that the People’s Bank of China will take concrete steps to join with central banks elsewhere to make it possible to use digital currencies between countries. The bottom line is that Beijing is uncomfortable with the outsize role the U.S. dollar plays in global commerce and in particular fears being frozen out of the dollar-based financial system, such as in response to a conflict over Taiwan.

International transactions in a digitized currency created by China, the thinking goes, could be a defensive weapon in such circumstances because they would happen beyond the reach of the U.S.

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