Kremlin is out and about- U.S. sanctions and its currency mean nothing for the nation.
- Russia’s Finance Ministry to de-dollarize its Sovereign Wealth Fund
- The move is an economic retaliation and back up against the U.S.-imposed sanctions.
- Euros, Yuans, and gold to replace Kremlin’s national wealth.
- A jackpot for the Chinese administration to strengthen its fight against the USD.
As the U.S.-Russia relations continue to skimming under the bleak shadow of diplomacy, Russia has decided to take a strong step against the U.S. imposed sanctions. Vladimir Putin’s finance ministry announced on June 4, 2021, that it will clear the country’s sovereign funds off the American dollar as soon as possible. 35% of the Russian national wealth fund which is worth $185 billion is currently in the form of USD. All of this portion will soon be converted into euros, yuans, and gold according to the Finance Ministry of Russia.
The announcement came in retaliation to the sanctions that the Biden administration imposed on Russia in April this year for its alleged attempt to meddle with the U.S. Presidential elections 2020. The United States has also accused Russia of its involvement in illicit activities like computer hacking and others, on a mass scale.
Not just Russia denies any of the above allegations put forth by Biden administration, it has accused the U.S. in return of excessive Russophobia along with the latest fiscal action of getting rid of USD.
What are the sanctions imposed by the U.S. on Russia?
The Biden administration spoke about its growing concern against Russia for its “destabilizing international action” and imposed sanctions in return.
The U.S. government on April 15, 2021 expelled 10 diplomats for Kremlin’s interference in U.S. elections, huge cyberattack and other illicit and hostile actions.
Under the sanction, President Biden ordered U.S. banks to seize trading in Russian government debts. Among the diplomats who were expelled, a few were accused of being spies. And as many as 32 people were blacklisted on the suspicion of meddling with the 2020 U.S. Presidential elections.
The emerging new world order
What Russia conveys to Washington with its consequential decision to get rid of USD is that it is not afraid of any sanctions that President Biden hopes to impose on Kremlin.
According to Timothy Ash, senior emerging markets strategist at BlueBay Asset Management, “It is a very political move—meant to send a signal to the Biden administration before the Biden-Putin summit.”
“The message is ‘we don’t need the U.S., we don’t need to transact in dollars, and we are invulnerable to more U.S. sanctions.’”
Increasing Sino-Russian ties are no secret anymore. The world is aware of the diplomatic partnership of Xi Jinping and Vladimir Putin that is taking a brighter turn with each passing day.
This move by the Russian government will immensely help to strengthen the hold of Chinese currency that is already on a stride of expanding its outreach.
First Deputy Prime Minister Andrei Belousova said on the sidelines of the St. Petersburg Economic Forum, the country’s flagship investment event, “this is a sensible decision, it is connected, among other things, with the threats of sanctions that we received and received from the American leadership.”
So what exactly is Sovereign Wealth Fund?
National wealth or Sovereign Wealth Funds are the investment funds owned by the state to aim government in flow of wealth, crisis management, investment, etc. The major use of these funds is to invest in bonds, gold, stocks, real estate, etc. by the government to earn an interest in return.
Almost every economically independant country maintains a sovereign national fund. Till January, 2021, world’s biggest and richest sovereign wealth fund is owned by Norwegian government, worth $1.1 trillion. It is followed by China’s Investment Cooperation Fund which is valued at around $1 trillion.
These sovereign funds expand the government’s overseas investment while escalating savings ad increasing transparency through allocation. So where does this money for the sovereign funds come from? The answer is the country’s budget surplus, trade surplus, and revenue from the export of natural resources.
Russia’s step to de-dollarize its national wealth fund doesn’t have many stark consequences on the market according to experts. However, it has a grave consequence on the reputation of the dollar. Since World War II, the USD has continued to be the international currency of exchange and is regarded as the most powerful currency for the same reason.
Kremlin has begun the de-popularization of the USD, indirectly sending out a message that countries can do without USD in their wealth funds. It has further paved a way for yuan to accelerate its attempts in overtaking the world’s most powerful currency.