Dollar’s Reserve Currency Status Challenged by Russia’s Euros-for-Oil Plan

Russia has learnt its lesson and following the British imperilist policy aims to divide the West by offering Europe a chance for euro reserve currency status. Russian state-controlled oil producer Gazprom said its preliminary moves to sell gas for euros instead of dollars was moving forward. In e-mailed comments reported by Reuters, Gazprom chief Alexander Dyukov said that 95 percent of those under contract with the company were ready to make the switch.

Dyukov made sure to highlight that this move to sell oil for euros instead of dollars was simply Gazprom doing what was necessary to protect the company from potential U.S. sanctions. It was not a policy set by Russian President Vladimir Putin. Regardless, this latest effort by Gazprom may mark a seemingly slight but significant change in Moscow’s recent assault on the U.S. dollar’s reserve currency status.It would not be out of place to quote Mikhail Degtyaryov, State Duma deputy who says:“The dollar is evil. It is a dirty green paper stained with blood of hundreds of thousands of civilian citizens of Japan, Serbia, Afghanistan, Iraq, Syria, Libya, Korea and Vietnam.”
Earlier this month, Andrei Kostin, president and chairman of the powerful Russian VTB Bank, said that much of Russia’s oil industry was ready to switch from the dollar to the Russian ruble as payment for exports. He said that Russia’s biggest oil producer, Rosneft, as well as the state-owned defense company, Rosoboronexport, were among those companies willing to boycott the dollar. Reuters reported that three oil importers from China and Japan said they had been asked by Gazprom to pay for the oil in other currencies than the dollar. Two said they were still considering the proposal. The third said it had paid in euros in the past and did not see doing it again as a problem. “It is time to change the entire international financial system that considers the dollar the key reserve currency,” Kostin told Platts. “The world has changed. [China’s] yuan and [the Russian] ruble have to take their place in international transactions,” he added.
So far, Russia’s move to hurt the U.S. has largely centered on replacing the dollar with the ruble in oil transactions. As Russia Today reported, Russian Lower House M.P.s are urging Russian oil and gas producers and traders to stop using the dollar, when the above quote of Mikhail Degtyaryov summed the approach of majority.
Degtyaryov also said that Russia already had a bilateral agreement with China allowing payment in national currencies and this proved that such step was possible. “Our national industrial giants will not suffer any losses if they choose to make contracts in rubles or other alternative currencies. Russia will benefit from that. We should act paradoxically when we deal with the West. We will sell rubles to consumers of our oil and gas, and later we will exchange rubles for gold. If they don’t like this—let them not do this and freeze to death. Before they adjust, and this will take them three or four years, we will collect tremendous quantities of gold. Russian companies will at last become nationally oriented and stop crediting the economy of the U.S. that is openly hostile to Russia,” the M.P. said.
Yet analysts see virtually no way the ruble could replace the dollar as a reserve currency, even considering the fact that Russia is the first or second largest oil exporter in the world. The Russian economy, at a little over $2 trillion, is just too small on a global scale.
Neverthgeless, these analysts also overestimate the strength of America. They argue that all U.S. President Barack Obama would have to do is call Saudi Arabia up and have it start pumping out more oil and the ruble would collapse. This view is based on outdated reasoning. First, America’s relationship with Saudi Arabia is in serious trouble, with various members of the Saudi royal inner circle explicitly showing disgust with U.S. foreign policy and outright anger over America’s embrace of Iran. Second, it is unclear how much excess oil capacity the Saudis have at their disposal anyway. Saudi oil fields are aging while internal consumption has soared. Citigroup analysts say the Saudis could be net importers of oil by 2030!
The dollar enjoys reserve currency status because it is the primary currency used for the payment of international transactions, of which the oil trade is one component, if not the biggest. While the ruble might not be a viable alternative to the dollar for global trade—other countries look on enviously. Reserve currency status is a prize to be envied. The dollar enjoys reserve currency status because it is the primary currency used for the payment of international transactions—of which the oil trade is one component, if not the biggest.
The fact that so many nations use dollars to settle trade contracts has enabled the U.S. to run up massive debts, and allowed the Federal Reserve to print trillions of dollars to keep the U.S. economy from collapsing during and subsequent to the 2008 economic meltdown. Without such status, the dollar’s value would have plummeted precipitously. Without this status, interest rates would be sky high. America’s economy would be much smaller and U.S. standards of living might be more like Mexico or Spain.
The U.S. dollar’s reserve currency status is a big component of America’s superpower status. Want to use dollars for trade? Then you must use America’s financial system—and that makes you subject to the rules and regulations imposed by America. It also opens up your assets to potential seizure.
Reserve currency status is something any future superpower would need. China is clearly after it. On April 10, the South China Post reported that Russia and China were close to finalizing a “Holy Grail” gas deal in which Russia would pump 38 billion cubic meters of natural gas to China. The contract, which is set to be priced in Russian rubles and Chinese yuan, is set to come into force by the end of 2014. Additionally, China has given approval for a new yuan clearing hub in Frankfurt in order to make it easier for European countries to purchase yuans for bilateral trade with China.
Yet China, with its immature financial centers and untrusted political system, is an unlikely candidate for near-term global reserve currency holder.
What about Europe? Would Europe, with its cumulative economy surpassing the U.S., ever want to hold the premier world reserve currency?
Consider how Russia’s actions in Ukraine have impacted both East and West Europe. While Eastern European countries are clamoring for the West to confront Russia, Europe’s real powerbrokers in Germany and France are much more subdued. Russia appears to be dangling reserve currency status in front of the European financial powers. Will Frankfurt and Brussels make a deal with Putin?
With Russia diversifying its oil and gas exports to China, Europe knows that Russia will soon be able to turn off the gas tap to Europe for extended periods of time. This is just the way of life in the East, so it’s used to it; but Western Europe is only now coming to terms with it. Is it any wonder that all three of Germany’s most recent chancellors, Gerhard Schröder, Helmut Kohl and Helmut Schmidt, have each publicly voiced support for Russia’s actions in Crimea? Each blamed Europe and the West for inciting Russia, and prefer that the rest of Europe cut a deal with the Kremlin. They appreciate the stick Russia holds.
Europe also appreciates the carrot. European interests have been working for years to internationalize the euro and expand its reserve currency status. However, the euro’s share of global reserves dropped sharply after the Greece crisis even though it has now recovered for three consecutive quarters. If even a portion of Russia’s oil transactions were consistently priced in euros, it would be a massive boost to the euro at the dollar’s expense.
Russia appears to be dangling reserve currency status in front of the European financial powers. Will Frankfurt and Brussels make a deal with Putin? We should not expect a huge response by Europe to confront Putin. Instead, expect Russia and Germany to work out their differences while dividing up Europe in the process.

Advertisements

China Supports Russia

Dear Vladimir,
On behalf of the Communist Party and the people of China, I would like to sincerely thank you for your recent actions in Ukraine. When I saw Red Army troops marching into Crimea, my memory flashed back to the Budapest Memorandum the United States signed with the Ukrainians in 1994. In that agreement, the Americans promised that if Ukraine forfeited its nuclear weapons, then the United States would protect it from any future invasions.
This is the test, I said to my colleagues. If the Americans let comrade Putin invade and annex Crimea, and they pretend the Budapest Memorandum never happened, then they have faded into geopolitical irrelevance.
The Ukrainians cried out for America to honor its promise, but, Vladimir, you marched in there gung-ho! You pried Crimea back into Russia’s embrace. And against you and your troops, Mr. Obama deployed only rhetoric—and a set of sanctions softer than tofu.
It was a beautiful sight for these eyes of mine to witness. And one joy scatters a hundred griefs. Mr. Obama did nothing to stop you from forcefully taking Crimea. My nation now knows we can use force to dominate the disputes we have in the South China Sea.
You understand why I have presented my support for you in this matter somewhat softly, so far. One of our ancient proverbs says a man cannot help shoots grow by pulling them up higher. It is not the correct hour to upset too many Westerners. But make no error, comrade: I—and 1.35 billion of my fellow communists—stand at your back.
Of course, neither the Russian Bear nor the Chinese Dragon currently has the military might to withstand open combat against the United States. But we both have something of which Washington is totally bereft, as you have proven. We have the will to fight. What does muscle matter, dear Vladimir, if it is never flexed? I thank you for proving that Washington’s days of flexing its muscle and wielding its butterfly sword are ancient history. You have drawn the punctuation mark on the conclusion of Pax Americana.
As that era ends, you and I are free to expand our territories and our influence in a way that we have never before enjoyed. Mr. Obama did nothing to stop you from forcefully taking Crimea. My nation now knows we can use force to dominate the disputes we have in the South China Sea.
Regarding this topic, you’ll have to pardon me if I give myself a bow of congratulation since I feel that I may have partially inspired your brave Crimean moves. I know you must have watched closely from the Kremlin back in November when I declared a massive expansion of China’s airspace into waters claimed by South Korea and Japan. We used this action to intimidate two of our most significant neighbors, to punish two American allies, and to openly challenge Mr. Obama’s Asian pivot.
Washington could have declared China’s claim to be null. Mr. Obama could have told America’s commercial airlines to act in solidarity with those of Japan, and defy my orders. America could have demonstrated that if a nation unilaterally tries to K.O. the status quo, then the West will counter with a united, strong, multilateral response.
But instead the reaction from the White House was delightfully laughable! They told America’s commercial airlines to obey my command. Then the administration politely asked me to refrain from enforcing my territory grab too forcefully. Mr. Obama left South Korea and Japan naked in the Chinese typhoon.
America has become a paper tiger. And under pressure, it will fold like origami.
It was a decisive moment for me, and I like to think it helped to persuade you that this is Asia’s hour. Who will stop us, Vladimir?
But I humbly admit that it was your unilateral takeaway of Crimea that ramped Asian aggression up to the next rung of the ladder. China couldn’t be more grateful to you for proving what many here in Beijing have long suspected: That America has become a paper tiger. And that under pressure, it will fold like origami.
Thank you for drawing back the silken curtain on Washington’s broken will—for you and I, our governments, our peoples, America’s allies and the whole world to see. The kanji script is on the wall.
For years, China has yearned to shake things up and demonstrate our superiority over our neighbors. We’ve wished to begin by grabbing some disputed, resource-rich islands, and also by putting an end to the childish “Taiwan” business. After all, you can’t catch a cub without going into the tiger’s den. Once we can set this precedent and consolidate these interests, we feel there is no limit in southeast Asia that can keep us from reaching our full potential for power. You have shown us that the time to pounce is now, and that when it comes to American allies and influence, it is open season.
We are weighing how the Japanese will respond after they outsourced their defense to the U.S. following World War II. The Philippines, Taiwan and South Korea are in a similar situation: Asians who are reliant on Washington’s gunpowder and rice. But with the American battleship full of holes and rapidly sinking, they are left with two options: Bend a knee to Beijing, or gather their katanas for battle.
Already, with the Americans focusing—ineffectually—on you and less on containing China, Japan is taking steps in the direction of military self-reliance. For Japan’s katanas to be a real deterrent to China, of course, they would have to include nuclear weapons. The Japanese have the potential to rapidly create a nuclear arsenal, but we are amassing the political, economic and military power to pressure them into a scenario of our choosing, whether or not they develop nuclear weapons.
However, I calculate that it will not have to come to war among the Asians. After all, what is the long-term aim? Beneath their cowardly kowtowing toward the U.S., don’t the Japanese and Koreans yearn to overthrow the world order that the West created almost as much as do the Russians and Chinese? Don’t they agree that the hour has come for the First World to experience some Third World conditions? I suspect they feel that they have burned incense to America for too long already.
I’ll tell you something now, Vladimir, which is not a statement any of my predecessors would have been able to say to any of your predecessors: In order to vanquish the Western order, China will submit to your leadership. Let us replace the West with the East.
After your moves in Crimea, my colleagues and I deeply respect you, and believe that you could be the one to thaw the ice between China and Japan, between Korea and Japan, between India and China.
It is no secret that Beijing would ultimately like to see the whole world remade in the Chinese image. As our ancient proverb says, There is only one pretty child in the world, and every mother has it. But, for now, we will settle for taking the West down a few rungs of the ladder. And we know we can’t do it as a solo effort. Another of our proverbs says that only when all contribute firewood can they build up a strong fire. And paper can’t wrap up fire.
After your moves in Crimea, my colleagues and I deeply respect you, and believe that you could be the one to thaw the ice between China and Japan, between Korea and Japan, between India and China.
If Beijing’s goal was only regional dominance, we would fare on our own. But to have a real effect on the global power balance, China, Russia and other Asian nations must all contribute firewood, and present a unified front. And the Chinese will let you be the shogun to lead that front. We are prepared to write your name on the wings of a dragon.
I believe that Ukraine was only an appetizer in the great meal you have planned. I couldn’t resist chuckling when I saw the White House report that it is “skeptical” that your Red Army build-up on Ukraine’s border was for peaceful purposes. Skeptical, Mr. Obama? Skeptical? Why ever for? His childish words make the bird in my heart sing and chirp. What a gift the American voters have given us with this president. Not only is he systematically dismantling the nation’s power, but his diplomacy is an endless source of entertainment for my colleagues and me.
I’ll be visiting you in May, and my hope is that we can push Russo-Chinese relations soaring to unprecedented heights—to the altitude of the black-footed albatross! I know that because of thick tensions with your customers in the West, you are gazing eastward in this hour as never before. You have just signed a major energy deal with India, and China is very thirsty for Russian oil and gas, too. The People’s Republic also wants to buy your SU-35s fighter jets more than ever. It is my sincere hope that, in light of recent events, we can finally dislodge our long stalled negotiations over these matters. Let’s make it all happen in a timely fashion, dear Vladimir. China is ready to do its part in backing you. Let’s make this the Asian century!
Respectfully and with support,
Xi Jingping, President of the People’s Republic of China
P.S. I admit that I was slightly uneasy with the referendum tactic you used in Crimea. As you know, Beijing is working to bring Taiwan officially under our flag, so the idea of justifying separatism by popular referendum is not a pleasant one to me. Nevertheless, I know you felt compelled to put on a bit of “democracy show” for the West, so I can’t fault you for it. ▪

Why Indians are beating others to head US firms

Microsoft CEO Satya Nadella joining the growing list of India-born chiefs at the helm of American companies has caused a “bit of a stir” in China, according to a media report.

The Wall Street Journal report titled ‘Why China Doesn’t Export World-Class CEOs’ also said Indians’ good command over the English language and their willingness to move gives them an edge over their Chinese counterparts to get the top jobs.

“Language and familiarity with Western culture are the obvious reasons why chief executives such as Indra Nooyi of PepsiCo Inc., Anshu Jain of Deutsche Bank and MasterCard Inc’s Ajay Banga have succeeded in the West. But headhunters also say Indians are more willing to move than Chinese, who see more opportunity and good pay at home,” it said.

The report said that Nadella’s appointment as CEO has “caused a bit of a stir in China, where people are questioning why Indians but not Chinese are getting top jobs in the US.”

The other reasons cited by the report are the high pay and advancement opportunities that are keeping many Chinese executives at home.

It said annual salaries for management positions at the director level in China are already at about $131,000, which is four times as much as in India, where executives at that level earn $35,000 on average.

The report said that while India remains a “tough” place to live, China has become more comfortable in recent years, offering a good lifestyle to expatriates.

“How do you get a Chinese to move to Brazil in a developmental sequence? That’s a big challenge,” said Emmanuel Hemmerle, a senior adviser to Korn Ferry, an executive search firm.

“China is such a high-growth market. Everyone sees that’s where the opportunity is.”

China, however, suffers from a “shortage” of top talent, despite its enormous pool of university graduates, with 7.3 million more expected in 2014, the report said, citing consulting firm McKinsey that fewer than 10 per cent of Chinese job candidates would be suitable for work in a foreign company because of their “poor command of English and an education system that focuses on theory rather than practical skills.”

Another reason why Chinese executives do not flock to western companies is that state-owned enterprises and private companies are bidding for home-grown talent.

“With so much attention lavished on the most promising executives in China, many feel their opportunities are greater at home than abroad,” the WSJ report said.

In some cases, multinational companies also want to keep their best Chinese executives inside China because the market is so important to them.

A downside to being too attached to China is the risk that Chinese executives are overtaken in their careers by the next wave of Chinese managers, many of whom have better language skills and a broader world view.

The Animal Form 0f Anti-Liberal AAP

You could have done better but I don’t mind/ You just kinda wasted my precious time”
— Bob Dylan, ‘Don’t Think Twice, It’s All Right’
What is the appeal of the Aam Aadmi Party – the newest kid on the political scene of India? Can it make a difference? What are its views on economics, politics and social issues? The AAP gets more attention in the media space than all the other parties combined. And it has been doing so for the last three months. This is no mean achievement, and the party needs to be credited for its brilliance, albeit one that Machiavelli would be most proud of.
A nowhere party to now a party with a difference, and a party with a promise of change. The Arvind Kejriwal-led AAP’s rise to power has been a symbol of hope for many. A hope that maybe India could change for the better; a hope that India could be corruption-free. The AAP has selected candidates on a transparent, non-corrupt and non-criminal basis — a huge positive for a criminal- and corrupt-infested Parliament. Thus, there is hope that India will see honest politics and, with it, honest economics. For, as Kejriwal recently stated his version of the AAP’s economic policy: “Our economic policy is honest politics.”
There is no doubt that Election 2014 is shaping up as the most important election, ever, in Indian history. And as the one promising to be different, we need to examine what the AAP’s leaders say and mean when they opine on policy. Until just a few weeks ago, most people assumed that the AAP believed strongly in political freedom. That view has been dented by protests, sleepovers and resignations on the ground that it is “The AAP Way or No Way”.
Does any AAP party member know, or even care, as to the contents of the Lokpal bill that forced the “principled” resignation of Kejriwal’s party? When asked as to how the Lokpal bill would affect the life of the aam aadmi for which it was explicitly meant (The Big Fight, NDTV, February 15), senior member of the AAP party, Ashutosh, went into convoluted contortions to answer this straightforward question. He started explaining that big-ticket corruption needs to be checked and ended with a reference to Lal Bahadur Shastri. When a panel member persisted: But how does the Lokpal bill affect the life of a Delhi citizen? His lack of response reminded me of a refrain among the youth of the 1960s: “Ask no questions and you will be told no lies.”
On social policy, the AAP showed great progressiveness with support for gay rights. But no sooner had the applause peaked than the party opined on the constructive mohalla role of khaap panchayats. When criticism mounted about the anti-social and murderous khaaps (especially in the state of Haryana where the AAP wants to make a dent in electoral politics), the AAP made a hasty retreat and said, of course, we don’t believe in murder, and murder should be punished. Thankfully, AAP leaders did not suggest an amendment to the Constitution regarding the special status of khaap murders. It is getting difficult to distinguish political expediency from the AAP’s actions.
Ditto with another AAP foray into “social policy”, or how to appear all things to all people at all times. Fundamentalism, the antithesis of liberalism, is apparently no bar to the AAP’s policy recommendations. Among all the Muslims in India, the AAP felt compelled to reach out to Maulana Tauqeer Khan, a cleric known more for his fatwa against a liberal Muslim writer, Taslima Nasreen, than for his views on progressive politics. And to round out the anti-liberal picture, the AAP leadership stated that too few of the graduating class from Delhi high schools were finding admission in Delhi universities and wasn’t that a shame? Remind you of Mumbai and the “liberal” Thackeray?
On economic freedom, the jury was out, with many suspecting that the AAP was to the left of the Left. The AAP believed in clean government-dictated licence permit raj — an oxymoron to define an oxymoron. The common belief also was (is?) that the AAP wanted to turn the clock back, way back, on economic reforms. Policy actions and policy recommendations mark the extremes of their anti-liberal position. For example, by delivering on their promise of free water to the residents of the richest city in India, Delhi, and a city that was already receiving water at one of the lowest prices in the world. To compound illiberality, the AAP formulated its water policy in a most ingeniously stupid manner. It postulated that if a household consumed a drop more than 20 kilolitres per month, its free water would be converted to fully priced water! Even an anti-market populist like the late Hugo Chavez of Venezuela never dreamt, let alone tried, such a populist anti-liberal measure.
Expectations were high that once the Aam Aadmi economic policy manifesto was released, it would confirm the status of the AAP as a “liberal” progressive party. The document has yet to see the light of day, and even Godot may appear before a liberal economic AAP manifesto sees daylight. Hints about its nature were liberally sprinkled by Kejriwal at a function hosted by industry lobbyist CII. Reading his statements, all liberals would come back enthused by the AAP conversion. Some throwaway and giveaway lines: “We are not against capitalism, but we are against crony capitalism. The government has no business to be in business, it should be left with the private players. Licence and inspector raj has to end…”
Is Kejriwal being real, or is he playing politics in the firm belief that voters are stupid (a belief shared by the ruling Congress party — just look at their actions on Telangana)? How plausible is the notion that Kejriwal is a liberal, economic or otherwise? None of the evidence suggests that he is. You cannot be half-pregnant, or half-liberal, or half-secular. You can, of course — but then you, as an individual or as a party, are just like any other. There goes your Unique Selling Point, your raison d’etre. But then, the AAP might argue, being liberal does not win elections. True. On the other hand, by being so much like other parties, by playing conventional politics, the party with a difference is fast becoming the party with no difference. This has historical precedence — well, almost. In Animal Farm, George Orwell posits a world ruled by Men, and the animals rebel because they believe that “Man is the only real enemy we have. Remove Man from the scene, and the root cause of hunger and overwork is abolished for ever.” The revolutionary anarchist animals, led by the pigs, succeed in overthrowing Man. But soon reality sets in. “The creatures outside looked from pig to man, and from man to pig, and from pig to man again; but already it was impossible to say which was which.”