The dollar’s steadfast grip on the global trading and financial systems in the era since World War II is no longer as assured as it once was.
Russian President Vladimir Putin took another, albeit highly symbolic step in ousting dollar from Russia’s financial system, following through on his call to de-dollarize the nation as the standoff with the U.S. intensifies. His country’s wealth fund, where the government sends its energy windfall, will now shrink its dollar share to zero and grow holdings of euros, yuan and gold instead.
Nearly all state energy companies shifted to payments in local currencies with its international partners, Deputy Finance Minister Vladimir Kolychev said June 3 at a conference in St. Petersburg. The next step is to change benchmarks themselves into euro, yuan and so on, and governments are already discussing this, he said.
Dmitry Timofeev, who heads the Finance Ministry department that monitors external restrictions, acknowledged that “this process is rather hard going because using the dollar is economically more attractive,” adding that currency trading on the Moscow Exchange is still 80% dollars.
A recent milestone was Russia’s share of exports using the U.S. dollar falling below 50% first time ever, aided by oil major Rosneft switching export contracts for crude shipments to euros. And trade with China is now chiefly priced in euros.
On Friday, less than two weeks before a scheduled face-to-face meeting with U.S. President Joe Biden, Putin said the U.S. is using its currency “as a political and economic weapon, which is hurting the dollar as a reserve currency.”
The Russian Finance Ministry on Monday said the nation will rely on economic stimuli to encourage a shift away from dollars as a way to reduce exposure to U.S. sanctions, but isn’t considering any restrictions on companies’ use of the greenback.
The market impact isn’t clear, however, because the assets are held through the central bank, which can just readjust within its own portfolio to make the change.
Far from Moscow, shifting economic and political tides are challenging the greenback’s pre-eminence as the standard pricing unit used for everything from oil to airplanes.
The rise of China as an engine of global growth, combined with both jealousy and frustration among rival blocs at the privileges the U.S. demands from the dollar’s status, are all pressuring the tectonic plates of world commerce.
The European Union’s vulnerability to the demands of American sanctions that leverage common use of the currency are among reasons the bloc wants to boost the role of the euro.
The prospect of a genuinely multi-currency global trading system is still a distant one, and any dwindling of the dollar’s role remains far from inevitable.
But U.S. officials tempted to wield the dollar as a policy weapon should heed the cautionary tale of the last dominant currency to fall by the wayside. A study published in April found that Britain’s attempts to constrain members of the Sterling Area in the postwar period accelerated its disintegration.
A new inland transit facility between South Africa and Mozambique could slash transport times between the Maputo port and the region’s industrial and business hub. DP World’s new dry port depot in Komatipoort, a town on South Africa’s eastern border with Mozambique, operates as a bonded container facility, allowing shippers to clear customs quicker when they arrive from the Maputo port that’s a 100-kilometer (62-mile) drive away. That way, a container can reach the Gauteng province with South Africa’s financial hub, Johannesburg, and capital, Pretoria, within a day of it arriving in Maputo, the Dubai-based port operator said.
Today’s Must Reads
- U.S. supply plan | Biden released a multi-pronged strategy to secure critical supply chains in products ranging from medicines to microchips, and is also weighing a potential trade probe that could result in U.S. tariffs on certain magnet imports, officials said. Meanwhile, Chinese lawmakers are making progress on legislation to retaliate against foreign sanctions.
- Another round | The U.K. and EU are on course for a fresh confrontation over Northern Ireland, with the bloc warning of “swift” and “firm” action if Britain again breaches the terms of the Brexit deal.
- More China | European businesses are increasing investment in China and moving supply chains onshore after the quick recovery from the pandemic last year made China an even more important source of growth and profits.
- Taiwan boost | A Covid-19 outbreak, a drought and power outages did little to dent Taiwan’s runaway export growth in May as factories kept running at full capacity to keep up with demand from overseas.
- More chips | Robert Bosch opened a 1 billion-euro ($1.2 billion) factory that should gradually help alleviate supply constraints and herald broader efforts to make Europe less dependent on imports from Asia or the U.S. In Japan, a senior member of the ruling Liberal Democratic Party said the country can’t build a cutting-edge chip development and manufacturing base on its own, and must seek to cooperate with TSMC.
On the Bloomberg Terminal
- Price pressure | Tech hardware prices may rise sharply in 2021, notably in servers and PCs from Dell, HPE and Quanta for consumers, corporate and cloud vendors as component costs rise, Bloomberg Intelligence says. Logic and memory-chip supply is unfavorable, and supply expansion hasn’t kept pace with recent demand.
- Open road | Supply constraints, increased miles per load and demand growth have provided a robust backdrop for truckload carriers, says Bloomberg Intelligence, which estimates that the current environment will support higher rates despite growing peak concerns.
- Use the AHOY function to track global commodities trade flows.
- Click HERE for automated stories about supply chains.
- See BNEF for BloombergNEF’s analysis of clean energy, advanced transport, digital industry, innovative materials, and commodities.
- Click VRUS on the terminal for news and data on the coronavirus and here for maps and charts.
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