The response to the Russian invasion of Ukraine from the West was to sanction Russia and destabilize its economy through the devaluation of its currency. Initially, this worked with the Ruble plummeting against a basket of currencies; however, Russia knew this was coming, and their economic reaction could be devastating.
The West seems to have failed to see that you cannot just turn off the taps to such enormous markets without the rest of the world feeling the pinch. Wheat went through the roof almost overnight. Oil is still trading well above $100 per barrel.
Such was the demand for Nickel that the LME had to close down the markets as it went up over 250% in under a day. Commodities are in mass shortage, and Russia holds the keys to many of these doors. Russia knew this and is using it majorly to its advantage.
So how does Russia shore up its currency and prevent hyperinflation and total debasement of its currency? The answer is they already have. Just last week, Russia announced they would no longer accept US Dollars for their energy and demanded payment in Rubles.
This leaves the enemies of Russia in a predicament; they cannot just instantly turn elsewhere for commodities in a caldron of price inelasticity of demand. What Russia is doing is hitting back at the West by beginning to de-dollarise the world. Encouraging countries to pay for previously dollar-denominated produce in Rubles was the opposite of what the West wanted.
We should be more concerned about the repercussions of this, however. When Iraq tried to sell Oil in Euros, it didn’t last long before the US invaded and restored the trade to US dollars in a matter of weeks. This situation is far more fragile.
If the supporters of Russia/enemies of the US begin to trade commodities in Rubles, then the US dollar could suffer. Even if a truce were called, the wounds of war would take a long time to heal – assuming the West lifts sanctions quickly, which is highly doubtful.
So what happens next? A new world reserve currency? There is already a petroyuan. And don’t forget the entire petrodollar was based on Saudi reinvesting their wealth in US treasuries in exchange for the US arming and defending their Kingdom.
The withdrawal of troops from Afghanistan was timed coincidently, with Saudi Arabia signing a new deal with Russia for arming and defending their Kingdom. Who now wants to buy America’s debt? Is this why the bond market has taken a dive of late, and yields are flying?
Currency wars are usually the start of something big. No one would want to see the US dollar collapse more than Russia and China. If the West intended to hit Russia by targeting their currency, they would have underestimated how Russia held the cards with their natural resources. This could be an enormous own goal by the West and may have played straight into Russia’s hands.
The implications of the sanctions on Russia will be felt across the globe as the cost of living increases. It will worsen exponentially when the US dollar collapses and the East wins the currency war.