In today's Finshots we see how a new world order may be emerging right in front of our eyes
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The Story
The West is going all guns blazing while dealing with Russia.
First, they stopped Russia from accessing SWIFT (think of it as the Gmail for banks). Payment platforms like Apple Pay and GPay turned off their services leaving millions in a lurch. Companies that had a working financial relationship with Russia began severing ties — oil giant Exxon wanted to break its partnership with Russia-owned Rosneft even though they were expected to lose $4 billion! Mastercard and Visa have decided to stop processing Russian payments and Russian citizens are having trouble paying for things on international forums.
But then they went a step further.
They blocked Russia’s foreign reserves!
You see, over the years, the Russian central bank had painstakingly stashed away extra money for emergencies. They had gold, dollars, euros, parked in Western banks — some $630 billion worth of reserves, all in all. But when they desperately needed to access it, western banks refused to play ball. They are blocking access and Russia can’t seem to dip into their own reserves. It's practically useless now.
And the goal here is quite simple — Ostracize Russia, make it a financial outcast, crush the value of its currency and paralyze its economy.
Once this happens, Russia won’t be able to wage this war. How will they pay their soldiers or supply ration?
This is financial warfare and it’s changing the world order.
For starters, there’s now a trust deficit in the global financial system. What’s that, you ask?
You see, more often than not, countries simply trust each other. It’s the default position — “I’ll give you my money. You give it back to me when I need it.” And it has worked quite well so far. However, note that most countries have used dollars to signal trust since it has been the de facto global currency. That’s what most countries use while trading with their international counterparts. Even India has billions of “dollars” set aside for these very reasons.
But now, everyone is wondering whether it’s actually prudent to do so. After all, if the west can pull the plug so easily, how can you trust dollars or even euros for that matter?
Are there other alternatives available?
Well, there’s gold and other commodities you could stock back home. Or you could figure out how to trade with countries without using the dollars. For instance, India and Russia already have a bilateral relationship that allows them to trade with Rupees and Rubles (Russian currency). And if every country starts thinking along these same lines, then it could challenge the dollar supremacy.
Perhaps even give rise to an alternative financial order, with some other country leading the pack.
Because, every time the US and its allies kick a country off the dollar system, that country needs to go somewhere. It can’t cut itself off from the world like North Korea. So it finds allies that have similar interests. And those allies have to have significant clout. Both economic clout and political clout. If they have a payment system of their own that’s globally integrated, then it’s an added bonus.
Can you name a country that fits the bill?
Yeah, China. China has already allied with Iran and it looks like they’re also cosying up to Russia.
Take the Mastercard /Visa issue for instance. After they tightened the noose around Russia, reports started emerging that Russian banks may partner with Union Pay — China’s very own card payment company. And if you’re wondering why UnionPay and not RuPay, well know that UnionPay claims that their cards are accepted in over 180 countries. RuPay meanwhile still uses Discover Global Network (a US-based company) to process international payments.
So it’s possible that the Chinese Yuan may come to gain a higher degree of acceptance globally. However, there is one caveat. Unlike the US, China isn’t really an open economy. The Red Dragon likes to strictly control its currency. Meaning if it wants to replace the dollar and get everyone to use the “yuan” instead, it might have to compromise a lot.
Will it? Well, only time will tell.
Meanwhile, the big question for India is this —Where do we fit in all of this?
Well, for starters we need to be more AtmaNirbhar for sure. But we also need to think more globally. Sure, we have RuPay to counter Mastercard and Visa. And we have UPI as an alternative to Apple Pay and Google Pay.
But that’s not enough, is it?
We obviously cannot join an alternative financial order led by China — border disputes and all that. And we risk facing sanctions if we side with Russia. For now, we might be domestically self-sufficient, but we need more global clout. We need to start preparing for a future where we aren’t as dependent on the US and EU. And we need to start doing it now.
Until next time…
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