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24 May 2023, 15:15

Lukashenko sees U.S. dollars as a weapon. Will Belarus convince Russia, EAEU to stop using dollars?

In early May Head of the International Monetary Kristalina Georgieva said that the world is gradually abandoning the U.S. dollar. But she immediately corrected herself by saying that there is still no alternative to the U.S. currency. That is the view in Washington. And what is happening around us? The U.S. dollar's share in forex reserves, assets and transactions between countries fell from 73% in 1991 to 47% in 2022. And the figure continues to decline. After the United States of America froze Russian assets and imposed sanctions, the speed of dedollarization in the world increased tenfold. If the IMF sees no alternative to the U.S. dollar, the rest of the world seems to think otherwise.

Why does Aleksandr Lukashenko call the U.S. dollar a weapon and what “serious political solution” does he want his EAEU partners to embrace? How did Belarus propose to Russia to completely switch to rubles in settlements and abandon the “enemy” money? And still is there an alternative to U.S. dollars in the world? Let's find out as part of BelTA's YouTube project After the Fact: Lukashenko's Decisions.

What is happening to the U.S. dollar?

Today only a lazy person has not quoted the famous American businessman Elon Musk. The billionaire has recently said that using the U.S. dollar as a weapon would discourage people from using it. What can we say? Listen carefully to the Belarusian president. Two years ago at a summit of the Shanghai Cooperation Organization Aleksandr Lukashenko cautioned: countries relying wholeheartedly on the U.S. dollar are becoming increasingly vulnerable.

This not only deprives us of competitive financial and economic advantages, but also threatens national security. All the more so because this leverage is increasingly being used as a weapon,” the head of state stressed.

And what do we see? China is now actively developing its own interbank payment system. Brazil and Argentina have decided to create a common currency. South Korea and Indonesia, India and Malaysia have agreed to abandon the dollar in domestic payments. In the east the establishment of an Asian monetary fund is under consideration. Saudi Arabia has decided to abandon the U.S. dollar as the sole currency for oil trade. And this is just the beginning.

Georgy Grits, professor, Candidate of Economics, pointed out: “After the USA and its allies effectively requisitioned the national wealth, i.e. Russia's financial investments, including investments in Western bonds (this can only be called expropriation), confidence in the U.S. dollar wavered greatly. On the whole, the production cost of a bill, regardless of its face value - whether it is one dollar, whether it is 100 dollars, there are even bills of 10,000 dollars - is ten cents. And imagine this: they spend 10 cents to print a piece of paper and import equipment, raw materials, energy resources, which are worth 100-1,000 times more. This is what the prosperity of the United States relies on today.”

Or more accurately, it used to rely on it. In January the national debt of the United States reached its ceiling of $31.4 trillion. Secretary of the U.S. Treasury Janet Yellen warned that if Congress did not raise the limit, by June the government would run out of money to service loans. And a default may be declared then. It is true that such a situation makes experts feel deja vu: the USA has had a similar crisis 78 times. They ended with another increase in the national debt ceiling.

Mikhail Delyagin, Deputy Chairman of the Economic Policy Committee of the State Duma of Russia, Doctor of Economics, noted: “The collapse of the U.S. dollar is primarily caused by problems inside America. The dollar itself is a convenient tool. People stop using convenient tools when they break down. We see that Americans cannot solve their economic problems and do not even know how to do it. At the same time, with their political actions they are turning the dollar into toxic money that can be stolen at any time.

When will Belarus and Russia fully switch to rubles?

Belarus thought about dedollarization of foreign trade when things were more or less calm. In 2019, when contemplating the possibility of introducing a single currency in Belarus and Russia, Aleksandr Lukashenko suggested increasing the share of Russian rubles in trade from the current 80% to 100%.

Today almost 80% of our trade with Russia is in Russian rubles. I have recently suggested to the president [of Russia]: before we rush into something big, let's switch completely to Russian rubles in mutual trade. It is our proposal. We are not afraid of this, but no one is going for it. It means Russia refuses to trade with its closest partner in Russian rubles, relying on so-called hard currency, on the ‘enemy' dollars and euros. Then why should we talk about some common ruble?” the president wondered.

The unprecedented wave of anti-Russian sanctions has opened eyes of many countries. First and foremost, Russia itself. The “hard” currency has become toxic. And now Russia is forced to use its own currency in transactions with partners.

During negotiations with his Belarusian counterpart in May 2022 President of Russia Vladimir Putin noted: “The transition to the national currency, the rubles in trade with our partners is having an effect. You talked about it many times in the past. You said that we should do it. Due to objective reasons the situation evolved in a way that we have done it. Not to the detriment of our partners. While fulfilling our commitments, we are switching to the national currency, the ruble, across a number of commodity groups and this helps strengthen the ruble.

Why does the EAEU need to switch to national currencies?

We can't stop there. Aleksandr Lukashenko believes that one of the primary objectives in the Eurasian Economic Union is the coordinated support of national currencies and security of payments. The head of state suggested dedollarization of domestic trade in hydrocarbons in the Eurasian Economic Union at a summit in 2021.

At a Eurasian Economic Union summit held in late 2022 Aleksandr Lukashenko stressed that it is necessary to revitalize the blood system of the union by all means. “I am talking about finance. Everyone understands already that the age of the U.S. dollar's dominance is nearly over. Future belongs to trade blocs where transactions will rely on national currencies. Belarus and Russia have already stopped using U.S. dollars in main transactions. It is important for other partners to also get actively involved in this process,” the president stated.

A year ago even unconfirmed reports appeared from the Eurasian Economic Commission about the potential development of an independent monetary and financial system together with China. Sergei Glazyev, member of the Board (Minister) on Integration and Macroeconomics of the Eurasian Economic Commission, explained back then that the system would be based on a new currency calculated on the index of national currencies of its participants. However, this news was soon removed from the commission's website without any comments. Later on Sergei Glazyev explained it had been only a discussion. However, the trends are obvious.

Georgy Grits said: “If we talk about the Union State of Belarus and Russia, then there is no choice. It should have been done yesterday. As we can see, today the share of national currencies is about 80%. This figure is likely to increase. From the point of view of the Eurasian Economic Union the situation also has a positive trend. Figures are slightly smaller: somewhere around three quarters of payments are made in Russian rubles. If we talk about international settlements, back in the 1980s, the U.S. dollar share in payments was about 80%, today it is slightly over 40%.

By the way, the share of national currencies in mutual transactions in the Eurasian Economic Union increased from 63% in 2013 to 73.5% in 2020. U.S. dollars dominated the structure of transactions with third countries. The share of U.S. dollars in import transactions stood at 36.7%, with the share of U.S. dollars in export transactions at 55.5%. It was caused by a significant share of export of fuel and energy goods.

What currency will the SCO and BRICS choose?

The Belarusian president believes that in the near future the world will have new powerful currency unions with a new reserve currency. The Russian ruble, the Chinese yuan, the Brazilian peso, or the Indian real? With what will countries start paying each other? There is no answer to this question yet. But one thing is clear: the era of the U.S. dollar is really coming to an end.

BRICS is talking about creating a currency for interstate settlements, which would be pegged to the gold and foreign currency equivalent, Georgy Grits said. “The Shanghai Cooperation Organization is now looking into the matter. Most likely it will be a basket of currencies. Although there is a radical proposal: Iran suggests using the yuan as an international currency of settlement,” the economist noted.

Will the yuan be able to replace the U.S. dollar in world trade?

Today China is becoming the driver of the global economy. Its share of the world market is 31%. The USA is literally one percent behind its main competitor. But the most paradoxical thing is that the yuan accounts for 3% of international payments, while the U.S. dollar accounts for about 40%. This situation will probably not change dramatically in a year or two. Nevertheless, the USA has been nervous for a long time: after all, more than 80 countries use the yuan for international payments and in some positions it has become the main means of payment.

Aleksandr Lukashenko previously emphasized: “China is becoming a world leader and is already clashing with the United States of America in this regard. Americans do not want see as strong a world center as the USA itself. Because Americans live off this leadership. They have a currency: the U.S. dollar. Their economy is strong because they are strong. And then China came along with its own currency, the yuan, and with the desire to be leaders.”

China itself believes that the hegemony of the U.S. dollar is the main source of instability and uncertainty in the global economy. The Chinese Ministry of Foreign Affairs mentioned it. The stance was reaffirmed by Ambassador Extraordinary and Plenipotentiary of China to Belarus Xie Xiaoyong.

Yes, today economies around the world need a stable, secure and predictable international monetary system more than ever before.

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