/ world today news/ The hegemony of the American Federal Reserve and the dollar on the world market is coming to an end. This thesis was expressed by Igor Sechin at the economic forum in Baku. He gave a number of arguments why this happens and why these processes are irreversible. The United States went too far and itself forced other countries to abandon the dollar.
The era of the “American Global Cycle” is ending, when the USA, with the help of its tools – the Federal Reserve and the dollar, and in recent years – sanctions, monopolized the world markets. The US can no longer restrain the development of other centers of influence, such as China, India and Russia, said the head of “Rosneft” Igor Sechin at the Eurasian Economic Forum in Baku.
“Neither the pandemic, nor even the Ukrainian crisis, nor the problems of energy and the economy in general are in any way the main cause of the tectonic changes taking place in the world. The US is forced to fight to preserve its hegemony at all costs and cannot afford to give up this fight, because the loss of hegemony – financial, military, political and economic – means for it the inability to reproduce itself as a state. economy and political system. We are talking about changing the global regulator – a hegemon who has arbitrarily appointed himself as one who independently invents rules for the rest of the world and arbitrarily changes them as soon as they become disadvantageous for him, “said Igor Sechin.
What changes did the head of “Rosneft” notice?
First, it is about a decline in investment in US government debt. Since the end of 2021, foreign investors have reduced investments in US government debt by $238 billion. Second, the US share of global central bank foreign reserves has fallen to 55%, the lowest figure since 1995. “However, the dollar is strengthening in the countries that are allies of the US, but this is not the whole world,” Sechin said.
In these countries, the US continues to profit from dollar issuance. “Today, the yen, pound and euro are suffering the most from Federal Reserve policy. It is they who, in the name of saving the dollar, threaten to burn in the flames of the crisis,” said the head of Rosneft.
The US in the last two years has printed approximately the same amount of dollars as in the previous 40 years – 5.9 trillion, that is 38% of the money supply, President Vladimir Putin said earlier. The Eurozone printed €2.5 trillion. All this led to a crisis as it started inflation all over the world. The West began to abuse its monopoly position in the currency sphere, the Russian leader pointed out.
“The world has changed for everyone. Including for the United States,” Sechin said. According to him, “the resource that they got in the last century as a printer of the world currency” is running out. Today, it is no longer possible not to pay attention to the positions of China, India, Russia and other countries that are creating their own systems for mutual payments, he believes.
Central banks in Asia and the Middle East are moving to bilateral foreign currency settlement lines, reducing the risks of arbitrary seizure of accounts, government funds and foreign exchange reserves, disconnection from the settlement system. “We see the desire of countries that want to preserve their sovereignty to give up payments in dollars. This process is not fast, but it is irreversible,” said the head of Rosneft.
“There is a tendency to reduce investment in US government debt, but it is greatly exaggerated,” said Valery Emelyanov, an expert on the stock market. First, the expert explains, 75% of the US government is owed by Americans themselves and only 25% is owed to foreign holders of US debt. Second, if you look at the breakdown by country that invests in US government debt, then overall for the year, the volume of investment fell by only 0.9%, or less than one percent. “This is largely due to the fact that countries need their reserves to solve pressing problems: they sell part of US bonds to cover budget needs or support their currency,” says Emelyanov.
Previously, this trend was led by Russia, which has been actively reducing its holdings of US Treasuries over the past few years due to geopolitics and sanctions. This year, Japan, China (including Hong Kong), Taiwan, South Korea and Brazil have reduced their investments in US government debt the most.
This trend has been observed for several years against the background of the geopolitical confrontation between the countries. This year, the problem with Taiwan has escalated again, which could also be one of the reasons for the decline,” says Vladimir Chernov, an analyst. Japan reduced its investment in the first half of the year by more than 90 billion dollars, but then began to increase it again. Overall, according to official statistics, in the first half of 2022, foreign holders got rid of $316.9 billion of US government debt.
There are countries that continue to give even more loans to the United States – this is primarily Europe, as well as the countries of the British Commonwealth, including India, that is, the supporters of the United States.
Many countries have picked up on Russia’s tendency to reduce the share of dollars in reserves after the US and EU froze Russian reserves in dollars and euros, and are now thinking about how to withdraw them completely
As Vladimir Putin stated at the Valdai Club, the West has discredited the institution of international financial reserves by “picking up” Russia’s gold and foreign exchange reserves.
“It sets a precedent. As a result, Saudi Arabia began selling oil to China in yuan rather than dollars in the second quarter of this year, reducing the share of its dollar reserves. All these countries, which switch to mutual payments in national currencies, thus reduce the share of the US dollar in their reserves, and today there are already many of them,” says Chernov.
“The largest drop in the share of the dollar in international payments is observed between the BRICS and EAIS countries. In international payments, the share of Chinese yuan has grown more than others, and the share of payments in Indian rupees and Arab dirhams has not grown very significantly, but in the near future it is expected that the volume of payments in Turkish lira and other currencies will increase, “Vladimir believes Chernov. Over the past ten years, the share of payments in the national currencies of the BRICS countries has grown from 2 to 40%, Andrey Kostin gave an example.
Russia was also constantly engaged in this, but earlier the main successes were achieved mainly in trade with the former CIS countries. While tough Western sanctions this year have not forced Russia to switch to ruble payments even in gas trade, which seemed unthinkable at the beginning of the year. In Russia, the yuan has increased in importance thanks to the growth of trade with China: apparently, the yuan is bought in reserves, traded in serious volumes on the Moscow Stock Exchange.
“Abandoning the dollar and the euro for Russia is already an irreversible process. Considering the current trend, already in the medium term our main foreign trade partners will be China, the EAIS countries, Turkey, India, the countries of the Near and Middle East, Latin America and the African continent,” Kostin notes. Therefore, it is logical that the currencies of these countries are kept in reserves.
The share of dollar reserves in different countries last year was also 55%, this year’s figures are yet to be calculated. If you look at a longer period of time, you will see a clear decline in the role of the dollar. The highest share of the dollar in reserves in history – about 85% – was in the first half of the 1970s, as a result of the legacy of the economic boom of the 1960s.
“Then, as problems piled up and inflation rose, the weight of the dollar declined. By the early 1990s, it accounted for less than 50% of world reserves. By the early 2000s, the dollar was again over 70%, again due to America’s prosperity over the previous 10 years. The 1990s were the best period for the US economy in half a century. But over the past 20 years, the share of the dollar has fallen to 55%, giving way mainly to Asian currencies (yen and yuan) – which is logical, given the multiple growth of trade turnover in this region, “Valery Emelyanov concludes.
Translation: V. Sergeev
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