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No more sectoral sanctions against Russia: US gives up targeting Russia’s sovereign debt

US Treasury admits further sectoral sanctions against Russia’s sovereign debt would backfire

Alexander Mercouris

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In a recent article for RussiaFeed I discussed the possible additional sectoral sanctions against Russia which were being discussed in the US, and I said that none of them would do significant long term harm to Russia, but all of them risked doing real harm to the US.

As a self-sufficient continental economy sanctions on Russia almost by definition can have only a limited impact, and one which over time must diminish anyway.

As it happens the most effective sanctions the West could have imposed on Russia, both in terms of their impact on the Russian economy and their limited impact on the economies of the West, were the sectoral sanctions which were imposed in 2014.

Those sanctions did stop for a time the flow of capital from the West into Russia at a time when Russia was facing heavy debt repayments and when the price of its main export products – oil and gas – was collapsing.  The result was to deepen the recession caused by the collapse of oil and gas prices whilst further lowering the value of the rouble in a way which intensified the inflation spike.

With oil prices now rising, most short term Russian foreign debt repaid, and with the rouble floating, none of the sanctions discussed in this article look like they can have anything like the impact on Russia that the sanctions imposed in 2014 did.

The fact that the Russian economy successfully – in fact almost effortlessly – adjusted to those sanctions despite the difficult conditions ought to serve as a warning that further sanctions against Russia will not work, and if they are of the sort discussed in this article are counter-productive.

I also discussed at length in the same article the one set of sanctions the US seemed to be most actively considering, which was a prohibition on US investors buying Russian sovereign debt.

I said why this would be counterproductive and would not work and why it would only harm US investors if it was not backed by a freeze on Russian gold and foreign currency reserves held abroad and specifically in the US

The US cannot prevent Russia from floating bonds in the international money markets – in Asia if not in Europe – and the Democratic Senators’ assumption that prohibiting US investors from buying such bonds will dissuade other international investors from doing so is also almost certainly wrong (the cited authority for the claim are not ‘economists’ but two articles in Bloomberg Markets).

The problem anyway is that with Russia now expected to run a budget surplus next year, and with Russia’s trading position also in healthy surplus, and with Russia’s gold and foreign currency reserves now standing at more than $430 billion and growing, it is not obvious that Russia needs to borrow at all.

Unless this measure is combined with a freezing of Russian gold and foreign currency reserves, it is difficult to see how this could be more than a pinprick, just as the Democratic Senators report Russian Central Bank Chair Nabiullina having said.

However if the US were to freeze Russian gold and foreign currency reserves this step would not be necessary anyway, since US investors would not want to buy Russian foreign debt in those circumstances if the Russian reserves were frozen.

At that point of course the US would be facing all the consequences outlined in (2).

Needless to say, if US investors were prohibited from buying Russian debt but no action was taken against Russia’s reserves, then the US would simply be forcing its own investors to forego an opportunity to make money by buying into a strong financial asset which was being bought by other international investors elsewhere.  Again it is not obvious how this would benefit the US.

As to the suggestion that the US freeze Russian gold and foreign currency reserves held abroad and specifically on US territory – which would be the indispensable step if a prohibition on US investors buying Russian sovereign debt were to have any effect – I said why that would be totally counterproductive first and foremost for the US itself

Russia does keep some of its foreign currency reserves in the US with the IMF, but it is not clear how great the amount is and claims that it is much as a third of the reserves is probably an overstatement.

There is no doubt that such a step would have a serious impact, causing the value of the rouble to fall, at least for a short time.

However Russia runs a trade surplus and has paid off most of its foreign debt and the Central Bank since 2014 has been letting the rouble float.

The economy would swiftly adjust as it did to the crisis of 2014, with the Russian trade surplus growing still further as Russia’s trade position benefitted from the rouble’s fall and from the surge in oil prices which would be likely follow such a measure.

Doubtless inflation in Russia would be higher, though it would be unlikely to go as high as it did during the inflation spike of 2015.  However the political impact of the increase in inflation within Russia would be mitigated with the Russian government in a position to blame the US for causing it.  Besides as happened following the inflation spike of 2015, once the economy adjusted inflation would fall back again.

If freezing the Russian state’s foreign currency reserves in the US would only have a short term impact on the Russian economy, it would nonetheless constitute a colossal shock across the world financial system.

It would show that the US is prepared to abuse its position at the core of the world finance system and as the host of institutions such as the IMF to target not just the financial reserves of the smaller economies such as Libya, Venezuela or Iran but also the reserves of big G20 economies such as Russia.

The Chinese especially – who have been on the receiving end of similar threats against their reserves for some time – would be horrified.

It would be difficult to imagine any step the US might take that would galvanise more countries like China and Russia to set up their own alternatives to the world financial system and its institutions which have historically been under the control of the US.  Such moves are already underway and following the freezing (ie. seizure) of whatever proportion of Russia’s reserves are on US territory that process would be bound to accelerate.

It is impossible to see how that would benefit the US.

On 1st February 2018 Russian Central Bank Chair Nabiullina made the same points about the limited effect of the sanctions being discussed on the Russian economy.  Here is how Interfax reports her comments

We saw this risk previously, we see it now. We evaluated it, evaluated the effect of two possible scenarios: a scenario when there is a ban on purchase of new [obligations] and a ban on ownership [of existing obligations]. Of course, both of these decisions might trigger some volatility on the sovereign debt market, but in our view, even if there is initial short-term volatility, the markets will arrive at equilibrium.  We do not see any great effects either for the economy, financial stability or the financial sector.

(bold italics added)

A short while earlier – on 16th January 2018 – Russian Finance Minister Siluanov made the same point.  Here is how Interfax reports his comments

If these sanctions are introduced, those primarily suffering would be foreign investors, who are happy to invest in Russian obligations and receive a steady, reliable, guaranteed high return.  [Russian sovereign bonds would in that case be placed] among our Russian investors, using Russian infrastructure, which is very important.  We will also be engaged in not increasing budget imbalances, in order to carry out this borrowing in minimal volumes.

The US Treasury Department has now released a report which concedes all these points and which says that sanctions against Russia’s sovereign debt would be counterproductive, would have only a limited impact on Russia, and would harm the US.

The report concedes the Russian government’s very limited dependence on foreign borrowing and its invulnerability to sanctions on Russia’s sovereign debt

According to public information from the Russian Finance Ministry, Russia plans to issue roughly $17 billion annually in net new domestic bonds [NB: this refers to rouble bonds which the Russian government issues internally in Russia’s own domestic money markets, and which are invulnerable to sanctions – AM] to finance its fiscal deficits over 2018-2019, but to taper issuance beyond 2019 as the Russian budget comes into balance.  On the external side, Russia’s persistent current account surplus, supported by energy exports, its ample foreign exchange reserves, and its manageable schedule of dollar-denominated bond redemptions limit the need for Eurobond issuance in upcoming years.  However, Russia plans to continue to maintain a presence in this market to support a benchmark yield curve and to reach new investors.  Future external debt issuances will continue to be primarily denominated in US dollars.

In other words Russia does not need to borrow externally at all since it has very limited foreign debt, very large foreign currency reserves (which actually exceed the amount of its foreign debt), and a budget which is almost balanced and which will be in surplus from next year.

To the extent that Russia needs to borrow at all in order to cover its budget deficit, it can do so without difficulty on its own internal rouble denominated money markets.

The only reason Russia continues to float dollar denominated Eurobonds in the international money markets is not because it needs to do so in order to raise money to cover its budget or trade deficits or to pay its foreign debt.

It is in order to impress on foreign investors the strength and credit worthiness of the Russian economy as confirmed by the low interest Russia pays on its Eurobonds.

The US Treasury report does say that despite this invulnerability sanctions on Russia’s sovereign debt would nonetheless have a negative impact on Russia’s economy

Expanding Directive 1 to include dealings in new Russian sovereign debt and the full range of related derivatives would likely raise borrowing costs for Russia; prompt Russian authorities to alter their fiscal and monetary strategies; put downward pressure on Russian economic growth; destabilize financial markets, including Russia’s repurchase market, which is critical for overnight bank funding; increase strain on Russia’s banking sector; and lead to Russian retaliation against US interests.

Some of this is no doubt true, though it undoubtedly underestimates the extent to which the Russian economy – as Nabiullina and Siluanov have said – would rapidly adjust to these sanctions.

It also seriously underestimates the action the Russian authorities would themselves take to mitigate the effect of the sanctions.  By way of example, the assumption that Russia’s repurchase market would be destabilised by sanctions on Russia’s sovereign debt almost certainly underestimates the steps Russia’s Finance Ministry and Central Bank would immediately take to support it.

It is a certainty that more than four years after sanctions began to be imposed Russia’s Finance Ministry and Central Bank have game-planned for all conceivable scenarios, and are prepared to counter them.  Given Russia’s exceptionally strong financial position they have all the available means to do so, and that already makes any plans for new sanctions look unviable.

However the key point is that even the US Treasury report now admits that additional sanctions on Russia’s sovereign debt such as those which are being proposed would have extremely negative consequences for the US and world economies irrespective of whatever effect they might have on Russia

However, because the Russian economy has extensive real and financial sector linkages to global businesses and investors, the effect of the sanctions would not be limited to Russian authorities and businesses.  In particular, expanding sanctions could hinder the competitiveness of large US asset managers and potentially have negative spillover effects on global financial markets and businesses, although competitive distortions could be partially mitigated if the EU implemented similar sanctions.  Expanding US sanctions to include dealings in new Russian sovereign debt without corresponding measures by the EU and other US partners could undermine efforts to maintain unity on Russia sanctions.  Given the size of Russia’s economy, its interconnectedness and prevalence in global asset markets, and the likely over-compliance by global firms to US sanctions, the magnitude and scope of consequences from expanding sanctions to sovereign debt and derivatives is uncertain and the effects could be borne by both the Russian Federation and US investors and businesses.

In plain English, if the sanctions are limited to prohibiting US investors from buying Russian sovereign debt they will fail, and US investors will be the losers; whereas if the US were to succeed in strong arming its allies (ie. Japan and the EU) into supporting the sanctions then because of the Russian economy’s great size and sophistication the damage done to the world financial system and to the world economy would be extensive, and might call into question the US’s management of the world financial system and the reserve currency status of the US dollar.

The last words in the preceding paragraph of course do not appear anywhere in the US Treasury report.  US officials invariably avoid discussing the US’s role in managing the world financial system or the reserve currency status of the US dollar in discussions of this sort, since for completely understandable reasons they do not want to give the slightest hint that they might ever be questioned.  However concern for them is implicit in the whole paragraph from the US Treasury’s report which I have just quoted.

I return to my original point in my article discussing the proposed additional sectoral sanctions which I wrote when reports first circulated that these sanctions were being considered.

The sectoral sanctions which were imposed in Russia in July 2014 were calibrated to do the greatest possible harm to Russia and the least possible harm to the US and its allies.  Indeed I can remember no less a person than Barack Obama saying precisely that about them at the time.

The fact that those sanctions have failed is not a reason to double-down on still more sanctions.

No sanctions the West can now impose on Russia can harm Russia more than did the sanctions which the West imposed on Russia in July 2014.

On the contrary any further sectoral sanctions the West now imposes on Russia look more likely to harm the West than to harm Russia, especially over the medium and long term.

Rather the fact that the sectoral sanctions imposed on Russia in July 2014 failed should be a reason not for doubling down on still more sanctions, but rather for drawing back and reconsidering whether imposing sanctions on Russia is a good idea in the first place.

That in the present fraught atmosphere is something Western leaders seem unable to do.

However it does for the moment seem that the folly of imposing more sectoral sanctions is simply too obvious, and has for the moment been abandoned.

Following publication of the US Treasury report US Treasury Secretary Steven Mnuchin has now admitted as much, and in testimony to the House Financial Services Committee on 6th February 2018 has said that the only further sanctions the US Treasury is now considering are sanctions against individual Russian persons (“oligarchs”) and businesses

We’re targeting specific sanctions to bad individuals and companies as opposed to sanctions on debt.

As I have said previously, such sanctions on individual Russian persons and businesses are wrong and unfair.

However they cannot affect the Russian economy or the political situation in Russia, and in political and economic terms they are pinpricks.

On the contrary, all such sanctions do is give added force to the campaign the Russian authorities have been waging for some time to persuade Russian businessmen to repatriate to Russia the money they have been squirrelling away abroad, and it is almost certainly not a coincidence that for the first time that campaign looks to be meeting with a measure of success.

Inevitably there have been suggestions that the US Treasury Department’s decision to give up on further sectoral sanctions against Russia was somehow inspired by the well-known wish of US President Trump for better relations with Russians.

I think that is very unlikely to be true, with the true reasons for the decision being set out in this and my previous article and in the US Treasury Department’s own report.  As I have said many times, there is no reason to look for a secret conspiratorial reason for a decision, when the straightforward and openly expressed reason is fully sufficient and satisfactory.

On 27th May 2016, shortly after The Duran was started, I wrote a long article for The Duran in which I pointed out that Western attempts to stop the Russian government raising funds by borrowing both internally on Russia’s own money markets and internationally were guaranteed to fail, and that the attempts being made to stop the Russian government doing this were merely making Russia stronger.

The US’s decision not to proceed with sectoral sanctions targeting Russia’s sovereign debt confirm this.

With further sectoral sanctions against Russia now conclusively off the agenda, this episode merely highlights how much stronger in financial terms Russia has become.

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Russian Il-20 downed by Syrian missile. Russia blames Israel. Israel blames Syria (Video)

The Duran – News in Review – Episode 110.

Alex Christoforou

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The unthinkable has happened in Syria.

The world now teeters on the brink of all out war in Syria as a Russian Il-20 was downed by Syrian missile after Israeli F-16s used it as cover during attack, according to statements made by the Russian Ministry of Defense.

President Vladimir Putin, answering a reporter’s question during a press conference with Hungarian PM Viktor Orban, said the downing of the Russian Il-20 plane looks like “a chain of tragic circumstances.” 

The Duran’s Alex Christoforou and Editor-in-Chief Alexander Mercouris discuss the tripwire triggered that has the potential to tip the fragile balance in Syria towards conflict between Russia, Iran and Israel.

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The Russian military says an Israeli raid on Syria triggered a chain of events that led to its Il-20 plane being shot down by a Syrian S-200 surface-to-air missile. Moscow reserves the right to respond accordingly.

Russian Defense Ministry spokesman Maj. Gen. Igor Konashenkov said…

“Israel did not warn the command of the Russian troops in Syria about the planned operation. We received a notification via a hotline less than a minute before the strike, which did not allow the Russian aircraft to be directed to a safe zone.”

The statement by the Russian Defense Ministry said that four Israeli F-16 fighter jets attacked targets in Syria’s Latakia after approaching from the Mediterranean.

The Israeli warplanes approached at a low altitude and “created a dangerous situation for other aircraft and vessels in the region.”

The statement further said that 15 Russian military service members have died as a result…

“The Israeli pilots used the Russian plane as cover and set it up to be targeted by the Syrian air defense forces. As a consequence, the Il-20, which has radar cross-section much larger than the F-16, was shot down by an S-200 system missile.”

According to reports from RT, the Russian military said that the French Navy’s frigate ‘Auvergne,’ as well as a Russian Il-20 plane were in the area during the Israeli operation.

Map of the incident on September 17 in Syria provided by the Russian defense ministry.

The Russian ministry said the Israelis must have known that the Russian plane was present in the area, but this did not stop them from executing “the provocation.” Israel also failed to warn Russia about the planned operation in advance. The warning came just a minute before the attack started, which “did not leave time to move the Russian plane to a safe area,”the statement said.

The statement gives a larger death toll than earlier reports by the Russian military, which said there were 14 crew members on board the missing Il-20. It said a search and rescue operation for the shot-down plane is underway.

A later update said debris from the downed plane was found some 27km off the Latakia coast. The search party collected some body parts, personal possessions of the crew, and fragments of the plane.

Meanwhile Israel has come out to blame the Syrian government for the downing of the military plane, according to an IDF statement.

Israel said that it “expresses sorrow for the death of the aircrew members” of the Russian plane. However, it stated that the government of Bashar Assad “whose military shot down the Russian plane,” is “fully responsible” for the incident.

Israel further blamed Iran and Hezbollah for the incident.

The Israel Defense Forces (IDF) explained that its jets were targeting a Syrian facility “from which systems to manufacture accurate and lethal weapons were about to be transferred on behalf of Iran to Hezbollah in Lebanon.”

Israel claimed that the weapons were “meant to attack Israel.”

Via RT

The IDF assumed that the Syrian anti-air batteries “fired indiscriminately” and didn’t “bother to ensure that no Russian planes were in the air.” The Israelis said that when the Syrian military launched the missiles which hit the Russian plane, its own jets were already within Israeli airspace. “During the strike against the target in Latakia, the Russian plane that was then hit was not within the area of the operation.”

According to the Israeli military, both IDF and Russia have “a deconfliction system,” which was agreed upon by the leadership of both states, and “has proven itself many times over recent years.” The system was in use when the incident happened, the IDF stated. The IDF promised to share “all the relevant information” with Russia “to review the incident and to confirm the facts in this inquiry.”

The military presented a four-point initial inquiry into events in Latakia. It insisted that “extensive and inaccurate” Syrian anti-aircraft fire caused the Russian jet “to be hit and downed.”

The Russian Il-20 aircraft, with 15 crew on board, went off radar during an attack by four Israeli jets on Syria’s Latakia province late Monday. Later on Tuesday the Russian Defense Ministry said that an Israeli raid on Syria triggered a chain of events that led to its plane being shot down by a Syrian S-200 surface-to-air missile.

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Trump Orders Immediate Release Of All Text Messages, Carter Page FISA Application From Russia Investigation

Trump has ordered the DOJ to release all text messages related to the Russia investigation with no redactions.

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Via Zerohedge

President Trump has ordered the Department of Justice to release all text messages related to the Russia investigation with no redactions, of former FBI Director James Comey, his deputy Andrew McCabe, now-fired special agent Peter Strzok, former FBI attorney Lisa Page and twice-demoted DOJ official Bruce Ohr.

Also released will be specific pages from the FBI’s FISA surveillance warrant application on former Trump campaign aide Carter Page, as well as interviews with Ohr.

The statement reads in full:

“At the request of a number of committees of Congress, and for reasons of transparency, the President has directed the Office of the Director of National Intelligence and the Department of Justice (including the FBI) to provide for the immediate declassification of the following materials: (1) pages 10-12 and 17-34 of the June 2017 application to the FISA court in the matter of Carter W. Page; (2) all FBI reports of interviews with Bruce G. Ohr prepared in connection with the Russia investigation; and (3) all FBI reports of interviews prepared in connection with all Carter Page FISA applications.

In addition, President Donald J. Trump has directed the Department of Justice (including the FBI) to publicly release all text messages relating to the Russia investigation, without redaction, of James Comey, Andrew McCabe, Peter Strzok, Lisa Page, and Bruce Ohr

***

As we reported last Monday, Trump had been expected to release the documents any time – with specific attention to the Page documents and the “investigative activities of Justice Department lawyer Bruce Ohr” – who was demoted twice for lying about his extensive relationship  with Christopher Steele – the former MI6 spy who assembled the sham “Steele Dossier” used by the FBI in a FISA surveillance application to spy on Page.

Republicans on the House Intelligence and Judiciary committees believe the declassification will permanently taint the Trump-Russia investigation by showing the investigation was illegitimate to begin with. Trump has been hammering the same theme for months.

  • They allege that Bruce Ohr played an improper intermediary role between the Justice Department, British spy Christopher Steele and Fusion GPS — the opposition research firm that produced the Trump-Russia dossier, funded by Democrats. (Ohr’s wife, Nellie, worked for Fusion GPS on Russia-related matters during the presidential election — a fact that Ohr did not disclose on federal forms.)
  • And they further allege that the Obama administration improperly spied on Carter Page — all to take down Trump. –Axios

Ohr, meanwhile, met with Russian billionaire Oleg Deripaska in 2015 to discuss helping the FBI with organized crime investigations, according to The Hill‘s John Solomon. The meeting with the Putin ally was facilitated by Steele.

Last month Trump called Ohr a disgrace, while also tweeting: “Will Bruce Ohr, whose family received big money for helping to create the phony, dirty and discredited Dossier, ever be fired from the Jeff Sessions  “Justice” Department? A total joke!”

Trump’s threat came one day after two tweets about Ohr, noting a connection to former FBI agent Peter Strzok, as well as a text sent by Ohr after former FBI Director James Comey was fired in which Ohr says “afraid they will be exposed.”

According to emails turned over to Congressional investigators in August, Christopher Steele was much closer to Bruce Ohr and his wife Nellie than previously disclosed.

Steele and the Ohrs would have breakfast together on July 30, 2016 at the Mayflower Hotel in downtown Washington D.C., days after Steele turned in installments of his infamous “dossier” on July 19 and 26. The breakfast also occurred one day before the FBI formally launched operation “Crossfire Hurricane,” the agency’s counterintelligence operation into the Trump campaign.

“Great to see you and Nellie this morning Bruce,” Steele wrote shortly following their breakfast meeting. “Let’s keep in touch on the substantive issues/s (sic). Glenn is happy to speak to you on this if it would help.”

“After two years of investigations and accusations from both sides of the aisle about what documents indicate, it is past time for documents to be declassified and let the American people decide for themselves if DoJ and FBI acted properly,” Freedom Caucus chairman Mark Meadows told Axios earlier Sunday.

In early August, journalist Paul Sperry tweeted that Trump may use his presidential authority to declassify “20 redacted pages of a June, 2017 FISA renewal, “and possibly” 63 pages of emails and notes between “Ohr & Steele,” and FD-302 summaries of 12 interviews.”

President Trump threatened to declassify documents two weeks ago – one day after the New York Times allegedly published an anonymous Op-Ed claiming to be from a White House official claiming to be part of an unelected “resistance” cabal within the Trump administration.

“The Deep State and the Left, and their vehicle, the Fake News Media, are going Crazy – & they don’t know what to do,” Trump tweeted earlier this month, adding: “The Economy is booming like never before, Jobs are at Historic Highs, soon TWO Supreme Court Justices & maybe Declassification to find Additional Corruption. Wow!”

Trump’s threat comes as calls by frustrated GOP legislators to release the documents have hit a fevered pitch. Spearheading the effort are Republican Reps. Meadows, Jim Jordan, Matt Gaetz and Lee Zeldin – who have repeatedly asked Trump to declassify more of the heavily redacted FISA surveillance warrant on former Trump campaign aide Carter Page in late 2016.

In June, Republicans on the House Intelligence Committee asked President Trump to declassify key sections of Carter Page’s FISA warrant application, according to a letter obtained by Fox News.

Carter Page, the DOJ/FBI’s person of interest, weighed in on the matter in late August, tweeting: “The Corrupt DOJ, co-conspirators in the DNC and their high-priced consultants correctly believed they had American democracy and the FISA Court over a barrel in 2016.”

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De-Dollarization Tops Agenda at Russia’s Eastern Economic Forum

The Eastern Economic Forum (EEF) was held in Vladivostok on Sept.11-13. Founded in 2015, the event has become a platform for planning and launching projects to strengthen business ties in the Asia-Pacific region.

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Via Strategic Culture

This year, the EEF brought together delegations from over 60 countries to discuss the topic “The Far East: Expanding the Range of Possibilities”. A total of 100 business events involving over 6,000 participants were held during the three days.

1,357 media personnel worked to cover the forum. Last year, the number of participants was 5,000 with 1,000 media persons involved in reporting and broadcasting. The EEF-18 gathered 340 foreign and 383 Russian CEOs. Nearly 80 start-ups from across South-East Asia joined the meeting.

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This year, a total of 175 agreements worth of 2.9 trillion rubles (some $4.3 billion) were signed. For comparison, the sum was 2.5 trillion rubles (roughly $3.7 billion) in 2017.

They included the development of the Baimsky ore deposits in Chukotka, the construction of a terminal for Novatek LNG at Bechevinskaya Bay in Kamchatka and the investment of Asian countries in Russia’s agricultural projects in the Far East.

Russian Direct Investment Fund (RDIF), Mail.Ru Group, Megafon and Chinese Alibaba inked an agreement on establishing AliExpress trade joint venture. Rosneft and Chinese CNPC signed an oil exploration agreement.

The Chinese delegation was the largest (1,096 people), followed by the Japanese (570 members). The list of guests included the president of Mongolia and prime ministers of Japan and South Korea.

It was also the first time Chinese President Xi Jinping attended the event to meet his Russian counterpart. The issue of de-dollarization topped the agenda. Russia and China reaffirmed their interest in expanding the use of national currencies in bilateral deals.

During the forum, Kirill Dmitriev, the head of RDIF, said the fund intends to use only national currencies in its transactions with China starting from 2019. It will cooperate with the China Development Bank.

This “yuanification” is making visible progress with Shanghai crude futures increasing their share of oil markets up to 14 percent or even more. China has signed agreements with Canada and Qatar on national currencies exchange.

READ MORE: Eastern Economic Forum opens new chapter in US-Russia dialogue

De-dollarization is a trend that is picking up momentum across the world. A growing number of countries are interested in replacing the dollar. Russia is leading the race to protect itself from fluctuations, storms and US-waged trade wars and sanctions.

Moscow backs non-dollar trade with Ankara amid the ongoing lira crisis. Turkey is switching from the dollar to settlements in national currencies, including its trade with China and other countries. Ditching the US dollar is the issue topping the BRICS agenda. In April, Iran transferred all international payments to the euro.

The voices calling for de-dollarization are getting louder among America’s closest European allies. In August, German Foreign Minister Heiko Maas called for the creation of a new payments system independent of the US.

According to him, Europe should not allow the United States to act “over our heads and at our expense.” The official wants to strengthen European autonomy by establishing independent payment channels, creating a European Monetary Fund and building up an independent SWIFT system.

Presenting his annual program, European Commission President Jean-Claude Juncker called on Sept. 12 for the European Union to promote the euro as a global currency to challenge the dollar.

According to him, “We must do more to allow our single currency to play its full role on the international scene.” Mr. Juncker believes “it is absurd that Europe pays for 80 percent of its energy import bill – worth 300 billion euros a year – in US dollars when only roughly 2 percent of our energy imports come from the United States.” He wants the raft of proposals made in his state of the union address to start being implemented before the European Parliament elections in May.

70% of all world trade transactions account for the dollar, while 20% are  settled in the euro, and the rest falls on the yuan and other Asian currencies. The dollar value is high to make the prices of consumer goods in the US artificially low. The demand for dollars allows refinancing the huge debt at low interest rates. The US policy of trade wars and sanctions has triggered the global process of de-dollarization.

Using punitive measures as a foreign policy tool is like shooting oneself in the foot. It prompts a backlash to undermine the dollar’s status as the world reserve currency – the basis of the US economic might. The aggressive policy undermines the US world standing to make it weaker, not stronger.

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