Below is our translation of an article from rueconomics.ru generally concerning the most important financial movement of our time, namely, the de-dollarization of world trade, actively pursued by Russia, China and now Europe, all of which are plotting schemes to circumvent the US dollar in trade settlements to avoid sanctions and other restrictive measures by the US. The widespread use of sanctions and other punitive measures, including cutting states like N. Korea and Iran off from the SWIFT payment system, has contributed mightily to the quest for ways to avoid the US dollar, and to innovative mechanisms towards this end. Here comes another step in this movement. Commentary and notes in [brackets] are by Vince Dhimos.
Investors and financial experts are still catching up to the multipolar financial environment taking shape all around us. When I post at Quora on this subject, there is often a response from someone maintaining that the dollar will be the currency hegemon of world trade and reserves for many years to come. That could well be true, but these commentators are probably depending for their information on the Western press, which sees it as its mission first to assuage all fears of investors – or in other words, con them into continuing to buy and hold Treasuries and US stocks and bonds, and, secondly, or not at all, telling them the unvarnished truth about events that will impact world finance in the future.
Recently, however, we have seen three seemingly minor events that should serve as a warning to those who are counting on the perpetuation of US-dominated financial business as usual.
I am referring to
1) to Saudi oil minister Khalid al-Falih’s warning to the US against sanctions on Russia;
2) the fact that OPEC is considering a restructuring that would make Russia the head of a new OPEC-like organization. WSJ reports:
“Saudi Arabia and its Persian Gulf allies are backing a formal partnership with a 10-nation group led by Russia to try to manage the global oil market, according to OPEC officials, in an alliance that would transform the cartel.” [my highlighting];
3) a Reuters report based on confidential sources indicating that Saudi is prepared to drop the dollar in its oil trade in the event the House and Senate pass the NOPEC bill that would eliminate immunity of OPEC to lawsuits.
“They said the option [referred to as the nuclear option] had been discussed internally by senior Saudi energy officials in recent months. Two of the sources said the plan had been discussed with OPEC members and one source briefed on Saudi oil policy said Riyadh had also communicated the threat to senior U.S. energy officials.”
If at any time, Saudi decides to accept payments in yuan for its oil, this would stand global power politics on its head. Confidence in the US dollar would slide not because the dollar really needs Saudi (China and Japan each have twice the amount in Treasury holdings as Riadh), but because Saudi is seen as symbolic of the petrodollar’s reserve and world trade status and a sign of the trust investors have in the petrodollar. Investors would lose confidence in the USD and it would be even more difficult to find buyers for the Treasuries that support the utterly senseless US-instigated and initiated wars and regime changes that continue to erode trust in the US and heap on more unpayable US debt. All of that would change, hopefully in a non-destructive way.
The Western press is also becoming more open about the de-dollarization efforts of China and Russia, and more recently, Europe. The dam has burst in financial news and the cat is out of the bag.
Yale Global in fact uses the term multipolar (popularized by Putin) several times in its article and throws all caution to the winds saying when, not if in this key sentence:
“When Saudi Arabia decides to accept yuan for oil sold to China, the United States – already perceived as turning inward – will unintentionally make political room for Beijing in assuming a greater leadership role worldwide.”
This article is absolutely brazen compared to the milquetoast manners of the run-of-the-mill Western financial reporting which does its best to tone down, or ignore, unpleasant financial news that might spook investors.
De-dollarization discussions tend to appear more often in publications of think tanks (eg, the Atlantic Council) and official organizations like the EU, which are written by and for experts and hence somewhat insulated from the public. But the information is now out there and investors can read it and act accordingly.
Finally, I don’t see any other journalists out there putting together all the pertinent details on the threat to the petrodollar as I have with the 3 items listed above. Just saying.
The transition of banks to SWIFT analogues is the "anti-dollar response" of Russia and China to US sanctions
March 27, 2019
Russia and China are promoting the idea of settling reciprocal trade in national currencies. The next step in the “anti-dollar response” to US sanctions was the connection of Russian banks to the Chinese SWIFT analogue. According to Andrei Karneev, Deputy Director of the Institute of Asian and African Countries at Moscow State University, the decision to use SWIFT analogues makes it possible to protect trade and economic cooperation from political pressure from third countries.
Chinese and Russian SWIFT analogues
A number of Russian banks have already connected to the Chinese alternative to SWIFT to facilitate mutual settlements between the Russian Federation and China. The head of the department for relations with foreign regulators of the International Cooperation Department of the Russian Central Bank, Vladimir Shapovalov, announced this during the Russia-China international forum. This solution, he said, has already made it possible to simplify the procedure for routing payments.
As Shapovalov recalled, the Bank of Russia earlier unveiled its counterpart to SWIFT, the Financial Reporting System (Russian acronym: SPFS), and now the Russian regulator is actively promoting it around the world, including in China. The representative of the Russian Central Bank expressed the hope that Chinese banks will more actively consider the possibility of its use.
“When analogues of SWIFT are used, accounts in dollars, euros and other currencies of western countries are not handled. For the dollar, there are systems created in the United States. The transition of banks to SWIFT analogues should be seen as a kind of new experience for the Russian Federation and China. While both countries have the technological potential for the independent creation of such systems, although at first they will play only a supporting role.
Most payments in dollars, euros, yen, Swiss francs and British pounds will continue to go through SWIFT. Nevertheless, a positive movement is observed that may be useful in the current environment. It helps to protect trade and economic cooperation from the political pressure on third countries and helps step up cooperation in the area of trade,” explains the expert to FBA Economy Today.
Use of national currencies
Earlier, presidential adviser Sergei Glazyev drew attention to the need for Russia and China to have an interface of the payment systems to integrate the financial markets of the two countries. An active transition to accounts in national currencies of the Russian Federation and China, in his opinion, is possible by [some time in] 2019. Moreover, without this measure, it is unlikely that our reciprocal trade could be achieved.
A similar statement was made by representatives of the Chinese side. The rejection of the dollar by Russia and China will help reduce the negative impact of Western sanctions, which today cause a number of enterprises difficulties in making payments, said Zhou Liqun, head of the Union of Chinese Entrepreneurs.
“In the past, the volume of trade between the Russian Federation and China set a historical record, breaking the bar of $100 billion for the first time. Of course, our task is to increase direct payments in national currencies. It is clear that this will not happen immediately, but the movement towards wider use of the national currency is already happening. There has clearly been positive momentum. The more business and banking contacts between the representatives of the two countries, the more new opportunities are created, and the palette of tools expands,” adds Andrei Karneev.
Now it is the banking sector that is taking the most active steps towards the transition to national currencies. In the Far East since the end of last year, VTB Bank has been conducting up to 22% of trade operations with China in roubles, and another 8% in yuan. In the future, the volume of such operations should increase, but a lot depends on how much interest the Chinese side has in such transactions.
Experts associate another area of cooperation with the creation of a single payment space through agreements with China on the use of a co-badge system based on UnionPay and Mir cards.
Author: Andrey Petrov
Below we include details on the Russian-Chinese co-badged credit cards.
RRDB starts issuing co-badging cards UnionPay-Mir
Russian Regional Development Bank (RRDB) started issuing co-badging cards of “Mir” and UnionPay payment systems. The main feature of the cards is the possibility of their use in the entire acceptance network of UnionPay cards around the world. Operations on cards made in Russia are serviced as operations on cards of the “Mir” payment system, and operations performed abroad are serviced through the UnionPay payment system.
Cardholders will also be granted privileges from both payment systems: the cashback service of the “Mir” payment system with the possibility to return up to 20% of the funds spent on the card for purchases from service partners, as well as discounts and special offers from UnionPay.
The launch of the joint co-badging project of RRDB with the “Mir” and UnionPay payment systems allows to expand the capabilities of bank’s customers. They will be able to use the usual national payment card not only in Russia, but also when settling abroad.
UnionPay payment system, founded in China in 2002, is the fastest developing network in the world. In circulation there are more than 7 billion bank cards, which are accepted for payment in 169 countries. The UnionPay card service network exceeds 2.57 million ATMs and more than 51 million trade and service companies around the world.
“Mir” payment system - is the Russian national payment system. Its participants are 344 banks almost all of them are already accepting and servicing the “Mir” cards in their devices network. More than 150 banks are engaged in the issuance of “Mir” cards. Up to date, more than 37 million cards have been issued. Cards are accepted abroad due to co-badging programs with international payment systems.
China UnionPay kicks off European expansion with UK launch
World’s biggest payment card issuer challenges US rivals Visa and Mastercard
China UnionPay cards are accepted by more than 41m merchants and 2m ATMs in 170 countries © Reuters
Martin Arnold in London and Gabriel Wildau in Shanghai SEPTEMBER 16, 2018
China UnionPay, the world’s biggest payment card issuer, is preparing to launch branded cards in the UK, the first step in a wider European expansion plan to challenge its US rivals Visa and Mastercard in one of their key markets.
The move comes as UnionPay faces intense competition in its home market from digital payments groups Alipay and WeChat Pay. It is also likely to add to the frustration of its US rivals, which have spent years trying to enter the Chinese market.
The Chinese state-controlled group will team up with a UK company as early as next month to start issuing virtual pre-paid cards for British corporate clients to give to their staff for use via a mobile wallet when travelling in Asia.
This will be followed by more deals to issue UnionPay branded credit cards elsewhere in Europe as early as December. “In Europe we want to target local customers in the domestic market, not only people travelling to Asia” said Zhihong Wei, head of UnionPay in Europe.
Founded under a charter from the People’s Bank of China in 2002, UnionPay has a virtual monopoly on bank card payments in its domestic market, where it has issued 6bn cards — more than Visa and Mastercard combined.
The Chinese group has been expanding internationally in recent years, mostly in Asia, and its cards are accepted by more than 41m merchants and 2m ATMs in 170 countries.
It first moved into Europe a decade ago to provide access for Chinese tourists and its cards are now accepted by 60 per cent of merchants and ATMs in the region. It has offices in Paris, London, Madrid, Milan, Frankfurt and Budapest, with another set to open in Stockholm.
Mr Wei said it did not need a licence for its European expansion plan as its cards will be issued by third parties, such as banks, and its transactions will be handled by payment processing groups.
Six years after the World Trade Organization ruled that China discriminates against foreign payment groups, Visa and Mastercard have applied to Beijing for licences to clear renminbi payments but are awaiting approval.
UnionPay operates with a business model similar to Visa and Mastercard, earning a commission on each card swipe. The currency-printing unit of the PBoC is its largest shareholder, with the remaining equity mostly held by state-owned financial institutions.
But the rise of mobile payments in China — dominated by Ant Financial’s Alipay and Tencent’s WeChat Pay — has dislodged UnionPay from its dominant position in electronic payments. Beyond the loss of fee income, the group is also losing access to valuable transaction data from consumers who have switched from plastic to mobile phones.
However, Mr Wei said UnionPay was regaining ground on its digital rivals with its QuickPass system, which uses Near Field Communication (NFC) chips of the type used at subway turnstiles around the world and contactless card payments in the US and UK.
The move to issue UnionPay-branded cards in Europe comes seven years after London department store Harrods became one of the early UK retailers to install a UnionPay point-of-sale terminal, prompting a spike in sales from Chinese students and tourists who were able to spend directly from their Chinese bank accounts.