Following much of the world’s severe sanctioning of Russia in the wake of the war in Ukraine, President Vladimir Putin announced that Russia would demand “unfriendly” countries pay for oil in rubles rather than USD or Euros.
“A decision has been made that, at our soonest convenience, we implement a series of measures that will see payments for our natural gas, to begin with, — gas that is exported to “unfriendly” countries — these payments must be made in rubles,” Putin said during a meeting with government officials.
“So, we reject the use of all currencies that have compromised themselves.”
Putin also stated that “a number of Western countries made illegitimate decisions on the so-called freezing of the Russian assets, effectively drawing a line over the reliability of their currencies, undermining the trust for those currencies.”
“It makes no sense whatsoever to supply our goods to the European Union, the United States and receive payment in dollars, euros and a number of other currencies.”
Besides rubles, the Russian government is also considering accepting Bitcoin as payment for natural gas.
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This move appears extreme — and could evolve into a threat to the hegemony of the US dollar — but it is not without precedent.
Before the US imposed severe sanctions, Russia indicated that they were prepared to move away from the USD, preferring to deal with China.
Last year, Russia cut the US dollar from its National Wealth Fund of $186 billion. The Russian Finance Minister subsequently announced that the fund would instead invest in the Euro, Chinese yuan, and gold assets. Now, the Euro is also being taken off the table, as Russia looks to strengthen ties with China and the Eastern world financially.
As senior emerging markets sovereign strategist at BlueBay Asset Manager Timothy Ash noted, “The messaging is ‘we don’t need the US, we don’t need to transact in dollars, and we are invulnerable to more US sanction.”
According to strategic advisor Sean Ross, writing for Investopedia, there are some “conceivable scenarios that might cause a sudden crisis for the dollar.”” He says that one is the “dual-threat of high inflation and high debt” that leads to foreign creditors dumping the dollar. Both of those threats, as well as Russia leaving US markets, are credible.
However, Ross still believes the potential dollar collapse is “highly unlikely” as the US remains “too important a customer” to China and Japan that still benefit from the dollar’s stability.
