Post by 727sky on Dec 18, 2014 20:03:37 GMT -6
Thanong Khanthong
newsletter.thaivisa.com/l/jzQgFpyeyIlIp5yOz3u5GA/3HnBhEOspO892rvRGdjliAYA/MgQen8WrRBctgXdFQI08Mw
BANGKOK: -- Has the ruble fallen off a cliff and brought the Russian economy to its knees? Most mainstream analysts appear to think so, particularly after Russia's central bank was forced to hike its rate massively from 10.50 to 17.0 per cent to defend its currency.
They all agree that at this critical juncture of the financial war, there is no way that Russia can turn things around. The size of the US's GDP is $17 trillion. The EU's GDP is $18 trillion. That makes a combined total of $30 trillion, which dwarfs Russia's $2-trillion economy 15 times over. In short, the US and the European Union are too strong for Russia to resist - financially, economically and militarily.
But is this really the case?
The Russians have maintained that any sanctions against them would boomerang on the West. By imposing economic and financial sanctions, the EU was damaging itself more than Russia. Two-way trade between Russia and the EU amounts to more than $400 billion annually.
The EU has been suffering a deep recession since the 2009 crisis. Recovery is nowhere in sight. By waging an economic and financial war against Russia, the EU is engaging in a futile exercise. This is because Russia has a way out - by trading with China and the other emerging market economies. China has an economy that is now larger than that of the US in terms of purchasing power parity. China's $17-trillion economy can easily absorb Russia's $2-trillion economy. Russia can buy cheap Chinese goods in rubles. It does not need to accumulate dollar reserves for international trade. At the same time, China can buy Russia's energy with its yuan. By doing so, both Russia and China are engaging in a "de-dollarisation" process, trading with each other in local currencies without having to rely on the US currency.
The dollar will suffer from this alliance of Russia and China, which has become a marriage of necessity.
In the immediate term, Russia's financial system is facing a severe crunch brought about by capital outflow and the attack on the ruble. Russia's reserves are still high at $420 billion to cushion the ruble fall. Moscow is prepared to dig further into its reserves to defend its currency. But if it really runs out of short-term foreign funding in the face of the ongoing financial squeeze, it can turn to China for liquidity.
In October, Russia and China signed a bilateral currency-swap agreement amounting to $25 billion, or 150 billion yuan. The deal allows the central bank of Russia to borrow yuan in times of liquidity crisis, and vice versa for the central bank of China. The South China Morning Post has just reported that there is a possibility of Russia turning to this financial facility to cushion the ruble's fall.
If Russia actually taps the yuan as part of the swap agreement, it will mark China's emerging role in providing bailouts, and also lend credit to the yuan as a currency to be reckoned with. In addition, it will signal to other emerging market countries that there is an alternative to the global structure of dollar liquidity governed by the US Federal Reserve and the IMF/World Bank. Crisis-hit countries would be given the choice of borrowing from China, which has reserves of $4 trillion, rather than from the IMF, with stringent conditions attached. If Russia activates the swap agreement, it will mark a point of no return for the global financial system
newsletter.thaivisa.com/l/jzQgFpyeyIlIp5yOz3u5GA/3HnBhEOspO892rvRGdjliAYA/MgQen8WrRBctgXdFQI08Mw
BANGKOK: -- Has the ruble fallen off a cliff and brought the Russian economy to its knees? Most mainstream analysts appear to think so, particularly after Russia's central bank was forced to hike its rate massively from 10.50 to 17.0 per cent to defend its currency.
They all agree that at this critical juncture of the financial war, there is no way that Russia can turn things around. The size of the US's GDP is $17 trillion. The EU's GDP is $18 trillion. That makes a combined total of $30 trillion, which dwarfs Russia's $2-trillion economy 15 times over. In short, the US and the European Union are too strong for Russia to resist - financially, economically and militarily.
But is this really the case?
The Russians have maintained that any sanctions against them would boomerang on the West. By imposing economic and financial sanctions, the EU was damaging itself more than Russia. Two-way trade between Russia and the EU amounts to more than $400 billion annually.
The EU has been suffering a deep recession since the 2009 crisis. Recovery is nowhere in sight. By waging an economic and financial war against Russia, the EU is engaging in a futile exercise. This is because Russia has a way out - by trading with China and the other emerging market economies. China has an economy that is now larger than that of the US in terms of purchasing power parity. China's $17-trillion economy can easily absorb Russia's $2-trillion economy. Russia can buy cheap Chinese goods in rubles. It does not need to accumulate dollar reserves for international trade. At the same time, China can buy Russia's energy with its yuan. By doing so, both Russia and China are engaging in a "de-dollarisation" process, trading with each other in local currencies without having to rely on the US currency.
The dollar will suffer from this alliance of Russia and China, which has become a marriage of necessity.
In the immediate term, Russia's financial system is facing a severe crunch brought about by capital outflow and the attack on the ruble. Russia's reserves are still high at $420 billion to cushion the ruble fall. Moscow is prepared to dig further into its reserves to defend its currency. But if it really runs out of short-term foreign funding in the face of the ongoing financial squeeze, it can turn to China for liquidity.
In October, Russia and China signed a bilateral currency-swap agreement amounting to $25 billion, or 150 billion yuan. The deal allows the central bank of Russia to borrow yuan in times of liquidity crisis, and vice versa for the central bank of China. The South China Morning Post has just reported that there is a possibility of Russia turning to this financial facility to cushion the ruble's fall.
If Russia actually taps the yuan as part of the swap agreement, it will mark China's emerging role in providing bailouts, and also lend credit to the yuan as a currency to be reckoned with. In addition, it will signal to other emerging market countries that there is an alternative to the global structure of dollar liquidity governed by the US Federal Reserve and the IMF/World Bank. Crisis-hit countries would be given the choice of borrowing from China, which has reserves of $4 trillion, rather than from the IMF, with stringent conditions attached. If Russia activates the swap agreement, it will mark a point of no return for the global financial system
