Can Russia and China succeed in dethroning the dollar? | Counting the Cost

[Music] [Music] thank you hello I'm Nick Clark this is counter the cost on Al Jazeera we'll look at the world of business and economics this week Russia is increasingly turning to China's Yuan as its foreign currency of choice and Moscow supports the use of the yuan in trade with other countries could that threaten the US dollar also this week Ukraine wins the imf's first loan to a country at War why did the international monetary fund change its rules to lend the nation and what are the terms and conditions for Kiev and the IMF has agreed to inject billions of dollars into Sri Lanka's economy but is it enough to help the island nation raid in its debt and can the government revive economic growth [Music] so since being shut out of much of the Global Financial system Russia has sought alternatives to soften the impact of Western sanctions it's turned to China for an economic lifeline and trade between the two countries hit a record of 190 billion dollars last year much of those payments were made in Chinese and Russian currencies the two biggest geopolitical Rivals of the U.S want to counterbalance the dominance of the dollar worldwide and Russia is increasingly embracing the Yuan even before the war Russia's Central Bank tried reducing the country's dependence on Western currencies but the invasion has further accelerated those efforts in the third quarter of 2022 foreign currency in the Russian banking system fell to an all-time low of 15 percent and in the past year the share of the dollar and the Euro transactions on the Russian Market has declined meanwhile the Yuan overtook the US dollar as the most traded currency on the Moscow exchange last month with a market share of close to 40 percent of trading volume well Russia's president is making an effort to get other countries to pay for trade in Chinese currency after his meeting with the Chinese president Xi Jinping in Moscow more than a week ago Vladimir Putin said we support the use of a Chinese one in payments between Russia and the countries of Asia Africa and Latin America the Russian leader also expressed confidence that such forms of payment will be developed between Russian partners and their colleagues in third countries the meeting between she and Putin was meant to cement their No Limits partnership which was announced last year and the two leaders have agreed to expand their economic ties China is already a major buyer of discounted Russian oil and gas its Imports of Russian coal have surged 20 to more than 68 million tons Russia has also been ramping up Imports of Chinese Goods including Machinery Electronics base Metals Vehicles ships and aircraft well the US dollar has dominated global trade and capital flows for decades but its share in global Central Bank Reserves it's dropped to less than 60 percent from roughly 70 20 years ago the Euro share has gone up slightly since its launched more than two decades ago from 18 to just under 20 and while the yuan is being widely used it constitutes less than three percent of Global Currency reserves and China's attempts to expand the currency's international role has faced roadblocks will dig more into that with our guests now joining us from London is Maximilian Hess who's a fellow at the foreign policy Research Institute and their political risk consultant Max welcome to the program first up in your view how significant is this shift this Russian adoption of the wine thank you for having me I think that Russia's adoption of the Iran is not really a story about the Iran's strength and certainly not a story about the Yuan replacing or immediately challenging the dollar is the key Global reserve and more importantly global trade currency this is a story about Russia's weakness and the fact that Russia has huge issues trading the dollar what the Western sanctions regime mean is that any hard currency that crosses the Border physically or digitally with Russia automatically has a discount compared to that currency abroad how large that is is the key effort of sanctions authorities and Russia tries to resist it but because of that Russia has shifted to trading in the Yuan but even then it's still not quite as much of a share of Russian exports as dollar trade is still today uh 14 months on from the beginning of this phase of the war right and Max what are the risks associated with it especially bearing in mind you know in China's propensity to sudden devaluations certainly that is one risk the other issue is that there are still Capital controls in China and have freely Russia can move Chinese you want Holdings into other currencies um is a challenge for them as well we saw this actually in the aftermath of Putin and cheese Summit in Moscow last week the Kremlin formally requested the China ease its restrictions on uh rendering B trading and exchangeability so that it could denominate more of its trade with Africa in the currency and Beijing so far has just not responded to that request and how widespread is it yuan's use within Russia Russian people and businesses encouraged to use it well until last February it was very rarely used the Russian Central Bank did shift some of its Holdings over the preceding eight years since Putin first invaded Ukraine in 2014 uh into the Yuan uh but it hadn't really been a major instrument of trade savings or uh credit financing we've now seen Russians open up some savings products in uh the Yuan we've seen trade obviously with China and as I said with some other countries increased pretty substantially but for me what's really key is that China still hasn't offered Russia long-term financing even with the Yuan so the credit Market there is still really incredibly underdeveloped and uh tiny iota of what the dollar credit Market once was in Russia hey Max you were talking about the influence of the Ukraine war and what's happened there with the sanctions and so forth in making this happen and to what degree will this this pivot make a difference to the Russian economy well uh you know I think it really puts Russia in a position where it is dependent on China for trade Russia actually runs a trade surplus with China um unlike you know Western countries but the way to think about this in my view is not really from a position of strength but really that China is happy to say well we'll take as many Russian Commodities some of which we now get at a discount as a result of sanctions on them oil in particular although the discounts aren't as great as they are on Russian seabourne traded oil for the rest of the pipe oil that comes in so Russia's essentially become a commodity supplier state to China um Chinese exports you know to Russia have increased somewhat but uh the key thing is that the Putin regime wants particularly uh material uh defense supplies and advanced technology has not yet been forthcoming so um you know I think it's really representative of the imbalance of power in that relationship and what about Putin encouraging other countries in Asia and Africa in America to use the Guan well Putin has actually criticized what he calls the dollar system for the last 20 years and uh what is known as the exorbitant privilege of the US dollar is traditionally its ability to borrow in deficits but on a geopolitical basis also gives the U.S significant political strength through the extra territoriality of its sanctions regime and Putin long has shaped against this and wants uh to push to have a move away from it but the ruble is not really a currency that is attractive for anyone um to serve as an alternative so he's willing to promote the Chinese one but this is rhetoric we've heard from Putin for 20 years and as you mentioned in the beginning although the dollar share of global reserves is down a little bit over the last 20 years it's actually come back up a little bit in the last few years it is still by far the key Trade Currency um and I am very much of the view that dollar hegemony is you know not under uh immediate threat um you know we've found ourselves in an economic war between the west and Russia and the West's Weaponry through the dollar system there is far larger far more powerful and makes that an unbalanced conflict and Putin naturally chafes against that because uh he wants to take on that order as part of his conflict in Ukraine the dollar not under immediate threat you say but perhaps down the line are there storm clouds well I think that you know China has a 20 or 30 year plan um to really replace uh the dollar or at least to put china as the key node in the global international economic order um you know what's very interesting is you know from my view I'm very much a Russian specialist by background um Russia has long shaped against these things um but the U.S largely has been unaware of some of the geopolitical strengths of the dollar and the history of how it came to be uh so powerful is really a series of U.S policy mistakes and inadvertent effects whereas China seems to have a very coordinated and driven long-term strategy so I don't want to say that it is not a risk but I think you know for China it is a long-term effort and my view is one of the issues with this you know Russian Chinese imbalance and why we haven't seen the credit aspect to it so far because that's what's most strictly sanctioned by the West is that for now China still sees Russia's efforts as more of a threat to its agenda than it does an opportunity to advance it that may change at some point and I think that's a key question around the economic aspects of this global conflict um but uh for now I think you know China's strategy really is not one of embracing Russia as a partner there and more being hesitant uh because it has this much more long-term strategy and it's happy with the order it just wants to be number one whereas Russia effectively wants to undermine it entirely right and as far as China is concerned just to wrap it up long-term strategy for sure but what kind of roadblocks are in the way of it expanding its currency well you know the capital controls that are still in place on the Chinese Yuan are really by far the the key one until that happens um the Chinese currency won't be seen as a an effective means of um uh savings and deposits um internationally or as trade because people won't want to get uh caught in that you know despite there being some talk elsewhere in uh recent years we see this every time this geopolitical crisis at the end of the dollar system um you know there's still very few people in nationally who are willing to get paid in Yuan whereas U.S dollar bills are usually accepted um pretty much everywhere even from a fish market in Russia to um you know trainers in Hong Kong regardless of the level of geopolitical tensions Max just great to get your perspective I appreciate that thanks a lot thank you for having me well Russia pivots to China Ukraine appeals for international Aid to keep the country running the economy is shrank by around a third last year its budget deficit has risen to 38 billion dollars and to rebuild the war-torn nation well that would cost billions of dollars more but as estimated less than half of the money pledged by the West has reached Kiev the nation is now set to receive a loan from the international monetary fund and that is a first for a country at War the IMF has agreed on a 15.6 billion dollar funding package to Ukraine it's expected to be approved in the coming weeks at the four-year funding deal is also one of the largest financial packages Kiev has received since that Russia's Invasion last year it will help Ukraine close its massive budget deficit and support its bid for European union membership let's take this on joining us from Stockholm is tourbillon Becca he's the director of the Stockholm Institute of transition economics also a board member of the Kiev School of Economics tourbillon welcome to the show so the IMF has not granted loans to countries at war in its entire history why does it change the rules now do you think I think these are extraordinary circumstances that's a very short answer to this if we remember the the IMF was set up after the second world war when we had all the difficulties in the war world back then and this now is the first large-scale war in Europe with these aggressions from Russia to Ukraine so you know these are extraordinary circumstances and I think we have to look at it from from this perspective sure but why this particular War I mean a lot of Wars unfortunately over the years haven't they so why wouldn't they support those two those countries too yeah I think yeah I think they're different aspects to this of course one is of course that the IMF is a political institution in some ways we have member countries that need to think about how they want to support countries that have difficulties and one important ingredient here is of course that Ukraine has very strong and powerful friends at the board of the IMF that that controls a large share of the voting of the IMF Board of course like the countries of the European Union the US other partner countries that have supported Ukraine now uh over this last year or so so this figure of 15.6 billion dollars how will it be distributed and how will it be managed will it be all for the rebuild no I mean there are different faces of of this program the first one is of course to make sure that the country can deal with its economic challenges in in the shorter run you know plugging the the hole in the budget as you mentioned and making sure that Ukraine does not need to print money itself to finance its its big deficits so this is more in the short run stabilization of the macroeconomic situation and then going forward it will also be part of the Reconstruction process but we're not there yet as you know yeah I mean while the war goes on it's just like trying to stem a flooding Dam isn't it and ultimately the country needs the war to end to rebuild its economy yeah absolutely and it needs the continued support of countries from the European Union and from the US Canada Japan Etc and what about the conditions of this funding tell us about those well I mean all of the IMF programs have the idea that countries have to just policies so they will be able to repay the the IMF at some future day and there's always this idea that money should be spent in a way that supports sustainable growth and and all sorts of other different dimensions of the economy and and this is no exception in in that so you know there will be discussions about the size of budget deficits how you run monetary policy and then also institutional reforms linked to Independence or Central Bank legal system Etc which is you know standard things in an IMF program right standard but it's not a standard situation Ukraine is a country at War can it honor commitments when it's at war in this way well I mean there's much more uncertainty to this program than standard IMF programs of course but I think if we connect back to the idea that this is based on the fact that the important powers that are part of the IMF is actually agreeing to this program I also think of this as a signal that they will commit their own funding and help and assistance in different ways to make sure this is a sustainable IMF program so basically what what this means is that I think this is a signal that the EU the Us and other partners of Ukraine are serious about their commitment to to help Ukraine for as long as it takes basically we were saying earlier how a lot of money that should have gone to the Ukrainian government has not reached the projects it it was meant to go to a lot of corruption how do we how are we sure that that won't happen here and how should that be fought there has been a lot of progress of course in terms of dealing with corruption a lot of the different parts of the Ukrainian society and external Partners have a lot of focus on on Corruption of course as we know and this is one of the reasons that these recent you know scandals with corruption has come to the surface so I in some ways this is a pretty good sign that now people and and institutions take this very seriously in Ukraine it doesn't mean that it goes away overnight but it will continue to be one of the top priorities to Monitor and make sure that money is not going away in this way in the future of course a final question to you told Beyond going forward do you think Ukraine will get as much funding for reconstruction and Recovery as it did to try and assistance wartime economy well I think it's going to need even more support in the future of course but there it's also the issue of of Russia paying reparations for the damage this has done to Ukraine uh as as most of us have have been discussed in the past about 300 billion or so of Russian assets are frozen uh in Western institutions so you know that is also going to be part of the discussion when it comes to funding the Reconstruction of Ukraine but then of course it's going to also need private sector Investments bilateral donors and and everyone else to help out with the Reconstruction in the future Toby on Becca great to get your analysis thanks very much indeed thank you cues for fuel are now a thing of the past food shortages reduced and cooking gas available again Sri Lanka's worst economic crisis in decades is showing signs of improvement but the island nation is struggling to find the funds to import necessities and repay more than six billion dollars every year until 2029. the government has secured a near three billion dollar bailout from the international monetary fund the loan comes nearly a year after tough negotiations between the IMF Sri Lanka and its creditors China has agreed to support Sri Lanka's debt restructuring which was crucial to secure the package that followed similar Arrangements by other creditors including India and Japan the government has also imposed unpopular measures to meet the IMF requirements including raising taxes utility prices and cutting subsidies on fuel and electricity well joining us from Colombo in Sri Lanka is ciao Dam singer he's the product head of macroeconomic and thematic research at Frontier welcome to the program so this deal nearly three billion dollars but it enables another seven billion dollars how useful is this going to be for Sri Lanka to the deal in itself uh especially the money that comes in itself the money that comes in itself right now itself is not something that's going to be a game changer what is a game changer and has the potential to change the future for Sri Lanka is that this is essentially the next spot in the overall economic uh restructuring of the country the overall economic pathway of the country so this allows Sri Lanka to move forward on some further reforms it allows Sri Lanka to partner with other development Departments of the World Bank the ADP to you know Finance some of those reforms and move forward and also allows us to move forward with the debt restructuring part so starting that process is what this Ira program beginning really crystallizes and of course there's a long road ahead but the long road is now able to start now that we got in the bank so we should be looking more at the medium to long term as far as this is concerned very much I mean the part the factors or the reforms needed the economic policy measures needed to take us to the medium and long term really have to start now of course but this allows us to start the processes and more yeah I was going to say because the conditions mean that you have to act now to have the loan in the first place so immediately will it help Shore up the economy so over the last let's say six months or so a lot of the foreign shortages in the country that really started to clear out and let us start the clear out primarily as a result of the economy's contracture really dampening down demand uh that has meant that some significant amount of those foreign things are looking a lot better already this does allow us now to for example you know reforms that are required for the state or the Enterprises reforms that are required on the energy side perhaps to move forward with that so yes this is very much a critical part of moving forward uh but it's of course just a First Step at the stage the country's been through a lot of austerity as it is it's just the way it goes with these kind of deals that you have to go through more austerity can the country cope with that will we see more protests it's not the packaging itself that requires the austerity about the fact that Sri Lanka's economy had taken itself to a very unsustainable level and then from that point if you are to recover you need to forget the tithing offense you need to reverse some of those unsustainable policies and one you've taken those on a very consumption driven based tightening those that does in fact end up there by being Australia so moving forward one thing that Sri Lanka has currently done is hype taxes especially on the Progressive and for high income earners of course there are progress about that there are applications on how in the future that might be changed so there will be uh opposition to some of these reforms especially those that are directly affected but in terms of what directly affects for example the majority of the country well I think one thing that helps is the fact that there is actually a minimum spend required in IMF program uh for social welfare so this government is required to spend the minimum percentage of GDP uh on social media but of course the one that really hurts to do is the fact that electricity and fuel subsidies have been removed and the terrorists have been made cost reflective they probably wasn't any other option other than that because of the absolutely terrible State of Affairs in the two so is dealing with that uh the alternative could have been much worse but the fact that that is the case doesn't mean that the pain is there so that part of it remains uh recently some prices have to come down with the currency starting to see a little bit of strength with global oil prices coming down as well so hopefully that kind of action can help mitigate some of the pain on the especially on the poor uh in the short term there's a need to drive up exports how does the government plan to do that so there are I mean Sri Lanka is always wanted to drive up export and they've had different different strategies different different plans um for me from my perspective I think it's about getting uh any barriers out of the way and creating an environment that is more conducive to expand uh for an export services so that would look look like structural reforms that would look like uh improving or getting rid of Regulation or over regulation uh and thus allowing for the currencies particularly to reflect market conditions would also be a pretty important part of the Sri Lanka's economy has a traditions of traditional last 15 20 years kept the currency control which has served as it is incentive for export so these factors overall changing could help and create a better environment for examples but only time will tell how much uh how much impact that happens businesses have really suffered over the last few years especially in the past year and the poor too will money be directed in that direction especially on the I think the poor and uh on that side I think like I said there is a minimal thread required for welfare and that is expected to ultimately in nominal terms in Ruby terms mean and increases the amount of welfare uh being spent in the country we are also seeing some of the factors that led to the deepest contraction that Sri Lanka has really seen for a very long time reversing so the interest rates are starting to fall in Sri Lanka the currency also seeing some sort of trade like I said so these factors hopefully just mean that both directly in terms of for example where investment but indirectly in terms of the overall economic environment improving just to create a situation where uh Sri Lankans of the ground do feel less pain and less pay more informed and moving forward how would you see Sri Lanka's economy in a couple of years time so as long as Sri Lanka can't stick to this overall reform uh trajectory I think there is cause for quite a lot of optimism among cautious on it because having to stick to the reform agenda is the little bit of the difficult part because the political economy of the country hasn't traditionally lent itself to stick into these kinds of Pathways but of course the fact that Sri Lanka starting this this time from a very very deep contraction there's no real physical or monetary or financial space to reverse because previously you could reverse and wait three years for the impacts to be felt politically now if you reverse you feel the impacts immediately within the next month or so so hopefully that prevents a reversal on the Sri Lankan side but on that basis I am optimistic but cautiously optimistic on what the future of the country can be thank you so we have our show for this week if you'd like to comment on anything you've seen you can tweet me at Nick Clark Al Jaz please use the hashtag ajctc or just drop us an email counting the cost at zero.net is our address but there's plenty more for you online at target.com forward slash CTC that'll take you straight to our page which is individual reports links and entire episodes for you to catch up on so that's it for this edition of count to the cost I'm Nick Clark from the whole team thanks for joining us for news on Al Jazeera is coming up

Channel: Al Jazeera English

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Keywords: Al Jazeera, Al Jazeera English, al Jazeera, al jazeera English, al jazeera live, al jazeera video, aljazeera, aljazeera English, aljazeera latest, aljazeera live, aljazeera live news, business, china, chinese yuan, conflict, dollar, economy, latest news, news headlines, politics, russia, russia ukraine tensions, ukraine war, united states, us dollar, yuan

Id: 2Hifwe1bUMg

Length: 25min 45sec (1545 seconds)

Published: Sat Apr 01 2023