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Mar 23, 2021
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A bipolar world will be the best response to US sanctions

A bipolar world will be the best response to US sanctions

Photo: Christian Ohde / imago stock & people / Global Look Press

The RF Ministry of Finance has warned of sharply increased risks of arrest and blocking of Russian assets in the United States and Western Europe. This forecast is set out in the explanatory note of the Ministry of Finance to the amendments to the Budget Code on the management of the funds of the National Welfare Fund.

In order to reduce risks, the department proposes to provide free funds to the NWF in the form of loans to foreign governments for the purchase of Russian products. This investment option will not only reduce the risks of blocking, but also accelerate the economy without artificially pumping up money.

As a source close to the government explained to Izvestia, such an initiative also involves the placement of funds of the NWF in fact in foreign currency assets, but at the same time outside the jurisdiction of the countries pursuing the sanctions policy.

The Minister of Foreign Affairs of the Russian Federation also spoke about reducing the impact of Western sanctions. Sergey Lavrov on the eve of a visit to China. In an interview with the Chinese media, the foreign minister said that Russia and China can reduce sanctions risks by strengthening their technological independence, switching to settlements in national currencies and in world currencies alternative to the dollar, as well as abandoning the use of payment systems controlled by the West.

The fact that the United States may impose financial sanctions against Russia, including against the Russian national debt, has been said for a long time. The corresponding bills have been in the US Senate for several years. However, until now, the matter did not come to a vote on them, in particular because the US Treasury recognized such actions as destabilizing the global financial system and potentially harmful to American investors.

However, the new administration Biden, judging by the actions and statements already taken, it may well escalate. The activation of the Russian authorities on the topic of insurance against financial sanctions suggests that the risks are quite tangible. The question is whether it is realistic to prepare for these sanctions and take countermeasures, including with the help of China and other BRICS countries.

Deputy Director of the Institute “Development Center” of the Higher School of Economics Valery Mironov believes that this is fully possible only with the creation of a new financial system, alternative to the Western one.

– The Russian alternative to the SWIFT system began to be created after the first round of sanctions in 2015. The fact that it is necessary to replace dollars in calculations has also been said a lot and for a long time. But now, against the background of aggravated relations with the United States after the arrival of the new administration in the United States, new threats have emerged, and it is necessary to talk about the fight against them.

It is unlikely that all these threats will come true right now, because the world economy is already in a difficult situation, and financial sanctions against Russia could rebound on Western countries. For example, American companies also have a lot of old issues of Russian government debt. But some threats can be realized, and you need to prepare for this in advance.

“SP”: – Is it possible to implement everything that Sergei Lavrov said during his visit to China?

– The threat of a split of the world financial system into two camps was spoken out against the backdrop of the 2008 crisis. It was assumed that Western and Eastern financial systems would be formed on the basis of the economies of the United States and Great Britain on the one hand and China on the other, each of which would operate according to its own rules. This is technically possible. There will simply be two blocs that, according to some estimates, may even make the world economy more efficient. After all, we already had a bipolar system, and it was more stable than the unipolar and then multipolar systems that formed after the collapse of the USSR.

If the strongest players decide to return to a bipolar system based on the alliance of China and Russia on the one hand and the United States with allies on the other, all these things that Sergei Lavrov is talking about can be implemented rather quickly. But this requires a whole block of countries. Russia alone will not be enough, since it does not have a very large market. It is necessary that a wide range of countries accept the new rules of the game, then gradually we can come to this. What our Foreign Ministry is talking about is possible, but it takes time, and this should be done in cooperation with a strong partner such as China.

“SP”: – And if we talk not about such a distant future, will it be a response to the sanctions by lending to foreign importers from the NWF?

– Already last year, the volume of foreign direct investment in the Russian economy fell 20 times. But this was offset by an increase in bond loans within the country. That is, due to measures to develop the stock market, it was possible to attract additional resources. Of course, it is possible to lend to foreign partners at the expense of the NWF to compensate for the sanctions until the NWF is spent. Its volume will be quite enough for lending for 2-3 years, which will allow during this period to deal with external shocks. Although this will require revising the rules for using the NWF.

Another issue is that loans from the NWF will not necessarily provide us with the arrival of new technologies that we need. And without access to these technologies, even money may not help. In this regard, China could help, but it still seeks to negotiate with the United States. It is not entirely clear whether China will invest in us investments and technologies. Although they have not joined the sanctions, little additional money has come from them so far.

“SP”: – So can we count on the creation of an alternative financial system?

– Now there is a very interesting game, similar to chess, and you need to calculate not only your moves, but also your opponents, and the opponent is not one, but at least two. What Sergey Lavrov is talking about is possible with certain answers from partners. But if they see their future differently, then we will have to change our moves.

A long-term forecast for the development of our economy should be based on at least eight scenarios for the development of events, taking into account the main uncertainties, only then will we be able to make plans and talk about managing the economy.

Andrey Ostrovsky, Deputy Director of the Institute for Far Eastern Studies of the Russian Academy of Sciences explained to “SP” that plans for a joint confrontation with China are hampered by problems in the Russian economy.

– There is no significant increase in mutual settlements with China in national currencies. Our commission, headed by Sergei Glazyev, discussed this issue online with Chinese banks some time ago. To summarize briefly the response of the Chinese side, it boils down to the fact that the ruble is very volatile and it is risky to work with it. The Chinese yuan is moving in the corridor of 6.7-6.9 to the dollar, while the ruble is jumping from 65 to 80-odd. He can change 15 positions in two weeks, so the Chinese are afraid to mess with the ruble.

Of course, we must introduce a unified ruble-yuan settlement system with China, without converting cash flows into dollars. But now all these processes are complicated by the coronavirus regime. It is better to discuss everything with Chinese partners personally at the negotiating table, and it is very difficult to make progress remotely.

There are also more fundamental problems – we have a very low trade volume with China. Last year it was $ 107 billion, while America, which is at war with the PRC, had about $ 600 billion, and the European Union without Great Britain had $ 570 billion. This is a very tangible difference. Our trade volume is even less than that of China with Vietnam.

This is what you need to talk about first. It is necessary to develop trade with China, create infrastructure in the Far East, and invest money there. Without the development of our Russian economy, nothing will work out for us, because in our current state we are not economic partners for China. The political component is working, we count on the automatic extension of the Treaty of Good Neighborliness, Friendship and Cooperation with China. What are we going to do in five years?

It is unlikely that during this period we will raise the economy so that it is comparable to the Chinese one. Our GDP is comparable to the GDP of one Chinese province of Guangdong. Let me remind you that in 1991 we were ahead of China in this indicator, in 1995 they caught up with us, and now they are already seven times ahead. Therefore, we must develop our economy. And the Foreign Ministry, of course, should also develop cooperation with China, primarily economic, because politically everything is fine with us.

“SP”: – And what about the technical independence from Western payment systems, because here you can make progress right now?

– Every year in March, seminars on Russian-Chinese cooperation in the banking sector are held, where the question was repeatedly discussed whether we need a common payment system with China. Due to the coronavirus, the conference has not been held for the second year, so work is proceeding slowly, but such a system, of course, is needed. This is important both for us and for China, because America has announced sanctions not only to us, but to them as well. Only by acting as a united front can we resist this. But in order for the union to be strengthened, we must do something with our economy.

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