Creating a BRICS Reserve Currency: A Long-term Project Despite Russia’s De-dollarisation Strategy

Russia and other BRICS members – Brazil, India, China and South Africa – each have different approaches to making changes to establish an alternative non-dollar-denominated international financial system. Russia’s motives are tied to the growing pressure on its capital account following its full-scale war on Ukraine that has led to tougher international sanctions.

For the other BRICS – and countries aspiring to join the group including Egypt, Turkey, Algeria and, more recently, Saudi Arabia – de-dollarisation is a much less urgent goal. India has a closer relationship with the US than with some of the other BRICS members. Brazil and South Africa are less vulnerable to US sanctions.

China and the US remain dependent on each other for trade – China was the US’s third largest trading partner in 2022 January-September after Canada and Mexico – diminishing the logic for third countries to abandon the dollar.

Western measures to isolate Russia also complicate closer co-operation within the BRICS+ countries because of the risk to others of secondary sanctions.

In addition, not all BRICS+ countries have the necessary financial resources or political incentives to invest in the creation of their own non-dollar market infrastructures. Indeed, the most powerful Member States might promote the internationalisation of their own currencies at the expense of others.

Figure 1. Dollar dominates international monetary system; euro a distant second

Currency composition of the international monetary system, %

Source: ECB (The international role of the euro, June 2022), BIS, IMF, SWIFT, Scope Ratings calculations. Notes: The data for foreign-exchange reserves are for the second quarter of 2022; International debt and international deposits data are for the fourth quarter of 2021; Foreign-exchange turnover data as of April 2022; SWIFT data as of July 2022.

Renminbi, Not Rouble, Natural but Limited Beneficiary of De-dollarisation

Any common de-dollarisation strategy would inevitably result in greater use of the Chinese renminbi, making the group more dependent on China’s economic policies and much larger economy, equivalent to almost 60% of BRICS aggregate output. China launched crude oil futures contracts denominated in renminbi in 2018, and trading volumes are at times close to dollar contracts for Brent or West Texas Intermediate crude.

However, the Chinese currency lacks the international acceptance of the dollar or the euro (Figure 1). China’s central bank does not operate a fully floating foreign exchange regime with a lingering tendency to use capital account controls to manage currency flows, even after liberalisation steps are taken.

The dollar remains the dominant currency in almost every area of the current global financial system, with the euro a distant second. It seems unlikely that another currency will overtake the greenback or the euro any time soon.

Challenging dollar hegemony would require a reorganisation of the international financial system, well beyond trade relations, including the roles of Western-led international financial institutions such as the International Monetary Fund and the World Bank.

Strong Longer-term Incentives for Internationalising BRICS+ Currencies

The BRICS+ group has good longer-term economic and political incentives for reducing the dollar’s global dominance. BRICS countries account for 40% of the global population and one-third of the world economy on purchasing-power-parity terms. With Saudi Arabia, BRICS would have two of the largest oil producers, Saudi Arabia and Russia, and two of the largest oil consumers, China and India, increasing the potential to price mutual oil sales in local currencies.

Trade turnover within the BRICS+ is likely to continue growing. China’s foreign trade with other BRICS countries increased by 16% to USD 461bn in the first 10 months of this year compared with the same period in 2021, double the rate of overall growth rate of China’s foreign trade during the same period.

This opens the door for the gradual development of a non-dollar secondary financial system, helping the countries extend their respective spheres of influence. We will likely see efforts to bring BRICS national non-dollar financial infrastructures closer together, to increase mutual trade settled in domestic currencies and to improve co-operation with regional intergovernmental organisations such as the China-led Shanghai Cooperation Organisation.

However, creation of a common BRICS currency that performs the role of a store of value or reserves for central banks of middle-income market economies will remain a long-term challenge.

Figure 2. Risk premium: BRICS CDS spreads significantly wider than reserve-currency issuer countries’

CDS spread (bps), five-year, USD, as of 1 December 2022

Source: Bloomberg, Scope Ratings. *The data for Russia are as of February 1, 2022.

The market perception of risk, judged by sovereign credit default swaps, is significantly higher for BRICS than for reserve-currency issuers (Figure 2) – even excluding Russia, which defaulted on its foreign debt in June. Most BRICS+ countries have good reasons to remain within western financial spheres if only through memberships of international financial institutions.

For a look at all of today’s economic events, check out our economic calendar.

Levon Kameryan is Associate Director in Sovereign and Public Sector ratings at Scope Ratings GmbH.

Sovereign Outlook 2023: Rating Pressures Rise Due to War in Ukraine, Slow Growth, High Inflation

Download Scope’s 2023 Sovereign Outlook.

Explainer video: Scope Ratings introduces its 2023 Global Economic Outlook.

More sovereign borrowers have faced downward than upward rating actions since the escalation of Russia’s war in Ukraine in February and inflation is still running high.

Our overall sovereign outlook for 2023 is Negative, indicating higher likelihood of ratings downgrades next year than ratings upgrades. More than 20% of Scope Ratings’ publicly rated sovereigns are on Negative Outlook, compared with 11% on Positive.

We expect a ‘new normal’ of volatile growth, with next year’s growth globally declining below its potential rate of 2.9%. Our global projections (Figure 1) assume near-stagnation of the euro-area economy (0.7%), slow growth of the United States (1.1%), a contraction in the United Kingdom (-0.6%), and below-potential growth of 4.3% for China. There are downside and upside risks for our global projections.

Scope’s Global Economic Outlook, Summary, as of 12 December 2022

*Changes compared with July 2022’s 2022 Mid-Year Sovereign Outlook forecasts. Negative growth rates presented in parentheses. Source: Scope Ratings forecasts, regional and national statistical offices, IMF.

Multiple Economies Face Shallow Recessions Next Year

Technical recessions are probable in multiple economies during 2022-23, though they will prove shallow in most cases. Risks partly reflect potential energy shortages during the European winters in 2022/23 and 2023/24 as Russia reduces gas supplies.

A baseline scenario assumes no severe global or euro-area recession nor a global financial crisis in 2023 although the possibility of continued interest-rate rises and an inverted yield curve represent risks for 2023 and beyond – threatening an early end to the post-Covid global economic recovery.

Higher inflation is here to stay, even as it peaks and gradually declines. Broadening price pressures risk resulting in further delays to any decline in inflation toward central-bank targets. Rapid price rises lower the real value of the stock of existing debt – which supports the ratings of evaluated sovereigns – but the benefit erodes with time as interest payments rise and central-bank room for manoeuvre is curtailed.

Figure 1. Global growth stutters in 2023

Source: Eurostat, national statistical agencies, Scope Ratings forecasts

Even though central banks will slow rate rises by early 2023, most have limited room for any easing of monetary policy next year. Stronger-than-expected inflation could result in a more drawn-out cycle of tightening monetary policy than in our baseline assumptions.

The combination of monetary-policy constraints and challenging fiscal dynamics place pressure on credit ratings – for emerging as well as for advanced-economy sovereigns.

Slow growth and higher borrowing costs make it harder for sovereigns to return to pre-pandemic debt levels, while interest burdens are due to increase after years of decline. However, the proposed new EU fiscal architecture should help fiscal consolidation in EU Member States.

If Interest Rates Peak, This Will Provide Much-needed Relief for Developing Economies

Credit risks are most elevated for emerging economies with inadequate foreign-currency reserves and significant financing requirements in 2023.

If the interest-cycle peaks next year, that would provide much-needed relief for developing countries confronted with capital outflows and exchange-rate depreciation. This could support ratings next year for some emerging-market sovereigns during an otherwise challenging year ahead.

On the environmental front, while carbon mitigation policies are accelerating, there remains a gap between action and policies needed to limit global warming to 1.5°C. How countries address such risks will have lasting implications for economic competitiveness and sovereign credit outlooks beyond 2023.

For a look at all of today’s economic events, check out our economic calendar.

Giacomo Barisone is Managing Director of Sovereign and Public Sector ratings at Scope Ratings GmbH. Dennis Shen, Director at Scope Ratings, contributed to writing this commentary.

Thanksgiving: 3 Assets That Can Be Grateful for 2022

This year has been a tumultuous one for global financial markets, to say the least. War, soaring inflationrate hikes, recession, bear market – these terms have been flung about for much of this year, sending fear coursing through many investors and traders.

However, certain assets have flourished even amidst the doom and gloom, enjoying year-to-date gains as we head into the final month of the year.

Here are 3 of them:

US Dollar (DXY) = 10% year-to-date Gains

King Dollar asserted its grip across the FX world, being the preferred safe haven (an asset which investors hope will protect their wealth in times of great fear).

The ongoing Fed rate hikes have also contributed to the US dollar strength, much to the anguish of most of the FX world.

The DXY has pulled back significantly from recent heights, as markets grow to expect that the worse of the Fed rate hikes are now behind us.

As long as the Fed hikes again at its next FOMC meeting on December 14th and signals that more rate hikes are in store for 2023, while inflation and job hiring doesn’t fall off too drastically, the DXY should still be able to close out 2022 with an annual gain.

NOTE: The DXY, which is the benchmark US dollar index measuring the buck’s performance against six other major currencies.

Brent Oil = 16.3% year-to-date Gains

Since Russia invaded Ukraine, Western economies have ramped up sanctions against Russian exports of the precious commodity, leaving buyers around the world scrambling for oil, bidding up prices along the way.

Oil’s year-to-date advance has also swept up other oil-linked assets with it:

  • Occidental Petroleum Group is the best performer on the S&P 500 so far this year: +145.3% year-to-date
  • The Russian Ruble is the world’s best-performing currency so far this year: +24.15% year-to-date

However, markets now fear the prospects of a global recession in 2023, which would constrict demand for oil, especially as China continues to battle with Covid Zero lockdowns.

Such fears have seen Brent drop considerably from its year-to-date peak above $130.

Still, oil prices remain very much in a position to end the year with an annual advance.

Much would depend on whether global supplies are further tightened by another OPEC+ supply cut and the ramp up in the EU’s ban on Russian shipments, both set for early December.

Turkish Stocks = 87% year-to-date Gains (in US Dollar Terms)

The Borsa Istanbul 100 reached a new record high in 2022, while becoming the world’s best-performing stock market.

After all, double-digit gains are in stark contrast to the double-digit declines for global stocks, as measured by the MSCI ACWI Index which is down by 17.4% so far this year.

And this isn’t a one-off.

The Borsa Istanbul 100 Index has posted double-digit annual gains in 4 out of the past 5 years!

Why Have Turkish Stocks Soared?

Turkey’s central bank has been cutting its interest rates, at a time when central bankers around the world have been frantically hiking their own rates. And stocks generally love lower interest rates.

This asset class has also been a hedge against other economic turmoil:

  • Turkey’s inflation hit 85.5% in October – its highest CPI print since 1998
  • The Turkish Lira is the 8th-worst performing currency in the world against the US dollar so far in 2022

Hence, Turkish stocks have been seen as a hedge (a way to offset risks) against such woes.

And there’s a fundamental reason for these double-digit gains as well.

Turkish companies are still raking in the dough, where profits have risen by 234% in the first 9 months of the year.

And there’s your “Turkey” connection this Thanksgiving.

In the spirit of being grateful, we truly appreciate you reading our Daily Market Analysis.

And may you find gratitude in all of life’s blessings.

Russia Faces Uphill Task to Offset Sanctions With Closer BRICS+ Financial, Trading Links

Brazil, Russia, India, China, South Africa, which make up the BRICS group of developing economies, account for 40% of the global population and approximately 32% of the world economy in terms of purchasing power parity. Russia’s trade with this group represented 20% of its total trade in 2021, up from 12% in 2010.

From Russia’s perspective – and with other countries expressing their interest in joining the BRICS group including Argentina, Egypt, Iran, Turkey and, more recently, Saudi Arabia – there is much to gain from strengthening trade and economic ties and plenty of pressure to do so.

The war in Ukraine and sanctions have undermined Russia’s growth prospects. We forecast that Russia’s economy will be around 8% smaller at end-2023 compared with where it was in 2021 whereas at the end of 2021, we projected that Russia’s economy would grow by around 5% over 2022-23. In other words, Russia’s economy would have been around 14% larger in 2023 were it not for escalation of the war, indicating quite how large the economic cost has been so far.

It is unlikely that Russia will fully compensate for the lost technology, export markets, and access to global financial systems through greater integration with BRICS+ partners.

Figure 1. Russia’s imports* (USD bn) show clear post-war shift to China

Source: Bruegel, national statistical offices, Scope Ratings. *These 36 countries accounted for around 75% of Russia’s exports and imports in 2021.

Sanctions Reduce Russia’s Access to Foreign Technology

Not all the BRICS+ countries share Russia’s urgency in diversifying trade away from the United States and Europe or integrating each other’s financial systems and de-dollarising their economies, not least when increasing trading ties with Russia runs the risk of secondary US and European sanctions.

In Russia, two thirds of value added in machinery, electrical equipment and computers was typically sourced from foreign countries, with around half of this from the EU, US, UK, Japan and South Korea, all of which have imposed sanctions.

Russia’s imports of high-tech goods and related components from these countries declined by an estimated 75% between February and August 2022. In total, goods imports more than halved to USD 5bn in the same period. Imports from BRICS countries jumped by almost 50% to USD 8.6bn, mainly due to trade with China (Figure 1).

It will be challenging for Russia to replace such volume and variety of sanctioned high-tech goods and other strategic imports from China or other BRICS+, or to find local alternatives. The US has cut off the Russian economy not only from American technology but also from foreign-produced items based on or containing it.

Russia’s use of more costly and poorer quality imported components will constrain productivity growth, crucially in the oil and gas industry, as the country develops more complex alternative supply networks. For example, the share of defective semiconductor chips imported from China has reportedly increased to 40% from 2% in the period before the escalation of the war in Ukraine.

Russia has partially diversified its energy exports away from Europe (Figure 2). Crude exports to China, India and Turkey have more than doubled since February to over 2m bpd. The three countries bought more than half of Russian exports in August and September.

Figure 2. Destination of Russia’s mineral fuels exports* among 36 countries, USD bn

Source: Bruegel, national statistical offices, Scope Ratings. *There are significant variations when comparing values with weights of Russian fuel exports since the Covid-19 crisis. This implies that changes in revenues from fuel exports reflect to a large degree changes in energy prices.

Sanctions Drawbacks Include Oil Price Discounts, Yuan Dependence

Russia’s trade and financial integration with other BRICS+ countries will continue to increase, but not necessarily or wholly to Russia’s advantage, even excluding significant infrastructure and logistical bottlenecks that Russia faces.

Russia is finding that even in the energy trade it does not necessarily have the upper hand. Russia has had to sell crude at a sizeable discount to Asian buyers as G7 countries work towards a price cap on Russian oil sales. Russian crude trades around USD 20 below Brent ahead of the 5 December start date when EU sanctions banning import of Russian seaborne crude come into full force.

Russia’s de-dollarisation strategy will inevitably result in greater use of the renminbi, which has its own drawbacks. Russia will become dependent on China’s economic policies and much larger economy, equivalent to almost 60% of BRICS aggregate output.

The yuan is increasingly perceived as a proxy for the dollar in Russia even though it lacks the international fungibility of the US currency. The Chinese currency now accounts for around 26% of trading in the Russian foreign-exchange market, up from less than 1% before February.

For a look at all of today’s economic events, check out our economic calendar.

Levon Kameryan is Associate Director in Sovereign and Public Sector ratings at Scope Ratings GmbH.

Russia: Western Sanctions, War in Ukraine Exacerbate Structural Economic Weaknesses

The Russian economy is likely to return to its pre-war level of output only by around 2030. By end-2023, GDP will be roughly 8% smaller compared with where output was in 2021, less drastic than we had once expected but nonetheless a stark contrast with growth in other G-20 countries.

Thereafter, in the absence of significant economic restructuring, the Russian economy’s growth potential will diminish to 1.0-1.5% a year from 1.5-2.0% before escalation of the war in February, far below that of most of central and eastern Europe where living standards are on average considerably higher.

The war in Ukraine and intensified sanctions are exacerbating Russia’s long-standing economic deficiencies: i) accelerating capital outflows from the economy; ii) constraining productivity growth by limiting access to Western technology; and iii) speeding up adverse demographic trends, notably a shrinking working-age population.

Investor Confidence Sags, Capital Outflows Accelerate

Sanctions, capital controls and heightened environmental, social and governance risks have raised short- and long-run risks associated with investment in the Russian economy, putting off investors.

Private capital outflows rose to an estimated USD 64.2bn in net terms in Q1 2022, nearly four times the level compared with the same period last year, nearly offsetting a huge current account surplus of USD 68.4bn in the same period (Figure 1). We expect the private sector to pull out more capital from Russia this year than the net USD 152bn in 2014 when Russia annexed Crimea.

Figure 1. Wide current account surplus offset by sanctions-driven capital outflows

Source: Central Bank of Russia, Scope Ratings

The accumulation of foreign assets by non-financial corporates will be difficult to reverse over the foreseeable future as sanctions trigger more private-sector divestment.

The performance of the rouble might be significantly constrained by private capital flows, particularly if Russian energy export volumes continue declining and current high oil and gas prices further recede. Russian energy exports to the EU had steadily increased until March 2022 before falling back. Russia is diverting energy exports to India and China but may still need to offer sizeable discounts to Asian buyers.

Sanctions Compound Lack of Economic Reforms

Transforming Russia’s economic model to sustain greater economic isolation in the long run will require profound reform to wean the economy off its long-standing reliance on the commodities sector. Such reforms require reducing the state’s role in the economy and promoting the private sector – hard to square with the increasing authoritarian approach of the current government.

The Russian state is estimated to account for about one third of Russian economic output and half of formal-sector employment, much higher than that in most OECD countries. Such dependence has discouraged private investment, held back productivity and aggravated economic inefficiencies.

Total investment in the Russian economy amounted to 22% of GDP in 2021, materially lower than in most EU central and eastern European countries, such as Hungary and the Czech Republic, where the investment ratio was about 30%. Low investment will constrain Russian growth for years to come.

As international sanctions have tightened since 2014, foreign direct investment has dropped, falling to USD 5bn a quarter, on average, since 2015 from USD 13.6bn in 2010-13. More importantly, imports have also collapsed since February, including of high-tech goods, from advanced economies.

Figure 2. Russia is reliant on imports of high-tech goods

Share of foreign value added in final demand by industry in Russia, 2018

Source: OECD, Scope Ratings

Russia heavily relies on imported components in machinery and electrical equipment, computers, automobiles and pharmaceuticals sectors. The share of foreign value added exceeds 50%, with about half from the EU, the US, the UK, Canada and Japan (Figure 2). Such a high proportion of foreign-made goods cannot be easily substituted with Chinese imports or local alternatives.

Chances that the government embarks on substantive reform near term are low if only because the recession, capital outflows and sanctions are likely to lead to nationalisation of more businesses unable to cope or abandoned by their foreign owners.

Sanctions Contribute to Adverse Demographic Trends

A shrinking labour force, in addition to slowdown of productivity growth, had reduced the potential growth rate of the economy to less than 2% a year in the pre-2022 period from nearly 4% in the 2000s.

According to Rosstat, the ratio of working-age (15-64) population to old-age (65 and over) population has steadily declined since 2011, reaching a ratio of 4.1-to-1 by early-2022 from 5.6-to-1 in 2011. In other words, the number of people retiring has been outpacing those entering the labour market. This ratio is projected to deteriorate further to 3.4-to-1 by 2030 (see Figure 3 below), due to a shrinking population and ageing dynamics, according to UN forecasts from July 2022.

The war and an acceleration of labour outflows from Russia – with estimates of several hundreds of thousands of persons leaving since 24 February, most of them educated and highly-skilled – further worsen demographic decline, reducing output and productivity growth – underpinning our estimate of Russia’s increasingly limited potential for longer-run economic growth.

Figure 3. Russia’s demographics no longer compare so well with that of other CEE countries

Working-age (15-64) population over old-age (65 and over) population, ratio

Source: National statistical offices, Scope Ratings, UN forecasts

For a look at all of today’s economic events, check out our economic calendar.

Levon Kameryan is Associate Director in Sovereign and Public Sector ratings at Scope Ratings GmbH.

A Price Cap On Russian Oil May Lead To A Massive Rally

Key Insights

  • G7 countries try to establish a mechanism that will reduce the price of Russia’s oil exports. 
  • Meanwhile, Russia is suffering from a strong ruble as imports decline, which means the country does not need too many dollars or euros.
  • Attempts to impose a price cap on Russian oil may lead to a cut in supplies and push oil prices towards yearly highs. 

G7 countries have recently announced their plans to impose a price-capping mechanism on Russian oil to reduce Russia’s revenues. G7 plans to have a working tool by December 5. As a reminder, that’s when the EU plans to stop most imports of Russian oil.

When asked about the potential price cap, the head of the Russian Central Bank Elvira Nabiullina said that Russia would not sell oil to the countries that had imposed the price cap.

Oil markets ignore the issue and the potential supply problems that can arise from implementing the price cap. WTI oil failed to settle above the $120 level in June and has recently declined towards the $90 level.

However, the topic of the price cap on Russian oil will ultimately have more impact on oil price dynamics.

What Is The Idea Behind The Price Cap?

G7 countries plan to use their financial dominance to ban insurance, transportation and financing of Russian oil exports for countries that buy Russian oil above a specified price.

Some publications discussed a $40-60 price range that will keep Russia interested in producing oil.

To implement the price cap, G7 must create a “cartel of buyers”. If G7 countries are successful and the biggest consumers participate, Russia will face a tough choice. The country will have to either supply oil at a specified price or lose oil revenues, which are vital for its budget.

Russian Oil Exports

In June, Russia’s oil exports totaled 7.4 million bpd, compared to the average of 7.75 million bpd in January – June. Sanctions have made Russian oil “toxic”, and Russia’s Urals is sold at a material discount to Brent oil.

According to Neste, the current spread between Urals and Brent exceeds $30. As Brent is trading near the $95 level, Russia sells its oil for about $65 per barrel.

In this situation, a price cap set at the $60 level does not look like a big problem for Russia as it is already selling its oil close to this level.

Russian Ruble And Sanctions

USD/RUB touched highs near the 120 level in March when foreign investors rushed out of the country while Russian citizens bought foreign currency in fear of a total financial collapse.

In response, the Russian Central Bank imposed currency controls. Meanwhile, Russia’s imports dropped due to sanctions. A combination of currency controls and declining imports strengthened the ruble. USD/RUB touched lows at the 50 level in late June before rebounding to 60. The strong ruble is a headache for Russian exporters, while importers cannot benefit from the situation as many potential suppliers cannot sell goods to them due to sanctions.

Russia’s current problem is the excessive flow of foreign currency. Even worse, the “virtual” money, dollars or euros, can turn to nothing at any time if the sanction war escalates. The Western countries have already frozen the assets of the Russian Central Bank, which is now working hard to minimize the use of dollars and euros inside Russia.

Put simply, Russia does not want too much foreign currency that can be frozen at any time, and that cannot be used to buy goods and services. This is important to understand when we consider the potential reaction to the oil price cap mechanism.

Politics Trumps Economics

The year 2022 is full of examples when countries implemented actions and measures that would hurt them economically if they believed that it was politically important to do so.

There is little reason to think that Russia would look at the oil price cap mechanism as an economic exercise. Most likely, the decision will be purely political.

As we have discussed above, Russia does not need foreign currency that cannot be used to buy goods. As a result, Russia may want to cut exports to countries that participate in the price cap mechanism and sell oil to willing buyers.

In 2021, Russia exported 2.4 million barrels to the EU. Assuming that Russian exports decline by about 4 million barrels in 2023 (extreme scenario), the price of oil may easily settle in the $100 – $150 range or even higher.

Interestingly, the revenue (in rubles, which is important for the Russian budget) that Russia will get by selling 7.4 million bpd at $60 per barrel with USD/RUB at 60 is almost equal to the revenue that Russia will receive by selling 3.4 million bpd at $100 per barrel with USD/RUB at 80. Before February, USD/RUB fluctuated near the 75 level, and the country could afford USD/RUB in the 70 – 90 range without triggering severe inflation.

All in all, it remains to be seen whether the price cap on Russian oil will be successful. To have a real chance for success, G7 will need China to join the deal. Politically, this scenario looks increasingly unlikely after Pelosi’s visit to Taiwan. China will still get Russian oil at a discount and get a competitive advantage over U.S. and EU if oil rallies towards the $150 level.

From a trading point of view, the attempt to implement the price cap mechanism may lead to a total cut of supplies to participating countries and lead to a massive rally in the oil market. However, traders will have to wait until October – November before markets will start to price in such scenarios.

For a look at all of today’s economic events, check out our economic calendar.

Brent Might Rise and Strengthen Ruble

The subsequent growth of the dollar to 57.6 rubles on July 1, 2022. Several factors contributed, one of which was the refusal of some Russian companies to pay dividends; the other is the beginning of July, in which an increase in oil production is expected, agreed by the OPEC + oil cartel.

The strong rise in oil prices this year has shown that the world is not yet ready for a sharp transition to clean energy resources. The rise in prices for black gold was also pushed by the embargo from the EU on its purchase from Russia. Countries supplying petroleum products, including Russia, can earn on its sale. In June of this year, the OPEC + member countries agreed to increase oil production to 648,000 barrels per day to keep prices rising. This decision was facilitated by the visit of the US President, where fuel prices are breaking all records, Joe Biden to Saudi Arabia.

Despite the fact that the agreement was reached by the cartel, the likelihood that the participants will still be able to increase volumes remains in question. Such doubt arises taking into account the analysis of production data for June, when the cartel did not reach the planned production volumes of approximately 1.4 million barrels per day from the planned 24.67 million barrels per day. The protests in Libya will also complicate the achievement of production targets this month.

Thus, the expected drop in oil prices may be again postponed. A more severe scenario may be a continuation of the rise in oil prices to the May and June highs in the region of 120 – 124 dollars per barrel, with the possibility of growth to 130 dollars per barrel of BRENT oil remaining.

According to the technical analysis of the BRENT brand, its price is in an ascending parallel channel. At the moment, the local resistance for continued growth is the mark of 114.88 dollars. If this resistance is overcome and the price closes above 114.88, it is likely to rise to the above 120 and 124 dollars, which will also have a positive effect on the strengthening of the ruble.

At the same time, one should not forget that an increase in production above the volumes of the previous month may already have a negative impact on oil prices.

It is likely that the decision to transfer the calculation of duties on grain and oil into rubles was made taking into account the risk of falling oil prices. Russia is the largest exporter of grain, Ukraine is also the world leader in the export of these crops. However, if the EU and countries “unfriendly” to Russia try to take grain out of Ukraine through threats, then the “friendly” ones will have to buy rubles.

This problem can be solved by a single reserve currency based on the portfolio of BRICS countries. This single currency can also be extended to other blocs that these countries belong to, for example, the SCO. The process may not be quick, but ambitions to move the dollar from the position of a global currency for mutual settlements are turning into plans.

It is known that the main hegemony of the dollar in the world economy is supported mainly by oil trade. With the support of the world’s leading oil exporters, the use of alternative currencies, in particular for sale to such large consumers as China and India, the dollar will undoubtedly lose its leadership. During the BRICS Leaders’ Summit, Chinese leader Xi Jinping announced the need to begin the bloc’s globalization by inviting the leaders of 9 countries, including Saudi Arabia and the UAE.

The invitation is clearly based on interest on both sides. The deployment of NATO forces and the policy of “open doors”, the admission of Finland and Sweden, prompted China and Russia to start a similar policy of accepting other countries into their blocs. The world will be bipolar. “Fast changes are underway in the global monetary system that could affect the international role of the dollar,” said Fed Chairman Jerome Powell.

If all of the above can be attributed to fundamentals, which must be taken into account when analyzing the movement of the world economy. As for short-term movements of the dollar against the ruble, there is still a chance of the dollar rising to 60-62 rubles this month. There may be several factors, but the main one is the admission of Finland and Sweden to NATO.

The last two events on the part of Turkey also had a negative impact on the ruble exchange rate: the ratification of the acceptance of the above countries into the alliance, as well as the detention by the Turkish government of a dry cargo ship with grain, sailing under the Russian flag, at the request of Ukraine.

As for technical analysis, on the chart of the dollar/ruble pair, there is an upward trend to 58 in the coming days or next week and up to 62 this month.

It must be taken into account that the dollar itself has not weakened. The dollar index, made up of portfolios of currencies of major economies, broke records.

Consequently, all geopolitical events around Russia, as well as all developments with the supply of grain.

Russian Oil Embargo: Europe Faces Manageable Cost Squeeze; Russia’s Long-run Growth Prospects Worsen

The embargo agreed by the EU comes as Russia’s war in the Ukraine and the war’s impact on aggravating inflation have already diminished the region’s growth prospects for this year and next. We revised down growth projections for the EU’s central and eastern Europe region to 2-3% for 2022, from a December forecast of 4.6%. Similarly, growth in Germany is projected to moderate to 2.3% this year (our December forecast for this year was 4.4%), recovering to only 3% in 2023.

Downside risks to said macro views remain high in case of further intensification of inflationary pressure or evidence that core inflation has become further entrenched. Further significant fiscal support near term is likely even though most governments have already announced budgetary support measures to help cushion households and businesses from rising energy prices and broader inflationary pressure.

The EU’s move increases risk that Russia will expand economic retaliatory measures

The EU’s move significantly increases risk that Russia will expand economic reprisal against EU member states, including through further interruption of energy supplies before the EU’s boycott takes on full effect.

Medium run, pressure on public finances, already stretched by the pandemic crisis, will rise as governments foot part of the bill for the building of alternative energy infrastructure, from storage facilities to new renewable and nuclear generating capacities to natural gas distribution networks.

A temporary exemption for the Druzhba pipeline through central and eastern Europe illustrates difficulties of finding a consistent EU approach under current EU rules when individual countries are particularly dependent upon Russian energy (Figure 1). While this reduces overall effectiveness of sanctions, it does not signal a broader lack of political commitment on the part of the EU as three quarters of Russian oil imports to the EU will be impacted immediately, rising to 90% by end-2022.

Reaching agreement will prove even more challenging when gas embargos are considered.

Figure 1. The reliance on Russian oil varies across the EU

Share (%) of Russia in national extra-EU imports of oil, 2021

Source: Eurostat, Scope Ratings; *no data available for Latvia, Luxembourg and Slovenia

Energy crisis highlights urgency for the EU of creating an energy union for its member states

The energy crisis highlights an urgency for the EU of creating an energy union for its member states to better coordinate countries’ energy policies and enhance energy security. This, however, will prove challenging given differing starting points in terms of an underlying energy mix.

Europe has relatively good oil-import, transport and storage infrastructure and crude is more easily sourced from other regions given international oil markets are more liquid than natural gas markets. Cutting reliance on Russian oil imports is therefore easier than cutting natural gas.

Improved diversification of energy supplies and climate agenda ought to enhance EU energy security

Longer term, the improved diversification of energy supplies coupled with realisation of an ambitious climate change agenda ought to help enhance the EU’s energy security and sustainability of energy supplies.

For Russia, the embargo could drive oil prices even higher, but any export gains will be partially offset by the steep discounts Russian oil producers will have to offer to buyers located in Asia – principally in China and India – in order to compensate for risk of secondary sanctions and cost of developing new infrastructure.

For Europe, completely replacing Russia is out of reach any time soon

A complete replacement of the European market for Russia is out of reach any time soon, especially given EU and UK plans to ban Russian oil insurance. Firstly, Russia’s energy infrastructure is predominantly geared towards the west. Immediate expansion of pipeline oil supplies to China is limited due to capacity constraints.

Secondly, oil has historically been much more important than gas for Russia’s state finances, hence greater effectiveness from an EU perspective of an oil rather than a gas embargo. Last year, oil and gas together generated 36% of Russian federal budget revenue (and 48% over the first four months of this year), with oil accounting for 80% of this total. The embargo raises costs for Russia’s energy sector and real economy not least in terms of rouble convertibility longer run.

Nevertheless, Russia has generated more export revenue from gas than oil since escalation of this war due to soaring gas prices and discounts on Russian crude – income which could be, moving ahead, used to support the domestic economy. In the first four months of 2022, Russia’s federal budget collected 50% of RUB 9.5trn (or USD 132bn) in oil and gas revenue planned for the year.

For a look at all of today’s economic events, check out our economic calendar.

Levon Kameryan is Associate Director in Sovereign and Public Sector ratings at Scope Ratings GmbH. Eiko Sievert, Director in Sovereign and Public Sector ratings at Scope Ratings, contributed to writing this commentary.

Are Gold & Commodities the Answer to the Western Currency Crisis?

In this episode of ‘Live from the Vault’ Alastair Macleod joins Andrew to thoroughly analyse the measurable benefits of backing a currency with gold, showcasing the PetroRuble as a working example of currency commoditisation.

Drawing a sequence of historic parallels, the famed economist contemplates the tactical steps taken by Russia and China to shield themselves from inflation that seem to be progressively corroding the Western currency system.

The collapsing Western currency system

With the PetroRuble continuously strengthening its value against the dollar, it is becoming increasingly noticeable that Russian-centric sanctions imposed by the West have never brought the expected results in penalising the country’s aggression on Ukraine.

By pegging their currency to gold in exchange for oil and commodities, Russia has in fact managed to expose some of the foundational insufficiencies of the Western currency system, which seems to be already balancing on the brink of a collapse.

Moving to a commodity-based currency system

In fact, it is the Western and Eastern approaches to commodities – especially physical gold – that might play a major role in how efficiently both hemispheres will face the upcoming food shortage and further currency debasement. By designing and issuing a commodity-based currency, China enters the path of gaining economic independence from the dollar, protecting its citizens from the shortcomings of the Western financial system in the long run.

As the prices keep rising unceasingly across America and Europe It might be worth questioning the Federal Reserve’s preferred narrative on the inflation surge being a transitory occurrence and asking whether the fiat system is capable of sustaining itself any longer.

History always repeats itself at some point

With the purchasing power of Western currencies sinking, the idea of creating and issuing yet another, new central bank currency might appear tempting. However, history is filled with the government’s failed attempts at creating a sustainable financial solution that would gain enough public confidence to stand the test of time and resist inflation.

It might be worth drawing a parallel between how China has recovered from post-war economic destitution and elevated itself into the position of one of the world’s wealthiest nations, simply by reducing the states’ intervention in the private sector.

As Alastair explains:

“The problem is that the central bank does not understand money. In British law, money is not currency. The currency is a matter of the users, it is us who actually make that decision. This is why gold and silver have always been money because they’re the basis for coinage. And currencies are something different.“

Reintroducing sound money as the centrepiece of the Western currency system might require central banks to perform an acrobatic somersault. The irony of the Russian sanctions is that they might have actually opened the gold window of opportunity for amassing physical reserves, and accelerated this process.

Russia: Tougher Sanctions Widen Disconnect Between Rouble and Economy, Increasing Retaliation Risk

The EU’s proposed new sanctions are likely to inflict further damage on the Russian economy depending on details of a final agreement, with increasing risk of retaliatory measures from Russia.

To take stock of Russia’s economic fortunes in the third month of its full-scale war in Ukraine, I address several questions around prospects for growth with the sanctions in place, the factors explaining the rouble’s recovery, what impact new aEU sanctions might have and what the Russian authorities could do in response. Download the full report

Rouble recovery – Is it sustainable?

Two main factors explain the recovery of the rouble. First, high foreign-currency inflows from oil and gas exports – as energy prices have soared – create steady demand for the Russian currency.

Secondly, efforts of the Central Bank of Russia to prevent capital flight through capital controls and higher interest rates, while they are working for now, come at cost of tighter financial conditions than before the sanctions due to elevated credit spreads and low market liquidity, decoupling economic and financial-market activity from the currency’s fortunes.

Russia: rouble exchange rate vs sovereign credit default swap (CDS) spreads

Source: Central Bank of the Russian Federation, Refinitiv Eikon, Scope Ratings

What are Russia’s near- and medium-term growth prospects?

We project Russia’s economic output to contract by at least 10% this year – the steepest decline since 1994 – and stagnate in 2023, knocking the economy back to levels last seen on the eve of the global financial crisis of 2008. To blame are the collapses in private consumption, in investment and in imports as sanctions have taken hold.

Russia’s important non-extractive industries – machinery and electrical equipment, computers, cars, pharmaceuticals – are reliant upon imported components. The share of foreign value added exceeds 50% in these industries, with about half coming from the EU, the US, the UK, Canada and Japan, much of which cannot be easily replaced, by imports from China or local alternatives.

In the absence of significant economic restructuring, and assuming sanctions remain in place, Scope Ratings expects Russia’s medium-run growth potential to moderate to 1-1.5% a year (from 1.5-2.0%), far below that of most of central and eastern Europe where living standards are far higher.

The EU proposes new sanctions – How tough are they?

In the short term, possibly higher energy prices should help offset the impact of an EU embargo on Russian oil imports.

In the longer term, an EU boycott of Russian oil is likely to imply significant costs for the Russian energy sector and real economy in terms of rouble convertibility, depending on the details of a final agreement, with some EU member states objecting to a full boycott of Russian oil, suggesting the final agreement might be softer than initially expected.

Countermeasures: What steps might Russian authorities take?

Russia is likely to expand economic retaliation against EU members as it seeks alternative buyers of its energy in Asia, but a complete replacement of the European market is out of reach any time soon due to significant transport and logistical constraints.

Russa’s energy infrastructure is predominantly geared to the west. Immediate expansion of pipeline oil supply to China is limited due to capacity constraints. As for oil supplied by tanker, while China’s independent refiners may be attracted by Russian oil at discounts, state-owned commodity traders may be less so due to concerns around secondary sanctions.

For a look at all of today’s economic events, check out our economic calendar.

Levon Kameryan is Senior Analyst in Sovereign and Public Sector ratings at Scope Ratings GmbH.

If Only Inflation Took a Recess…

Global Macro Analysis for April 2022

The same concerns as in previous months called the shots, but in a much more extreme and pessimist way since it is beginning to look like a possible trend. The peaking inflation resulting in increasing rates, the conflict in Ukraine and China’s Covid outbreak, are all the main factors driving the market’s negative momentum.

Things didn’t get better during the last days of the month, after data showed the US GDP contracted in the first quarter, compared with the small increase that was expected. It caused panic selling at first with increasing fears about a potential recession. When one investigates it a bit deeper however, one can see that it has mostly resulted from a trade deficit (more imports than exports), while consumer demand, businesses’ investment growth and housing market stayed resilient during the last quarter.

Federal Reserve Meeting

This week, the Fed’s policy meeting is expected to be a turning point: an aggressive rate hike of 50 bps is expected (and is already priced in) as well as the start of the Fed’s balance sheet reduction, at the largest scale ever, since it reached an incredible record of $9 trillion. Of course, each and every comment of Fed chairman Jerome Powell will be broken down, in order to assess if markets recently overreacted or not, when pricing the bad news. Markets will no doubt adjust accordingly if necessary.

ECB Meeting

From its side, the ECB meeting did not provide a clear time frame yet regarding its own tightening policy. As of today, the market is pricing an 85-bps rate increase in the Euro interest this year, and the yield of the 10-year German Bund returned to close to 1%, something that has not occurred since 2014.

Ukraine War and Fertilizer Prices

Still in Europe, the war in Ukraine is continuing, and beside a humanitarian disaster, a huge energy crisis is threatening Eastern European countries. Russia blocked gas flows to Poland and Bulgaria, expecting payment from them in Rubles. Russia already stated that more countries will be cut off from its gas if there is no sanctions’ reversion on its currency.

Moreover, Finland and Sweden are considering joining NATO, decisions that could possibly end in World War III, according to Putin. Finally, Russia, together with China, is one of the most important global suppliers of fertilizers. Both countries supply the world with close to one quarter of global fertilizers. Now Russia has stopped providing fertilizers to some countries as a response to the sanctions that have been imposed on it.

To put things in perspective, 96% of the US’ potassium fertilizer is imported from Russia, meaning the latter has the power to put the Western food industry at a high level of risk. And as time is passing and no positive outcome is taking shape from this conflict, the risk for a huge global food crisis is increasing.

French Elections

Another major event in Europe in April, was the French Elections, with Macron securing a second term. If it was relatively good news for markets, it also brought attention to the fact that 50% of the French people voted for extremes and so basically half the country said it is not happy with the current regime.

Zero Covid Policy in China

China continues to suffer from its zero Covid policy, a property crisis, the consequences of last year’s crackdown on techs and now, on top of that, the depreciation of its currency. In order to resolve the latter, the People’s Bank of China announced that it will cut the Reserve Requirement Ratio for foreign exchange currencies, from 9% to 8%.

US Earnings Season

Last month also marked the kickoff for the Q1 earnings season. So far, about half the S&P 500 companies have reported. This quarter again, the surprise rate is above the historic average, but we clearly see lower corporate earnings and how higher costs put pressure on profit margins. Also, the growth forecast for this year is sharply lower than last year. Overall, even if earnings calls have been kind of depressing, inflation apart, it fits the process of normalization we all expected.


In this context, our call would be to stay defensive as long as volatility remains high, and the bearish momentum continues. To do so, we suggest building cash position on each technical rebound, and continue to favor value over growth companies.

As always, risk-management combined with rigorous sector and geographical diversification will remain key factors for investment performance.

You are more than welcome to contact us to discuss our investment views or financial markets generally.

Sweetwood Capital Investment Team

Russia: Record Current Account Surplus Disguises Longer-term Impact of Economic Sanctions

Russia’s current account surplus – a broad measure of the country’s trade, investment earnings and transfer payments with the rest of the world – widened to USD 58.2bn in Q1 2022 (Figure 1), equivalent to nearly 10% of the Central Bank of Russia (CBR)’s USD 609bn of international reserves as of 8 April (including sanctioned and frozen reserves), which are down from a record high of USD 643bn on 18 February, before the full-scale invasion.

The wider surplus reflects soaring revenue from Russia’s oil and gas exports – largely spared from international sanctions for the present.

Figure 1. Russia recorded its highest ever current account surplus since at least 1994

Source: Bank of Russia, Ministry of Finance of the Russian Federation, OPEC, Scope Ratings

Absent broader EU sanctions, Russia’s current account surplus could end the year above USD 200bn

Without broader EU sanctions of Russian oil and gas, Russia’s current account surplus could end the year well above USD 200bn, up from about USD 120bn in 2021, due to collapse of imports and the surging value of its commodity exports. This would essentially enable the CBR to rebuild a large segment of international reserves that sanctions have frozen.

Russia will speed up “de-dollarisation” of its reserves and foreign trade, including via increasing its exposure to Chinese renminbi, while maintaining exposure to euro. Russia currently conducts trade with China more in euro than in dollar, with EUR being the settlement currency with respect to half of Russian exports to China, compared with around one-third for USD.

We are yet to see the full impact of sanctions on the Russian economy

However, we are yet to see the full impact of sanctions and resulting consequences of the war on Russian foreign trade and the domestic economy, even if there is no near-term oil or gas embargo. First, sanctions are leading to a painful adjustment of imports for the Russian private sector, disrupting more than half of imported high-tech goods as well as a significant segment of imported machinery and equipment key for industrial production.

A loss of access to foreign technology weakens Russia’s already moderate medium-run growth potential, which we had estimated of around 1.5%-2% annually before the war’s escalation, while we expect Russian GDP to contract by at least 10% this year.

Secondly, an acceleration of European efforts to diversify energy imports away from Russia exacerbate medium-run economic challenges given lack of an ambitious government policy addressing the economy’s reliance on its energy export sector. The EU, which is, overall, Russia’s largest trading partner, recorded imports of Russian petroleum, natural gas and other related products of EUR 100bn last year. The EU’s plan to shed its dependence on Russian gas by 2030 could be brought forward – driven by German ambition to substantially cut dependence by 2024 – via diversification of gas supplies through increased liquefied natural gas and pipeline imports from non-Russian sources.

Full substitution of Russian energy exports to Europe is out of reach near term

We expect to see an acceleration of Russian efforts to counteract European measures partly through greater energy cooperation with China. Full substitution, however, is out of reach any time soon.

Importantly, today Russia does not have the infrastructure capacity to redirect pipeline gas from its west to the east. The capacity of Russia’s eight pipelines suppling gas to Europe is circa 220bcm/year, nearly six times that of its one pipeline to China, Power of Siberia, which is not operating at full capacity and is expected to reach only 38bcm/year by 2025.

In February 2022, Russia signed a 25-year agreement with China for supply of a further 10bcm of natural gas per year. Additionally, Russia is currently planning to develop the Power of Siberia-2 pipeline to deliver an extra 5 bcm/year of gas to China. The construction of the pipeline, however, is expected to conclude only by 2030.

Under this context, Russia’s demand to so-called “unfriendly countries”, including EU member states, to exchange dollar and euro for rouble to pay for Russian gas via a Russian bank reflects extension of a strategy to curtail reliance on western financial systems. This seeks to reduce risks to the Russian economy should accumulated gas revenues become subject to western sanctions in the future.

For a look at all of today’s economic events, check out our economic calendar.

Levon Kameryan is Senior Analyst in Sovereign and Public Sector ratings at Scope Ratings GmbH.

USD/RUB and Brent Analyses. Daunting Correlations

Ruble and Brent Fundamental Analysis

Throughout the past week, the ruble has been strengthening, in particular, against the backdrop of news from the start of Russian gas exports for rubles. It is noteworthy that the plan to release oil contributed to the decline in oil prices on the global market, but also weakened the dollar against the ruble.

By the end of last week, namely on the closing day of April 8 this year, the dollar against the ruble fell to 75.98 on the global market, according to IDC, and even to 75.087 on the Moscow Exchange. Brent oil continued to fall, falling below $99 per barrel, but managed to bounce back by the close of the markets and closed just above $102.

On April 11, the price of Brent oil fell by 2.9%, the ruble reacted negatively and lost a little more than 5% against the dollar.

The reason for this fall of the ruble was the publication in The Times of an article about the entry of Finland and Sweden into NATO. The fall of the ruble continued as the noise around this message increased. The market immediately reacted and judging by the dollar versus ruble and oil charts higher, the market expected an escalation of disagreement between the Alliance and Russia.

Historical Correlation and Recent Changes

Pay attention to the last two candles on the charts of the dollar against the ruble (above) and oil (below).

Under normal conditions, a healthy correlation between the price of oil and the ruble was as follows: the price of oil rises, the ruble strengthens. However, in this case we see a complete opposite, and this opposite is justified precisely by the aggravation of the conflict between Russia and NATO. Videos appeared on the network about the rapprochement of military forces near the borders of Finland, which stated that its air borders were violated several times by the Russian Air Force.

US Dollar, Ruble and Crude Oil Forecast

So far, uncertainty keeps the price of oil and the dollar in a very tight range, but the likelihood of growth in both assets remains quite high. The dollar, as well as the price of Brent oil, is at critical resistance, dollar against ruble at 85 and Brent 105. MACD and RSI on both daily USDRUB chart and daily Brent crude oil chart are bullish. If they close above these levels, the dollar will rise to 88.2 – 90 and Brent to 108 this week.

Russian Ruble Closes at Two-Month High

But what President Joe Biden called “rubble” has surprisingly recovered since its low level on March 7th, as the Russian currency is now buying 1.3cat the time of writing, right back where it was.

USD/RUB Daily Chart – ActivTrader platform from ActivTrades

Investors are wondering why the currency is strengthening while there are still so many uncertainties surrounding the Ukraine-Russia conflict, as many thought the loss of value of the Russian currency would be a rather long-term issue…are we seeing a dead cat bounce? Or is it rather a sustained recovery? How come the RUB is so resilient? Why was the Russian Ruble the top-performing currency last month?

Let’s try to understand the reasons behind the sharp and quick recovery of the Russian currency.

Aggressive capital controls & Central bank actions

As an answer to the international sanctions against Russia, the country took several measures to fight capital flight.

That includes the limitation of money transferred abroad by Russian citizens, the banning of brokers selling securities and other assets held by non-residents, and the mandatory conversion into the Ruble of 80% of the foreign currencies received by all Russian exporters to avoid significant outflows from the Russian financial markets and minimize losses.

Measures are also imposed on foreign-currency Russian bank accounts, as they aren’t allowed to withdraw more than $10,000 in dollars, the rest has to be kept in Rubles.

On February 28, the Russian central bank increased its key interest rate to 20% to support its financial system, providing an incentive to Ruble owners to save money in the local currency rather than to try to convert it into foreign currencies. On April 8, interest rates were lowered to 17%.

These massive capital control rules have somewhat rescued the Russian Ruble by putting a floor under the price, therefore limiting the depreciation of the local currency thanks to fewer Rubles going up for sale.

A steady flow of foreign currency coming into Russia

Despite sanctions to restrict Russia from acquiring foreign currencies like the US Dollar or the Euro, several countries are still buying commodities like oil, natural gas, and coal from Russia because they are very dependent on Russian energy sources.

As these countries are paying Russia in foreign currency, they provide a steady flow of foreign currency, which has eased concerns about Russia becoming insolvent and helped control the Russian fall.

“Unfriendly countries” might have to pay for Russian energy in Rubles

In retaliation for international sanctions after the Ukraine invasion by Russian forces, Putin decided that “unfriendly countries” will have to pay for their gas in Russian Rubles. If he is successful, this decision would force buyers to convert their foreign currencies into the local Ruble, therefore supporting the Ruble.

While the European Commission has asked concerned countries to refuse and stick to the original contracts, Hungary broke ranks with Europe by saying it was prepared to pay its gas in Rubles.

But insisting on payments in Ruble would mean negotiating contracts, which might help buyers exit from Russia altogether. Even if Russia is the world’s largest natural gas producer, and the biggest exporter, there are still other suppliers out there buyers might want to consider buying from. With rising energy prices and worsening relationships between Russia and the West, most countries are considering the need to reduce their dependence on Russian energies, speed up their transition to cleaner energies, and diversify their sources of energy.

Final word

Sanctions need to be adjusted over time in order to be effective, and Russia is quickly adapting to a new balance of capital controls, managed prices, as well as economic and financial self-sufficiency, so it isn’t that surprising that domestic markets are somewhat stabilizing, pushing the Russian ruble higher.

But everything is still shrouded in uncertainty and new potential action against Russia, especially around its energy sector, could significantly impact the Russian economy – and the RUB by extension.

Russia’s Deputy Energy Minister Demands Legalization of Crypto Mining

Key Insights:

  • Russian Deputy Energy Minister wants to legalize crypto mining.
  • He stated location discovery for mining should be set at the regional level.
  • Mining must also be regulated along with regional development plans.

As the Russia and Ukraine war has continued for more than a month, the dynamics of the Russian economy have shifted dramatically.

However, crypto was seen as one way to prevent the sanctions, but even they were banned soon after. So is this the next escape method by the Russian Government?

Russia Needs Crypto Mining

As reported by a Russian news agency, Tass, Evgeny Grabchak, the Russian Deputy Minister of Energy, wants to make crypto mining legal. According to him, the existing legal vacuum when it comes to the mining of cryptocurrencies is not beneficial to the people.

He instead recommended organizing a set of clear rules and regulating this field. Iterating on the same, Grabchak said,

“This legal vacuum needs to be [eliminated] as soon as possible. If we want somehow to get along with this activity, and we have no other options in the current reality, we must introduce legal regulation, adding the concept of mining to the regulatory framework.”

Adding on to this, Grabchak stated that instead of determining mining sites at a federal level, it would be better if the same was done on a more regional level. This would make the entire process more efficient.

This is an interesting development in the ongoing crypto debate in Russia since the central bank first decided to ban cryptos and mining. But the resistance from the Government and the people resulted in crypto being approved in the country.

So Why Legalize Mining Now?

A huge reason behind this could be the sanctions mentioned above against the country. Since many countries announced these sanctions, the value of the Ruble decreased significantly.

And with the blocking of crypto accounts of sanctioned individuals, Russians might begin banking on the opportunity of mining. 

Due to the decentralized nature of crypto, mining cannot be controlled. If Russians can mine cryptos, it will allow them to hold a portion of cryptocurrencies.

And since the price of the crypto will remain the same, they will have the same amount of money before and after it is exchanged into fiat.

Russian Demand for Rouble Payments for Gas Further Complicates EU-Russia Energy Stand-off

Russian President Vladimir Putin has asked the government to instruct state-controlled gas monopolist Gazprom to amend existing contracts such that “unfriendly countries”, including EU member states, start payment in rouble for imports of Russian natural gas. The Bank of Russia (CBR) is to develop a mechanism for processing such payment.

The near-term support for rouble will come at the cost for Russia of further encouraging the European Union to reduce its reliance on Russian energy imports as fast as possible – though that will take time given the infrastructure bottlenecks in the natural gas sector especially.

Financial gain looks moderate for Russia

Russia has already required exporters to sell 80% of forex revenue to support rouble since sanctions froze around half of Russian international reserves. Asking buyers of Russian natural gas to exchange hard currency for rouble increases this rate of rouble conversion to 100% as regards gas exports.

However, the foreign-currency sale requirement on Gazprom could have been increased to 100% anyhow. The move to demand payments in rouble is a strategic retaliation against the EU based upon leverage that Russia exercises as the most important supplier of natural gas to Europe, with Russian supplies amounting to more than 75% of aggregate gas demand of some countries in central and eastern Europe.

The Russian administration is also trying to increase the CBR’s capacity to manage the currency by forcing trade in natural gas to take place in domestic currency and pushing major foreign-currency flows to take place via the CBR, a sign of how financial sanctions have damaged the role of the central bank in steerage of the Russian economy.

Rouble payments for gas could increase CBR capacity to function under a prevailing sanctions regime, given current limitations on the CBR’s scope to transact with central banks in the European Union.

EU faces further energy-trading complexity, risk of gas-supply disruption

Russia’s latest demand could result in gas-contract renegotiation and changes in the duration of gas contracts on top of legal challenges should EU countries argue that the conversion would be a breach of contract. Around 58% of Gazprom gas sales to Europe and other countries are settled via euro, with another 39% in dollar. Any legal stalemate increases risk of disruptions in Russian exports to Europe, which could be painful for select countries short term.

In the longer run, Russia’s new measures are likely to accelerate EU efforts to diversify away from Russian oil and gas. The European Commission has outlined a plan to make Europe independent of Russian fossil fuels before 2030. This plan could lower demand for Russian gas by two thirds before the end of the current year. In the near term, an outcome of the Russian move could be for the EU to specify lower purchase volumes of Russian gas.

For a look at all of today’s economic events, check out our economic calendar.

Levon Kameryan is Senior Analyst in Sovereign and Public Sector ratings at Scope Ratings GmbH.


Oil Longs in Major Retreat as Volatility Jumps

This summary highlights futures positions and changes made by hedge funds across commodities, forex and financials up until last Tuesday, March 8. A week where the war in Ukraine, and increased sanctions against Russia dictated most of the market swings. The prospect for lower growth and even higher inflation helped send the MSCI World stock index down by 4.5%, bond yields rose while the dollar hit multiple month highs against several major currencies.

Saxo Bank publishes weekly Commitment of Traders reports (COT) covering leveraged fund positions in commodities, bonds and stock index futures. For IMM currency futures and the VIX, we use the broader measure called non-commercial.


The Bloomberg Commodity Spot index jumped a massive 11.2% during the reporting week, with gains being led by industrial metals, and not least energy where crude oil surged higher by 20% before suffering a major correction the day after the reporting week ended. Overall it was another week where surging volatility across most commodities saw money managers cut both long and short position, the net result being a small 2% reduction in the overall long across 24 major commodities to 2.17 million lots. Increasingly difficult market conditions helped trigger a 180k lots reduction across oil, fuel products and natural gas while net length was added to most other sectors led by grains and softs.

During 2021 the 30-day volatility on the BCOM Spot index traded within a 10.5% range between 9% and 19.5% but since the war started on February 24, it has surged higher, thereby forcing many hedge funds targeting a certain level of volatility to cut their exposure. Led by the energy and industrial metal sectors it jumped 3% to 22% during the reporting week before finishing at 28.5% on Friday.

As long the volatility remains stable, trend and momentum following hedge funds will normally buy into strength and sell into weakness. The mentioned volatility surge partly helps to explain the current dislocation in energy between reduced positioning and surging prices.


Despite rallying by around 20%, speculators cut their combined length in WTI and Brent crude oil by 100.3k lots to a three-month low at 435k lots, the largest one-week reduction since last July. Brent which jumped 22% during the week saw the biggest impact with the 38% to 158k lots being the biggest reduction made by money managers in a single week since ICE started publishing the data in 2011.

The slump took the net in Brent close to the December low at 154k lots low point when oil briefly traded below $70/b in response to the rapidly spreading omicron virus variant. The move was driven mostly by a pullback in outright longs of 63.5k lots, but also by the biggest addition in short bets (+33.6k lots) since 2016.

Long liquidation across all three fuel futures added to the story of speculators booking some profit after a one-week gains up to 42% had taken all three to record highs.


Gold surged to near the 2020 record high during the reporting and the fear of missing out of further gains saw funds raise their exposure in gold, silver and platinum through a combination of fresh buying and short positions being scaled back. As the table highlights, all three metals saw their net long jump to levels not seen in many months. Gold buyers added to 5% to 176k, a 20-month high, silver 15% to 49k, a two-year high and platinum by 72% to a one-year high at 26k.

Continued gold buying during the past five weeks had lifted the net long by 113k lots or 180% and after failing to hit a fresh record high above $2075 the temptation to book profit helped trigger the subsequent sharp correction which only paused on Friday when support was found at $1960, the 31.8% retracement of the February to March 290 dollar rally.

In HG Copper the return to a fresh record above $5/lb last Monday helped support a 36% increase in the net long to 42k lots, some 49k below the December 2020 peak and an additional 34k lots below the 2017 record at 125k lots. Highlighting a market where money managers remain unconvinced about copper’s short to medium term potentials, not least given continued uncertainty about the strenght of the Chinese economy.


Speculators finally managed to turn their CBOT wheat position around after 27k lots of net buying flipped the net to a long of just 20k lots. However, the hesitancy towards buying wheat at record levels and following a one-week surge of 30% was clear to see in the behavior, with the bulk of the net change being due to short covering and not fresh longs. KCB wheat meanwhile saw a small reduction of 2% after speculators cut short and long positions. Corn was also bought while the soybean complex was mixed.

Following weeks of sugar selling, buyers suddenly returned to lift the net long by 135% to 140k lots. During the week, the price jumped by 6% with surging fuel prices raising the prospect of more demand for plant-based fuels such as sugar towards ethanol production. Net selling of coffee extended to a third week with a weakening demand outlook, as shipments to Russia are cancelled, helping to offset continued worries about weather related declines in the Brazil output this season.


Russia’s unprovoked attack on a sovereign nation entered a second week, thereby supporting continued broad dollar strength. The Bloomberg Dollar Index reached a 20-month high reflecting haven demand and the market beginning to price in a relative faster pace of US rate hikes.

Speculators using IMM futures contracts to express their views on forex ended up, despite the mentioned strength, reducing bullish dollar bets for an eight consecutive week. Albeit at a slowing pace than recent weeks, the combined dollar long against ten IMM futures contracts was nevertheless reduced by 3% to $7.3 billion, the lowest since last August.

Looking beneath the bonnet we the find the relative small net change hiding increased selling of EUR, GBP and CAD being more than offset by short covering in CHF and JPY. The minor currencies saw demand for MXN and BRL while particularly challenging trading conditions saw continued reductions in both Ruble long and short positions.

What is the Commitments of Traders report?

The COT reports are issued by the U.S. Commodity Futures Trading Commission (CFTC) and the ICE Exchange Europe for Brent crude oil and gas oil. They are released every Friday after the U.S. close with data from the week ending the previous Tuesday. They break down the open interest in futures markets into different groups of users depending on the asset class.

Commodities: Producer/Merchant/Processor/User, Swap dealers, Managed Money and other

Financials: Dealer/Intermediary; Asset Manager/Institutional; Leveraged Funds and other

Forex: A broad breakdown between commercial and non-commercial (speculators)

The reasons why we focus primarily on the behavior of the highlighted groups are:

  • They are likely to have tight stops and no underlying exposure that is being hedged
  • This makes them most reactive to changes in fundamental or technical price developments
  • It provides views about major trends but also helps to decipher when a reversal is looming

Ole Hansen, Head of Commodity Strategy at Saxo Bank.

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This article is provided by Saxo Capital Markets (Australia) Pty. Ltd, part of Saxo Bank Group through RSS feeds on FX Empire

MoonPay Freezes Operations in Ukraine, Russia, and Belarus

Key Insights:

  • MoonPay has suspended operations in Ukraine, Russia, and Belarus.
  • The firm has said that it’s impossible to continue operating owing to the sanctions.
  • However, Exchanges like Binance and FTX have argued against suspending payment options. 

In a direct statement released to customers, the MoonPay team informed that they have decided to suspend operations in Ukraine, Russia, and Belarus due to recent events in Eastern Europe.

The Miami-based firm no longer supports customers’ accounts with physical addresses in the regions mentioned above. 

Russia, Ukraine, Belarus see Another Ban

On March 10, the MoonPay team informed all customers that owing to the political tension and Russia’s invasion of Ukraine, the firm had suspended operations in Ukraine, Russia, and Belarus. 

Reportedly, the firm explained their recent move by saying that they couldn’t continue operating in these regions and adhere to the current sanctions by countries across the world.

Notably, nations worldwide are tightening their sanctions on Russia, the US, the EU, and the UK are among the few doing so. 

The US and UK are banning Russian oil, and the EU has pledged to end its reliance on Russian gas. Responding to these sanctions, Russia has banned the export of several foreign-made products.

Earlier this week, FXEmpire reported US-based exchange Coinbase blocking over 25,000 addresses related to Russian users who were supposedly engaged in illicit activities.

Additionally, in late February, crypto exchange Binance highlighted how it was looking to block the accounts of any Russian clients targeted by sanctions. 

However, more recently, exchanges such as Binance and FTX argued that preserving the access of Russians to crypto is essential as the ruble falls amid heavy sanctions against Russia. 

MoonPay and Its NFT Craze

MoonPay launched in 2019 powers more than 250 wallets, websites, and applications in over 160 countries. In November 2021, the firm closed a Series A funding round at $555 million, bringing its valuation to $3.4 billion.

The firm claims that the funding was the largest and highest valued Series A for any bootstrapped crypto company. 

Of late, user-friendly payments infrastructure provider has made some bold moves in the NFT space. Recently, the startup spent $754,340 at the London Evening Sale at Christie’s auction house for a rare item in the World of Women (WoW) collection. 

The price paid by MoonPay makes the piece one of the most expensive WoW pieces ever sold.

USD/RUB – 130 this Week, 150 by the Next Week

Despite the fact that Minister of Foreign Affairs Dmitry Kuleba said in advance that his expectations are restrained.

The experience of negotiations between the delegations of Russia and Ukraine shows us that both sides are currently insisting on their own and progress in resolving the conflict is still standing and is unlikely to move in the near future. In this regard, I do not expect a further downtrend of the USD/RUB pair.

The price of WTI oil also reacted to the beginning of the negotiations, which yesterday, on March 9, fell by 12.14% from $129 per barrel to $108 per barrel, today it is already trading at the 2011 high of $113 per barrel.

Gold also reacted to the beginning of the negotiations, the price of the precious metal yesterday fell by 2.87% from $2059 per ounce to $1991. As long as the conflict, in which the whole world is indirectly drawn in, continues, the prices of raw materials will rise, especially the price of gold.

Gold may regain its safe-haven status for investors, not only amid conflict but also amid soaring inflation. This cup and handle pattern on a monthly Gold chart suggests that the $2500 estimates are most likely to be achieved.

For Russia, it will be important not only to provide the domestic market with food but also to countries that support Russia in conducting the “special operation” in Ukraine. Turkey is one of the world’s top exporters of wheat flour, and Turkey buys wheat mainly from Russia and Ukraine, so losing export capabilities means losing grasp for Russia.

The pressure on Russia will continue, although it seems that all possible sanctions have been adopted, and now everything should gradually improve, but everything is not so. The West will now wait for the impact of these sanctions on the Russian economy, therefore, in the next month or two, this is still very optimistic, the parties will still insist on their own.

The dollar exchange rate, at the time of this writing, is traded on world markets in near 126.5.

The market is waiting for official statements by ministers Lavrov and Kuleba after the talks. I assume that both sides admit that no agreements have been reached, but there are some positive notes, which does not quite suit the market and the Russian ruble at the moment. In this regard, I believe that by the end of this week the dollar will return to 130, and at the beginning of next week we will again see the growth of the dollar to 150 rubles.

Could CBDCs, Crypto, Mining or the Digital RMB Save Russia from Sanctions?

Key Insights:

  • Crypto and crypto mining can’t protect Russia on a state level, but may help some individuals, experts say.
  • The digital yuan “isn’t a viable” way for Moscow to dodge sanctions.
  • The West is lagging behind Beijing, Moscow in the CBDCs race.

The West can not open fire on Russia in the battlefields of Ukraine, but it has certainly not held back in the economic sector, begging some to question whether World War III might be fought on balance sheets and across banking networks.

But just how heavily will Moscow suffer under a Swift ban – and could bitcoin, crypto mining, a digital ruble, or even a foreign CBDC help it overcome the coming economic maelstrom? Leading experts helped us to learn more.

The Swift Ban: A Swift Path to Economic Ruin?

Observers have warned that key Russian banks’ removal from the Swift network will hit the nation’s largest exporters, particularly those in the oil and gas sector, the hardest.

Alon Rajic, the Managing Director of, told FX Empire that without Swift access, banks “will have to rely on manual processes which are likely to result in severe delays on payments to and from Russia.”

He added: “These increased barriers to international trade will make Russian exporters less appealing on the international stage.”

And such delays could hit the Russian economy hard, he warned:

With large delays seen in payments, Russian exporters are likely to experience significant interruptions to their cash flow cycles. This could lead to increased borrowing at a time the Russian Central Bank has doubled its base rate to 20%, which has explosive potential for the Russian economy.

Kene Ezeji-Okoye, the Co-Founder and President of the UK-based digital finance infrastructure builder Millicent, explained that Swift bans can be highly effective – but suggested that there could be consequences for the countries issuing them.

He noted that a Swift ban was “largely regarded as being the key bargaining chip that led to the 2015 Iran nuclear agreement” but called “blocking key Russian banks from accessing Swift” a highly-effective short-term tactic, “in that it negatively affects everyday Russian citizens.” And this, he suggested, “makes the war more unpalatable to the Russian populace than it may have otherwise been.”

However, Ezeji-Okoye remarked:

It appears that the ‘financial nuclear option’, is working well. But nuclear bombs entail fallout, and this situation is no different – these sanctions may well result in unintended consequences for the West, including increased de-dollarization via the acceleration of CBDC issuance.

Ezeji-Okoye added that an “unintended effect” of previous Swift sanctions “was the opening of the world’s eyes to the economic sword of Damocles hovering above their heads.”

Swift alternatives

This economic sword did not go unnoticed in Beijing and Moscow, who have been quietly working on their own Swift alternatives in the shape of the Chinese Cross Border Inter-Bank Payments System (CIPS) and the Russian Financial Message Transfer System (SPFS).

The latter debuted in 2014, the year Russia annexed Crimea. The platform became fully operational in 2017. Although it has some 400 banking members, only a small fraction of these are foreign institutions.

However, as sanctions were announced, the Russian Central Bank’s governor last week reminded foreign banks that the SPFS is up and running, and open to overseas banks. This has not gone unnoticed in the few nations that have chosen to side with Russia over the conflict.

Andras Toth-Czifra, a Senior Analyst at Flashpoint Intelligence who specializes in European and Russian security and cybersecurity issues, claimed that both SPFS and China’s equivalent “have far less capacity than Swift” noting that “SPFS only operates on working days” for instance.

But the question remains: Will economic sanctions cripple or strengthen the resolve of those who feel the brunt of them?

Ezeji-Okoye stated:

This new volley of Swift sanctions only serves to remind the nations of the world that finance is now firmly in the domain of modern warfare, and that having an alternative to the Swift system is now a matter of national security.

Can Crypto Come the Kremlin’s Rescue?

Russians have reportedly been panic-buying crypto in a bid to ditch their ruble savings, but for some, crypto could provide more than a simple safe-have asset.

Rajic, the chief, claimed that “trading a major currency like BTC, ETH or the digital ruble could provide Moscow with “possible workarounds” to sanctions.”

But, Rajic conceded, this would require a major change in policy as Russia has been sending “mixed messages” on crypto adoption. Indeed, prior to the Ukraine crisis, the nation’s Central Bank had been at loggerheads with the Ministry of Finance over the issue. The latter favors “legalizing” cryptocurrencies, but wants to regulate them strictly. It also wants to legally recognize mining – and, crucially, tax the sector.

Putin has attempted to personally intervene in the standoff, and earlier this year noted that Russia’s surplus energy and its abundance of crypto and blockchain developers were assets that could aid adoption.

However, the only existing crypto-specific piece of legislation currently in existence explicitly bans the use of crypto as a form of payment. Moscow, thus, would need to enact a volte-face on this law to start allowing firms to pay using crypto.

Putin’s mention of Russia’s energy reserves has led some to consider Moscow’s possible pivot toward crypto mining as a source of income.

Jorge Pesok, the General Counsel for the United States-based compliance software company, Tacen, told FX Empire:

It’s certainly possible that mining could provide a taxable source of revenue for Russia – essentially limiting the intended effects of sanctions, although likely not to an extent that would make up for any of the severe economic impacts the country currently faces.

But with a diminishing customer base for its vast oil and gas reserves, could Russia put its energy resources to use by providing miners with more power to mine tokens, which could then be taxed?

Other states have previously gone further. The Venezuelan army, for instance, converted certain military facilities during 2020 into crypto mining data centers in a bid to boost the Treasury’s coffers.

Crypto adoption drives have led to the Venezuelan state, which has also been heavily sanctioned by Washington, reportedly amassing a vast stash of BTC and Ethereum.

Could the Kremlin follow Venezuela’s lead?

Pesok was skeptical, stating that he did not “foresee the unlikely strategy” of using Russian energy reserves otherwise earmarked for export to mine tokens. He added:

I expect the country to look to source income from taxing crypto platforms such as exchanges, intermediaries and over-the-counter desks, or other taxes on investments and income from crypto.

Toth-Czifra of Flashpoint Intelligence, concurred, explaining:

Even considering that the Russian government could legalize, tax and then ramp up this capacity, even with a tax rate close to 100%, even if the energy costs are disregarded and even assuming that Russia is still able to import equipment necessary for mining in the future, revenues from this would account for a negligible fraction of what the Russian economy is losing with the present sanctions regime.

A Russian decision to tax crypto mining, he added “would not make any tangible difference at all.”

What about the digital yuan?

Desperate times call for desperate measures. And while the digital ruble may only exist on the drawing board at this stage, one notable CBDC is much closer to rollout: the digital yuan.

Beijing, which has blamed the Western allies for the conflict, is in the latter stages of its own pilot. Onboarding the Russians would allow both nations to ditch the USD in their cross-border trade.

Rajic, meanwhile, added: “Questions would have to be raised as to whether importers would be willing to trade with Russia through a digital reserve currency from China. And it is not likely the idea would be appealing to most businesses and financial organizations.”

Pesok agreed, noting that even “short-term workarounds, such as cryptocurrencies and digital payment solutions for small amounts of sanctions evasion” were more appealing.

While Beijing may well welcome the idea of putting its digital token to the test on the international stage, it may think twice about the idea of debuting it in such a divisive manner. Already, the Asian Infrastructure Investment Bank, which is heavily backed by Beijing, has announced that it will freeze both Russian and Belarus lending. The bank claimed that it was acting in its “best interests.”

Toth-Czifra agreed that Beijing would likely back away from cozying up to Russia on the economic front for fear of a backlash, stating:

China has already signaled that it is wary of secondary sanctions. Chinese banks have already blocked the financing of Russian commodities sales. It is doubtful that Chinese entities would readily lend a helping hand to the Russian financial system, especially when the official position of the Chinese government is that Russia should revert to negotiations with Ukraine.

How about a digital ruble?

Rajic opined that a CBDC, and “the centralized control this would bring” was “likely to be much more appealing to the Kremlin” The Russian Central Bank is indeed working on a digital ruble, but this has not even appeared in pilot form. Rajic stated:

If the conflict was to end in a matter of weeks or months, I don’t think we’d see a Russian CBDC fast-tracked to this extent, but a couple of years down the line and this could be possible.

Although a digital ruble is unlikely to roll out in time to save Russia from the full force of Western and allied sanctions, the long-term effects of these moves could well end up changing the economic landscape – beyond recognition.

Ezeji-Okoye claimed that for many countries “diminishing the power of the dollar is an overt goal” even for nations such as Cambodia, which listed de-dollarization as one of its reasons for releasing its own CBDC, one of the world’s first digital bank tokens.

El Salvador’s President Nayib Bukele won’t admit that his own Bitcoin adoption drive was motivated by de-dollarization ambitions, but it has certainly emboldened him to effectively flip the bird at the global financial establishment.

And, Ezeji-Okoye remarked, the latest sanctions on Russia are “likely to have other central banks and governments thinking along the same lines” as countries that are trying to purge themselves of the dollar.

Russia itself has spoken openly about its desire to de-dollarize its economy and cross-border trade, with senior decision-makers repeatedly stating that removing the greenback is a “long-term strategy”.

Last year, Anatoly Aksakov, the Chairman of the Parliamentary Committee on Financial Markets and also the Chairman of the Council of the Association of Banks of Russia, called attempts to “phase out the dollar” part of Russia’s “long-term economic plan.”

Back in March last year, the Russian Foreign Minister Sergei Lavrov called on Moscow and Beijing to “reduce sanctions risks by bolstering our technological independence.” He urged that they prioritize “switching to payments in our national currencies and global currencies that serve as an alternative to the dollar.”

Lavrov added, “We need to move away from using international payment systems controlled by the West.”

For some, tools like crypto and CBDCs, both real-world tokens and early prototypes could provide nations with tools that could eventually allow them to break free from the constraints of the Washington-led financial system.

Kene Ezeji-Okoye summed the situation up thusly:

CBDCs aren’t inherently designed to be adversarial. But, much like SWIFT, they can be used as such, and will soon become increasingly important pieces in the geostrategic game of chess. The world has witnessed East vs West races for power in the past, but in this case, the East is years ahead of the West.

The bottom line

As the United States, the UK, and EU-led sanctions continue to pile up on Russia, the question of whether CBDCs, crypto and the like can come to Moscow’s immediate aid, the short answer appears to be “no.”

But in the longer term, both the Kremlin and its uneasy allies in Beijing will almost certainly look to speed up the rate of their digital currency progress. In the wake of the Russia-Ukraine conflict, most countries will likely look for digital ways to exit a Swift paradigm that allows Washington and its allies to pull the plug on national economies in a matter of days.