FROM RUSSIA WITH LOVE: HOW PUTIN COULD CREATE A NEW PARADIGM OF INTERNATIONAL MONETARY AND FINANCIAL RELATIONS
I do not intend to start with premises like "before I start I state that I condemn the war started by Putin in Ukraine and repudiate any kind of war, but...". Simply because I believe that a reasonable reader knows how to distinguish analyzes concerning economic strategy, or political-military one, from discourses regarding political sympathies or emotions.
I will be brief.
The times we live in can truly mark the greatest change of the international paradigm in modern history.
When the war in Ukraine began, the Western powers (the so-called "international community", according to the West itself) imposed sanctions of unprecedented weight against the Russian Federation. Seemed that the only thing left was waiting for the Russian economy to implode on itself. Yet "something" went wrong.
First, the Western powers have realized that cutting Russia out of the economic system is not that easy. And if the replacement of Russian oil supplies for the US is one of the problems of the US, for Europe it is a vital question and an unsolvable puzzle in the near future. It is no coincidence that Gazprombank and Sberbank avoided their exclusion from SWIFT in early March (the latter made the decision to leave the European market anyway).
Second, despite the forecasts of the imminent default for non-payment of interest on the sovereign bonds, Russia (which a few days earlier had requested to pay the sum in rubles) not only paid the 117 million regularly and in dollars, but managed to uncover a real Pandora's box. In fact, the transfer, perfectly traceable, was sent to JP Morgan in the US, used as a referring bank by the Russian government to process the funds, after which the money should have reached the London branch of Citigroup, which in turn was the paying agent of the creditors. This is where the short circuit occurred: Moscow paid on time (transfer on March 14) and in dollars, but the holders of the bonds found themselves at zero revenue due to the sanctions imposed by the Western powers themselves.
As a result, an important precedent has been created with respect to the default clauses of credit default swaps:
1) Moscow pays regularly and in the currency provided for in the contract but the counterparties do not carry out the clearing process, so no one can claim anything against the Kremlin, thus offering Russia a perennial and automatic grace period with respect to all other deadlines at risk;
2) alternatively, if Citigroup pays the amount received at the level of funds processed by JP Morgan, the whole world has proof of the concrete and substantial uselessness of the sanctions regime and the expulsion of Russia from SWIFT.
While the major blow comes on March 23. Vladimir Putin announces that Russia will demand (starting immediately) that the states that have imposed sanctions pay for energy imports in rubles. The Russian President also ordered the Russian central bank to develop a mechanism to make ruble payments for natural gas within a week.
"I have decided to implement ... a series of measures to switch payments — we'll start with that — for our natural gas supplies to so-called unfriendly countries into Russian rubles," Putin said in a televised government meeting, adding that trust in the dollar and euro had been "compromised" by the West's seizure of Russian assets.
Consequently, the ruble gained value against the dollar and the euro following Putin's announcement. Natural gas prices surged in Europe , where Russia has supplied about 45% of imports.
The perfect storm that forces Europe that needs Russian gas to buy rubles (respectively to sell dollars and euros) and therefore:
1) increase the value of the ruble;
2) weaken the dollar-based system;
3) guarantee the flow of dollars necessary to pay the interests on sovereign bonds; (1/2)
I do not intend to start with premises like "before I start I state that I condemn the war started by Putin in Ukraine and repudiate any kind of war, but...". Simply because I believe that a reasonable reader knows how to distinguish analyzes concerning economic strategy, or political-military one, from discourses regarding political sympathies or emotions.
I will be brief.
The times we live in can truly mark the greatest change of the international paradigm in modern history.
When the war in Ukraine began, the Western powers (the so-called "international community", according to the West itself) imposed sanctions of unprecedented weight against the Russian Federation. Seemed that the only thing left was waiting for the Russian economy to implode on itself. Yet "something" went wrong.
First, the Western powers have realized that cutting Russia out of the economic system is not that easy. And if the replacement of Russian oil supplies for the US is one of the problems of the US, for Europe it is a vital question and an unsolvable puzzle in the near future. It is no coincidence that Gazprombank and Sberbank avoided their exclusion from SWIFT in early March (the latter made the decision to leave the European market anyway).
Second, despite the forecasts of the imminent default for non-payment of interest on the sovereign bonds, Russia (which a few days earlier had requested to pay the sum in rubles) not only paid the 117 million regularly and in dollars, but managed to uncover a real Pandora's box. In fact, the transfer, perfectly traceable, was sent to JP Morgan in the US, used as a referring bank by the Russian government to process the funds, after which the money should have reached the London branch of Citigroup, which in turn was the paying agent of the creditors. This is where the short circuit occurred: Moscow paid on time (transfer on March 14) and in dollars, but the holders of the bonds found themselves at zero revenue due to the sanctions imposed by the Western powers themselves.
As a result, an important precedent has been created with respect to the default clauses of credit default swaps:
1) Moscow pays regularly and in the currency provided for in the contract but the counterparties do not carry out the clearing process, so no one can claim anything against the Kremlin, thus offering Russia a perennial and automatic grace period with respect to all other deadlines at risk;
2) alternatively, if Citigroup pays the amount received at the level of funds processed by JP Morgan, the whole world has proof of the concrete and substantial uselessness of the sanctions regime and the expulsion of Russia from SWIFT.
While the major blow comes on March 23. Vladimir Putin announces that Russia will demand (starting immediately) that the states that have imposed sanctions pay for energy imports in rubles. The Russian President also ordered the Russian central bank to develop a mechanism to make ruble payments for natural gas within a week.
"I have decided to implement ... a series of measures to switch payments — we'll start with that — for our natural gas supplies to so-called unfriendly countries into Russian rubles," Putin said in a televised government meeting, adding that trust in the dollar and euro had been "compromised" by the West's seizure of Russian assets.
Consequently, the ruble gained value against the dollar and the euro following Putin's announcement. Natural gas prices surged in Europe , where Russia has supplied about 45% of imports.
The perfect storm that forces Europe that needs Russian gas to buy rubles (respectively to sell dollars and euros) and therefore:
1) increase the value of the ruble;
2) weaken the dollar-based system;
3) guarantee the flow of dollars necessary to pay the interests on sovereign bonds; (1/2)
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