How long the Dollar & SWIFT continue to Dominate? -Ahmad Bhuiyan
The Russia-Ukraine war has changed many aspects of world politics and economy. The United States and Western nations have imposed unprecedented economic sanctions on Russia since its invasion of Ukraine. As Russia is an important partner in world trade, the effect of those sanctions on them will inevitably be felt in world trade. Russia’s currency has plummeted due to the blockade. International trade is in jeopardy for them as Russia’s dollar reserves are blocked. They cannot use half of the foreign reserves.
When Russia occupied Crimea in 2014, the country was threatened with expulsion from the SWIFT (Society for Worldwide Interbank Financial Telecommunications). Russia said at the time that doing so would be tantamount to declaring war. At that time, the western countries did not come forward. As a result of that threat, Russia quickly introduced its own system of cross-border transactions with its neighbors, whose currencies and economic systems are almost identical.
The two major weapons of American monopoly power in world politics are the US dollar and the Swift system. They are no less powerful than lethal weapons. The Russia-Ukraine war proved it again. According to Putin, all-out economic sanctions are a form of war. The Americans have long used this weapon to defeat their opponents in international politics.
Due to the blockade against Russia and its cooperation with Ukraine, the Russian administration published a list of unfriendly countries. At the time, they announced that all oil and gas purchases from Russia would have to be paid in rubles. Their announcement was unimaginable for the western countries.
Although the ruble depreciated by almost half at the beginning of the siege, Russia’s decision pushed the ruble back to its former value. As a result, the ruble began to turn around and is now on the rise. Russia sells 30 billion euros worth of fuel to the West every month. Under their terms, Europe will now have to pay in rubles. Meanwhile, four European countries, including Germany, have announced that they will pay the price. Russia has cut off gas supplies to Bulgaria and Poland because of a failure to pay in rubles. Russia accounts for 90 percent of Bulgaria’s gas and 53 percent of Poland’s gas. The European Union is clearly divided over Russia’s embargo on energy imports.
Therefore, from now on buyers will have to buy rubles in dollars and euros. That means the ruble shares in the monopoly of the dollar and entered international trade. The strength of the dollar was somewhat diminished and it faced challenges. The question is, can the ruble become an alternative to the dollar in international trade?
The United States was the only superpower in World War II to suffer such a loss. They were in a rather convenient position in all respects. They had the most gold in the world then. The value of the dollar is determined based on that. At that time, 44 countries agreed to use the dollar as a currency of foreign trade. That was the beginning of the dollar’s dominance in the money market.
Later, in 1971, US President Richard Nixon announced that the dollar would no longer be valued on the basis of gold, in order to maintain the dominance of the dollar and increase demand. In 1973, an agreement was reached between the United States and Saudi Arabia. According to the agreement, Saudi Arabia will sell oil in the international market in dollars, in return the Americans will ensure their regional security. In 1975, other oil-producing countries took a similar decision. This is how the dollar created its sole dominance in the world that continues today.
Many, including the British Prime Minister and NATO Secretary General, have already indicated that the war will not end suddenly. According to them, the war may continue for a few more years. If that happens then some changes in world politics and economy will become inevitable. Among them is the introduction of one dollar alternative currency. Because Russia will move forward with its own currency as a counter measure to the blockade imposed on it, and even if the ruble does not suddenly become a substitute for the dollar – what if it can make a place in world trade?
Recently, International Monetary Fund (IMF) DMD Geeta Gupinath said that the longer the sanctions on Russia, the more the impact of the dollar will be. While the dollar remains the dominant currency, some countries will use other currencies as well. Because in the current experience they can reduce their reserves in dollars.
As Russia is unable to use its reserves because of US-European sanctions. That is why many countries in the world will reduce their dollar reserves in the United States.
China and Russia have been talking for years about launching a global currency and Swift system in international trade. Even if it is not, the ruble and yuan are entering the world economy. And the IMF has already recognized the yuan as an international currency. These are definitely not good news for the dollar. The dominance of the US dollar as the single currency in the world economy is in the wane. It is said that the situation is much the same today as it was before the British pound lost its sole dominance in the world in 1920.
Can the Americans, who for centuries have bragged about their power by imposing sanctions on the weak states, now be able to ignore these great superpowers?
Tale of SWIFT:
Swift is a banking signal for international trade and transactions. It is used as a medium of communication between 200 countries and 11,000 financial institutions around the world. That’s why banks in almost every country in the world are connected to the Brussels-based Swift financial system. Dollar dominates here too as more than 80 percent of SWIFT transactions are done via dollar.
Although the Swift system was created in 1973 at the initiative of banks in Europe and the United States, at the time of its establishment, it was said that an institution should conduct international transactions through a single system. The central banks of the world, including the United Kingdom and the United States, jointly oversee the work of Swift. Banks connected to the Swift network send payment requests to each other and the respective banks take action accordingly.
Although Swift plays an important role in the world economic system, it does not have the legal power to impose sanctions on any country. According to Swift authorities, it is up to the government of a country to impose sanctions on anyone. Swift’s political use has raised questions about its acceptability.
Due to all trade and transactions in US dollars, its debts are settled and settled at the Federal Reserve Bank of New York. When a country trades with another country, dollars are taken from one country’s reserves and added to another country’s reserves. In all countries, the US dollar reserve is in New York. Transaction figures are only converted into ledgers or digits. Those paper notes are not sent home and abroad in sacks. In the money changer market, the retail dollar that is traded from the bank is a very small part of that reserve. These are brought to the country by the government to meet the market demand.
We know that Bangladesh has a reserve of 35 billion. Indeed, that money is not in the country, it is in New York City in the United States. This is true not only for Bangladesh, but for all countries. Russia’s foreign exchange reserves after the Russia-Ukraine war have been blocked by the United States by isolating Russia from the Swift system. Therefore, Russia can’t buy or sell anything using their reserve dollars. Because of which, they have retaliated by saying that from now on those who buy oil and gas from them must pay in rubles.
The United States fears the rise of China. Russia has also consolidated its position. But if China and Russia forget their past enmity and work together, it will be a new equation of world politics and superpowers. China-Russia has the ability to move forward, America’s monopoly in world domination will be shattered.
The author of this article is an analyst of economy.