By Isadore H.
In June of 2022, Russia Today reported on a coalition of countries working together to establish a new Global Reserve currency, in direct conflict with the goals of the United States. Challenging the dollar, a consortium of BRICS nations (an acronym coined for five emerging economies: Brazil, Russia, India, China, and South Africa) among other countries such as Pakistan have come together to attempt to establish a global reserve currency that will be held in addition to the dollar, to provide some resilience to sanctions from America. As Vladimir Putin put it at the BRICS Forum in June 2022, this currency is being developed as to “cut reliance on the Western financial system”. This is a significant gamble, but it encapsulates the increasingly close relations between the growing Asian economies and, most worryingly to the West, the remarkable rate that Sino-Russian relations have improved since the start of the invasion of Ukraine.
The economic sanctions that were thrust upon Russia in the aftermath of the ‘Special Military Operation’ into Ukraine have deeply changed the outlook of Russian policy makers, seemingly turning them away from European dominance and looking towards Asia for cooperation. Ultimately, this move to Asia has brought stronger relations with China and the birthing of the prospect of a BRICS global reserve currency. The clearest way that one can see the changing priorities of Russian geopolitics towards Asia is the increase of Chinese imports of Russian crude oil: from just over 500 thousand barrels a day in February 2022 to over 1,000,000 barrels in June. China is picking up the slack in Russian oil exports that has been created through European sanctions, effectively bailing out the fossil-fuel export dependant Russian economy. More generally, Russian, and Chinese trade has risen by 35.9% in the past year (according to Reuters), reaching a total of $146.9 billion.
This newfound relationship between the two countries has proved to be mutually highly beneficial; it allows China to diversify its fossil fuel imports, pulling itself off of the volatile and strictly controlled crude oil from member nations of OPEC: a rare luxury that allows China to stabilise her fuel prices which will have knock-on effects for political security. For Russia, the benefits are far more obvious: increased trade with China provides a crutch to steady the Russian economy, shut out from most European markets and the all-important SWIFT banking system.
As well as these individual reasons, the two nations working together provide an effective check on American ambitions in Asia by creating a new Eastern bloc that could prove formidable for American geopolitical interests in the area. This bold approach has alarmed America, as US Secretary of State Antony Blinken described Beijing’s movements as the ‘most serious long-term challenge to the international order’. However, is there actually any feasibility in the BRICS nations or China and Russia individually being able to topple the American Dollar’s stranglehold on the global reserves?
Whilst on the surface, the partnership between Russia and China in creating a new currency might seem worrying. However, there are a slew of problems that come with Chinese or Russian movements to place their currency as a potentially global reserve replacement, or even a hypothetical new currency involving a collaboration between multiple emerging ones.
America may be prone to implementing sanctions on countries that don’t conform with their views including Iran, Cuba, and more recently Russia. However, the usage of these sanctions is not erratic. On the surface, at least, they are clear responses to events that threaten international peace – the invasion of Ukraine or the Cuban missile crisis for example. The United States wouldn’t apply economic sanctions unless the country in question was involved in shady dealings. On top of this, the Chinese Yuan does not float freely; it is pegged to a basic level by the Chinese government in order to make exports cheaper which is vital for the export-reliant Chinese economy. In order to challenge the dollar, China must float the Yuan, as required by the IMF. Currently, the Chinese government artificially lowers its value, and only allows an equivalent of $50,000 in the currency to be exchanged by Chinese citizens in order to hold a tighter control of the economy. It remains to be seen whether the Chinese government will be willing to loosen its grip on a fundamental aspect of their finances – yet if they and Russia are to challenge the Americans, it must be done. This problem may prove too significant a political roadblock for the Xi administration to bypass as the knock-on effects of the Yuan’s value skyrocketing within such an export-based country could be near fatal for the 29% [Statista 2019] of China who work in industry. If even a small proportion of that number become unemployed due to a more powerful Yuan, it could provide a significant enough spark within China’s, already tumultuous, internal state to bring down the regime. People are only comfortable with giving away democracy if they are provided with a rate of economic growth that cannot be maintained if the Yuan holds a higher value internationally.
Thus, the Sino-Russian relationship may present a threat to American hegemony, certainly, and should be worrying to American policy makers – especially after Trump’s increasingly isolationist tenure as President. However, the Yuan or any Sino-Russian currency collaboration won’t be able to properly challenge the dollar for a significant timeframe – at least until China has worked out the difficulties within its own system.