By Robert Daly
Will China’s attempt to establish an alternative monetary and trade system with a Petro-Yuan be fast enough for it and its allies to escape the danger of a Western financial collapse? Over the past eight years, Russia, China, and India have been slowly moving to establish alternative trading institutions. This movement began when the Organization for Economic Co-Operation and Development (OECD) countries first imposed economic sanctions on Russia after Crimea was welcomed into the Russian Federation. These moves accelerated since Russia moved into Ukraine to protect the Russian speaking population of Donbass and other regions. But are they fast enough?
A Western financial collapse would bring down the entire world economy. This collapse will affect Russia, China, India and their allies with all other factors remaining the same. The reason is that everyone is dependent on everyone else in the global economy. Russia was forced by sanctions to separate itself from the West in the past year. It would be possible for Eurasia and Africa to avert a depression and continue to function in the event of a Western crisis by setting up alternative financial and trading schemes than the Bretton Woods system. A depression and financial and economic collapse are looming on the horizon, with the most serious indicator in the West being the infighting among continental Europe, the UK and America. The Biden Administration’s offer of subsidies to European firms through the Inflation Reduction Act, if they relocate stateside, is producing a split between the US and its European allies.
For half a year, Russia and India have been trading oil and other goods with their domestic currencies. Now, President Xi Jinping says China will use the Shanghai Petroleum and Natural Gas Exchange to facilitate energy trade settlements in yuan. At the same time, the Brazil, Russia, India, China, and South Africa economic alliance (BRICS) and the Shanghai Cooperation Organization are establishing alternative trade settlement and financial arrangements among their Asian, African and South American members.
One sign that the dollar is on the wane is that US sanctions against Russia drove up the value of the Ruble to a seven year high. This is an effect opposite to that intended and indicates the “rules-based international order” is not even working as planned by its architects.
- BRICS is an alliance of Brazil, Russia, India, China, and South Africa which spans four continents, covers 26% of the world’s land surface and 41% of its population. BRICS has been developing an international payments system since 2015 as an alternative to the Western interbank payments system known as the Society for Worldwide Interbank Financial Telecommunications (SWIFT). Twelve countries currently seek BRICS membership, including Argentina, Iran, Algeria, and Saudi Arabia. The value of the Euro has declined against all BRICS currencies in 2022.
- The Shanghai Cooperation Organization Includes nearly all of Asia, plus part of Eastern Europe. Member countries currently include China, Russia, India, Pakistan and Kazakhstan, Kyrgyzstan, Tajikistan, and Uzbekistan. Iran and Belarus are applying. Its countries include 3 ½ billion people.
- The Bretton Woods system of monetary management established the rules for commercial and financial relations among the United States, Canada, Western European countries, Australia, and Japan after the 1944 Bretton Woods Agreement. The Bretton Woods system required countries to guarantee convertibility of their currencies into U.S. dollars to within 1% of fixed parity rates. Soviet representatives attended the conference but later declined to ratify the final agreements, charging correctly that the institutions they had created were “branches of Wall Street.”