According to UBS, the dollar share of Russia’s foreign currency reserves, which currently stands at $640 billion, has fallen to 16% in 2021, from 46% in 2017. In comparison, the share of the yuan has increased to 13%, from less than 3%. Sanctions are expected to further reinforce this trend. Indeed, the Chinese equivalent of SWIFT – the Cross-Border Inter-Bank Payments System (CIPS) – appears to be an alternative payment method between Russians and Chinese. Another development linked to the conflict in Ukraine is that India, which has a very important need for fertilisers from Russia, is considering bypassing the sanctions by paying for its purchases in Indian rupees rather than US dollars.
The meeting of Mr Xi and Mr Putin before the Winter Games could therefore mark a turning point. Both leaders seem to have decided that the time has come to accelerate their `de-dollarisation strategy. They see a weakened United States suffering from massive inflation and withdrawing militarily abroad. This gives them a window of opportunity to carry out large-scale military operations.
Is the world really changing? Yes, but with a number of caveats. First, let’s not forget that it is Russia that is currently facing an unprecedented banking crisis and a collapse of its ruble – not the West. Let us also remember that Russia remains an economic “dwarf”, with the West remaining by far the most important economic power.
The economic weight of the United States and Europe is indeed declining on a relative basis, but this is a consequence of the growth of emerging countries and not a decline of Europe and the United States in economic and geopolitical terms as such. As far as defence policy is concerned, it would seem that the war in Ukraine has had the effect of stimulating the West since countries such as Germany have just announced their intention to increase their arms spending budget. Finally, the solidity of the relationship between China and Russia is relative and will certainly undergo a very important test in the coming weeks. Indeed, the West remains the main commercial outlet for the Chinese. It is therefore unlikely that China will sacrifice the immense opportunities it has for the sake of its increasingly isolated Russian partner.
As Lenin said: “There are decades when nothing happens, and there are weeks when decades happen”. Between the Fed’s monetary tightening cycle, the war in Ukraine and new tensions between China and Taiwan, the world is indeed on the move.
