Russians are coming with Ruble!

Putin once said “Stability, predictability, & reliability are important for an international currency.  USA doesn’t value USD as an international reserve currency & apparently they don’t value it very much since it’s used as an instrument of competition and political struggle”.  Barring, Russia the usage of USD opened a new vista: Russians are coming with Ruble

In basic economics we study the function of money as of four fold:  a medium of exchange, a store of value, a unit of account, and a standard of deferred payment. Out of these the first is where the trading part comes in second broaches the idea of reserve currency, third as a common dominator and the last one  shows  how debts are created and paid.

America and the West have frozen whatever reserves Russia lodged in the correspondence banks in the form of Dollar and Euro. Putin commented: “The collective West, by freezing Russian reserves, declared a default on Russia and drew a line under the reliability of its currencies”. All the four functions of money as related to Dollar & Euro had been annulled and therefore these two currencies in addition to others that impose similar sanctions are no longer useful for the Russia Federation.

A beaming Putin who has strategy in his vein made a counter move that almost rattled the Western world and sent shock waves throughout the global financial markets. He said: “From now on, payments from the EU & other western countries including USA for gad purchases must be made in Rubles”.

In point blank Putin rendered currencies used by unfriendly countries as irrelevant so are not welcome in Russia. He went on saying that Ruble as mode of payment would be extended to hydro carbon products including petroleum, metals & minerals, commodities and every other product made in Russia.

This sums up the result in two ways:

1. Either pay in Rubles or be kicked out from the Russian market

2. Any other parties willing to trade in Ruble can enter the Russian market

The net result is seen in three ways:

1.  Ruble shoots up in price due to demand supply dynamics. Few countries in the West possess significant volume of Ruble. US Dollar and Euro would steadily fall in value vis-à-vis Ruble. Since Russian Central Bank is the monopoly seller of Ruble the West has to line up to the bank with gold, which would be assayed within Russia. The problem is how to transport the gold to Russia due to the travel restrictions imposed by the countries that imposed these sanctions originally.

2. USD is currently pegged to the global trade as medium of exchange. This gives the strength to the otherwise weak Dollar. By this counter move Putin has taken the sheen out of the USD dramatically. 

3. All these unfriendly countries USA, EU, Australia Canada, Singapore, South Korea and others have to find a via media to trade with Russia. On the one hand we see the emergence of Yuan. On the other, the roll back of the sanctions directly or indirectly. In the latter case it is simply backdooring!

Cheers!

 

Muthu Ashraff Rajulu

Business Strategist

Mobile: + 94 777 265677

E-mail:   cosmicgems@gmail.com

Blog:   Business Strategist