banner

InformationGazette
Providing Corporate News
Financial Policy News
Money Market
FOREX
Mutual Funds
Asia Market
Stock Market
Asia Countries Risk


Currency War and Implication to Russia Economy

(Ylli Permeti)

By

Ronnie H. Rusli




In the new era of neoliberal globalization and new cold war2 on which stands a Transnational Elite, the 'hot war' that characterizes mainly the last four decades or so cannot be launched but reduced to a new asymetric 'currency wars': because currencies war will accompany by the general war of the Transnational Elite that has been launched since the dawn of the new millennia. In this curreency war, Russia, regardless of the recent fall of the oil price and of the value of the rouble, from which the West is going to be equally, if not more, harmed, could play a very important role: first, by restraining it, and second, by paving the way for a "New World Order", based on movements for social, national and ecological liberation.

Many commentators and "experts" of the international market economy see the recent crisis of the last four decades or so either in terms of "currency wars",[1] or in terms of "non-wars",[2] namely, that the market is normal and it simply responds to market events, or, finally, in terms of international agreements, from which a government may establish a new currency regime in order to avoid excessive loses![3] But they, the same as orthodox "economists", who relate the fall of the oil price only with the fall of the demand and overproduction, future expectancies and currencies, ignore the long-term objective of the Transnational Elite (T/E) in the New World Order (NWO),[4] namely, the integration of every country into the Neoliberal Globalization (N/G), the general economic condition of a country, the unequal economic power and competition among its members and its systemic dynamics (profit etc.) and, concentrate mainly on monetary policies!

But, the (de)valuation of a currency in the NWO of N/G is strictly related to the exports of a country: this is so, because currencies are not being backed anymore by gold and real production as happened in the statist period but by government bonds, exports and financial products. As a result, the more a country concentrates in few economic resources, as are energy resources, the more it endangers, even if it is a rich country with ample economic resources. Russia, for instance, with the fall of the Soviet Union in the hands of the "globalists" (Yeltsin etc.), a fall that was pushed forward by the CIA, not only destroyed its high degree of economic independence it had created during socialism, but it is being concentrated on the development of few resources (mainly gas and oil). For the same reason, Washington, once again, in collaboration with the criminal elite of the Saudi Arabia could easily attack its economy, by orchestrating the collapse of the oil price: as a consequence, the rouble has been devaluated almost half the value it has before the fall of the oil in comparison with the dollar. And this, because its exports, which are mainly gas and oil (three forth of it), covering more than half of the government income, are being secured by these exports: as a result, the more the price of oil falls the more the value of the rouble will fall.

This process in turn affects the inflation in Russia which actually is more than 9%. But, it could double in real time if the price of oil (and the value of the rouble) does not stabilize. The rise of the inflation in turn hardens the income of workers - the reduction of it usually causes social tensions. In order to avoid the further devaluation of the rouble the Central Bank of Russia raised its interest rate, an action it has taken in the past, too, as have done the same other countries (Turkey, Argentina etc.), but now, with a greater increase, which will cause a chain of reaction in the domestic financial system, and started to sell considerable quantities of foreign currencies, which it has accumulated during the period when the price of oil was in rise. Although the quantity of foreign currency is in decrease (from $ 499bn to almost $400bn) and its foreign debt is almost $600bn and, it may cover its low debt comparably with Western countries (13% against GDP), and despite the fact that the devaluation of the rouble makes more expensive the repayment of Russian's debt, Russia, unlike other countries, has the potentiality to create the conditions for economic independence, if it empowers "capital control" in addition to "commodities control" and parallel with it develops other sectors of the economy, institutionalizes truly democratic and scientific principles and consolidates the creation of the new economic bloc of Eurasia. But even if Russia delays to empower the mentioned systemic mechanisms, it may recover its income from its exports: because, as an analyst puts it, 'a stock market dominated by oil and gas exporters should be expected to do well when the currency weakens, as costs stay in local currency but revenues are in dollars'.[5]

Quatity of oil and gas produced by exporters can raise dollar quantity in circulation

In other words, the countries which export oil and gas will rise the number of US$ in circulation and have the possibility to raise the quantity of dollars known as petro dollar and with the fall of the oil price, bears greater impact on purchasing power. Its purchasing power, in turn, creates the possibility for cheaper imports, even if we talk about American goods. But the problem stands that the general income from the exports "outflow" from a country in case it is being attacked if the capital is not being strictly controlled. From Russia, for example, as a result of the "freedom of capital", according to a forecast made by the Central Bank of Russia, will "outflow" almost $120bn in 2015, $75bn in 2016 and $55 in 2017, excluding, of course, the "outflow" of $135bn during the end of the year of 2014.[6] It would not be surprise therefore to contribute to this "departure" Russian oligarchs, who buy up real estates in Western countries.[7] All these when Russian's gold reserves are at about $45bn, the National Wealth Fund at about $82bn and the Fund of Reserves at about $89bn.

The rise of the dollar's value, on the other hand, is not only result of the oil's fall, as many analysts pretend: because America, unlike Russia, not only controls the institutional framework of the N/G (IMF, WB, WTO etc.) but it has diversified its exports and, almost parallel with its sanctions upon Russia, it has launched the abandonment of the monetary policy that has applied during the last four years or so, that is, "quantitative easing", and dollar's low interest. And when a country, like America, controls the flow of the world's oil, both its production (by controlling oil-governments around the world) and its distribution (hedge funds etc.) and the world currency that accompanies it and keeps a lower level of unemployment than other countries, diversifies its economic resources and changes monetary policy at the time when it attacks its rivals, it would be of no surprise that the purchasing power of the dollar to strengthen. But the power of the dollar weakens the shares of multinationals. As a columnist quotes on Financial Times, one of the main organs of the T/E:

Once the dollar starts to move, the trend can be both large and persistent: it fell by more than 25 per cent in a period of weakness that lasted from 2002 to the start of the financial crisis. Since 2011, it has recovered less than half those losses - leading many analysts to argue that the world's reserve currency is set for an extended bull run. Past periods of dollar strength have been associated with outperformance of US equities - a rising currency reinforces the appeal of US assets for foreign investors - and with tumbling commodity prices, for precious metals in particular but also for base metals, energy and agricultural commodities. In the 1980s and 1990s, a strong dollar also fuelled crises in emerging markets, as currency pegs snapped and the burden of dollar-denominated debts grew... In recent years Fed stimulus kept the dollar weak while boosting US equities. Now, the prospect of tighter monetary policy may boost the dollar but weigh on equities - especially as multinationals must also contend with slower global growth.[8]

Moreover, the American dollar may lose its purchasing power and hegemony if the new economic bloc of Eurasia challenges its use in exchange. But it will lose its purchasing power even in actual conditions created by the same elite: because a lot of American oil-corporate projects that have been planned during the last inflationist period may not be realised,[9] since the exposure of American banks on loans given to international corporations is greater than any other country.[10] This challenge makes the American foreign policy even more aggressive against Russia despite the fact that it covers almost all its domestic energy needs with its own shale oil: from 70% in 2005 to 90% today. For the same reason, its own corporations and banks would put pressure upon the American Congress in order to weaken further Russia and to impede the consolidation of the Eurasian union. Because the administrators of corporations and banks are, as an analyst aptly concludes 'neither price taker, nor price maker, but price faker, whose bluff will eventually, and expensively, get called'.[11] The non-scientific character of the administration of corporations and banks in turn will create serious problems in the global financial system since they are being plunged in offshore debt.[12]

Particularly so, when the American Congress is being completely sold to administrators of multinational corporations, banks and technocrats of T/E. As Krugman points out in a recent critique: 'the Masters of the Universe, it turns out, are a bunch of whiners. But they're whiners with war chests, and now they've bought themselves a Congress'.[13] For the same reason, they will be more eager for war since in the American Congress, unlike its past, is lacking voices against the policies of Washington. Except, of course, the former-congressman, Ron Paul, who cannot inhibit such policies with his critics. The fall of the price of oil is a structural change that will endure for long time since it accompanies the new "growth" economy for the rich and of "de-growth" for poor that the T/E imposes all over the world: as a result, tensions for military confrontation would rise up. It accompanies also, the deep crisis of climate change caused by the emissions of CO2 in the atmosphere and the huge ecological catastrophe caused by a profit-led society, domination and colonization. For the same reason, the Saudis are eager to fight against their historic "enemy", Iran, since in a secret meeting arranged by the "Obama" administration, refused ferociously their plea to restrain the price of oil.[14] As an editor and author, points out on FT:

Saudis never abandon petrodollar for political ends

The Saudis have never abandoned the use of petrodollars for political ends; it is its principal diplomatic weapon. But now they and their Gulf allies appear to be using the oil price itself as a political weapon - aimed principally at Iran...Within hours of the 2013 Egyptian coup against the Muslim Brotherhood - a rival Pan-Islamic brand - Saudi Arabia and the United Arab Emirates had a $12bn aid package ready for the generals, almost 10 times annual US aid to Egypt's military...Wahhabi Saudi Arabia's visceral hatred of the Shia - as well as its rivalry with the Persian and Shia Islamic Republic for hegemony in the Gulf and the Levant - should be factored into the oil price equation. Riyadh, sitting on foreign exchange reserves of more than $750bn, can ride out lower oil revenues. Iran, which needs the price to be twice the current level to make ends meet, is haemorrhaging. Already economically hobbled by sanctions, Tehran is by some estimates spending $1.5bn a month supporting its allies in Syria and Iraq.[15]

It is clear that the Saudis seek to subordinate both Iran and Iraq with the help of America - an aim that is compatible with the long-term goal of the latter, meanwhile Israel, the main hegemonic claimant of the region, will soon take on the mantle, probably by using the Saudis to fight its enemies. On the other hand, the monetary policy of the Central Bank of Russia is being adjusted to the NWO of N/G: it is being concentrated, as all other banks integrated into it, to the stabilization of the inflation.[16] The actual governor, Elvira Nabiullina, is being accused from Russian representatives[17] and "experts"[18] of the discipline: the former, by arguing that she is destroyed the rouble and the latter, by arguing that she failed to use its weapons appropriately, namely, "the CBR has done too little, too late and too quietly"! But, she simply followed the road that paved her predecessor: Sergei Ignatiev, who, in turn, followed the orientation of the political class of Russia. This kind of monetary policy becomes unavoidable since Russia keeps the "freedom of capital" enforced. The "freedom of capital", in turn, is being adopted because the economic development of a country -which is being oriented to be integrated into the N/G- is being possible mainly through foreign investments. And when the economic development depends upon foreign investments - it would be inevitable that the "freedom of capital" to be enforced.

On the other hand, whenever a country adopts "capital controls", the T/E parrots ad nauseam the "isolation" of a country. But this is grey propaganda, since, even the IMF, its main institutional organ of N/G, has acknowledged that "capital controls" protect domestic currencies and economies in such cases.[19] Yet, the disconnection of Russia from the banking system "SWIFT", through which have been connected more than 10,000 financial institutions in 210 countries, with daily exchanges of $6tr, where Russia is the second client after the US, as threatened and continuous to be threaten the Prime Minister of Britain, Cameron, in the framework of the sanctions, would not cause any serious problem in the economy of Russia, since 90 per cent of banking exchanges are domestic and could be exchanged through alternative ways and only 10 per cent proceed through "SWIFT".[20]

Finally, the new sanctions launched by Brussels, in collaboration with Washington and international corporations, mainly by prohibiting new investment in Crimea, shows that the West will not withdraw from its long-term objective. In these conditions, as Takis Fotopoulos concludes in a recent article, 'an alternative pole is at present more imperative than ever. Not only for socioeconomic reasons, as it would allow member states - if it is organized as a union of sovereign nations - to impose social controls on markets and create new social welfare institutions and socialized industries controlled by employees and citizens' bodies. But, also, for geopolitical reasons, as it is obvious that Ukraine is in fact the pretext used by the TE to subordinate Russia. Alternatively, if Russia continues remaining a member of the NWO, it will have only two options: either full subordination to the TE, or resistance with its hands tied'.[21]

The building of an alternative economic bloc becomes essential too, because, the oil bears within it one good and two harmful aspects: it increases the efficiency of the technology but it pollutes the ecosystem and is finite. As a professor of the University of "King College London" pointed out recently: 'fossil fuels are finite, the easy fields have been developed and the next generation of production must come from more remote and, therefore, more costly operations. The seductive argument pushed companies into ever-deeper water and difficult terrain'.[22]

In other words, humanity makes one step forward and two others, backwards, since multinational corporations would not allow societies to invent and develop new technologies in order to replace the actual one: on the contrary, they are seeking ways to monopolize the future "green" technology. And Russia, as is well known, has probably, the biggest reserves on oil and gas (in the Kara's Sea, East Ukraine etc.) and fields where the cost may be lower than in other countries. Western corporations know very well this advantage. And since they have been plunged into debts and the price of oil would be for long time low, these prominent "positions" would be aimed by the T/E. Russia, on the other hand, unlike Western countries, has the possibility to develop the oil technology by considering carefully its consequences into the ecosystem, as has done very well with the nuclear energy. Because 'technology in many different ways is adding to supply and reducing demand...it has also raised recovery rates and cut costs'.[23] In short, Russia in coordination with other section of the economy, and its allies, has the possibility to overcome not only the recent attack by T/E but to establish a more democratic and human society than the West...by helping the whole humanity to overcome the multidimensional crisis that have caused Western oligarchies, particularly, in the last three decades.

Ylli Permeti

Ylli Përmeti is an author of two studies (books) and has been influenced by the works of Aristotle, Marx, Takis Fotopoulos and Bent Flybjerg, and is mainly a scholar of human paradigms and ends and, a political activist. He can be reached at: http://www.phronetic-democracy.org/

________________________________________

[1] Currency wars: the making of the next global crisis, James Rickards, 2012.

[2] Time to end the myth of currency wars, Jim O'Neill, FT, November 21, 2010.

[3] Currency wars: myth and reality, Nataliya Bartashuk, Aleksandra V. Neverova, East European Journal of Economics, Politics and Law, 2013.

[4] The Myths of New World Order, Takis Fotopoulos, The International Journal of Inclusive Democracy, Vol. 10, Nos. ½ (Winter-Summer 2014).

[5] Bargain-hunting in Russia, James Mackintosh, FT, December 1, 2014.

[6] Winners and losers of oil price plunge, FT, December 15, 2014.

[7] Russians abandon London real estate as recession looms over Moscow, RT, December 19/2014.

[8] Resurgent dollar set for sustained rally, FT, November 3, 2014.

[9] The squeeze on oil sector's 'supertankers', FT, December 16, 2014. Oil price fall threatens $1tn of projects, FT, December 15, 2014.

[10] Falling oil price poses new threat to banks, FT, December 15, 2014.

[11] Oil's decline poses a pricing challenge for managers, Andrew Hill, FT, December 15, 2014.

[12] Financial stability at risk as oil debt grows, The Times, December 15 2014.

[13] Wall Street's Revenge, Paul Krugman, New York Times, DEC. 14, 2014.

[14] Saudi Arabia: snubs Iranian plea for oil price rise in secret talks, The Times, 09/12/2014.

[15] For Saudi Arabia, plunging oil prices are a political weapon, David Gardner, FT, December 9, 2014.

[16] The woman trying to tame the rouble, FT, December 3, 2014.

[17] Russian ruble smashed into pieces, Pravda, 16.12.2014.

[18] CBR shows how not to intervene, Sergey Aleksashenko, FT, December 20, 2014.

[19] See, for example, IMF's new view on capital controls, Kevin P Gallagher, Jose Antonio Ocamo, Boston University, 2012.

[20] Cutting Russia out of SWIFT banking system would mean 'war' - head of VTB, RT, December 04, 2014.

[21] Russia at the crossroads, Takis Fotopoulos, The International Journal of Inclusive Democracy, Vol, 10, Nos. ½ (Winter-Summer 2014).

[22] Prepare for a long-term fall in energy prices, Nick Butler, FT, Nov 30, 2014.

[23] Ibid.



Bloomberg
Reuters
Wallstreetcity
WSJ
FT
Finportfolio
Morningstar
banner