US sanctions speed de- dollarization

▶ China, Russia to further cut use of dollar in bilateral trade: analyst

US financial sanctions on Russia, which as of Monday prohibited US financial institutions from buying new bonds directly from Russia’s central bank, may further accelerate a global de- dollarization push, as more countries seek to avert risks from an increasingly weaponized dollar, Chinese analysts said.

As financial sanctions have gradually become a tool for the US to crack down on other countries, and the US has continuously transferred its inflation risks to other countries amid the COVID- 19 pandemic, more countries may seek to reduce their reliance on dollar assets, analysts added.

The latest sanctions were announced by US President Joe Biden on April 15 as a retaliatory measure against Russia over so- called election interference and other accusations, according to a report from the Wall Street Journal.

Any financial sanctions on Russia will only be limited, because Russia’s financial sector has a low degree of internationalization, its holdings of US Treasury bonds are small, and its main area of financing is in Europe, Dong Dengxin, director of the Finance and Securities Institute at the Wuhan University of Science and Technology, told the Global Times.

The sanctions are more of a symbolic move that won’t have much real impact on Russia’s economy, but they are also a retrogressive move that’s in stark contrast to free market principles Washington has advocated, Dong said.

Russian Finance Minister Anton Siluanov previously said that the new US sanctions will mean missed opportunities for US lenders, adding that he expected demand for Russia’s state debt to remain high.

“China may step up purchases of Russia’s state bonds, as the yields remain high,” an industry expert who preferred not be identified told the Global Times.

Russia is cutting the dollar from its $ 186 billion National Wealth Fund ( NWF), Siluanov announced at the St. Petersburg International Economic Forum on June 3, adding that the NWF will instead invest in the euro, the Chinese yuan and gold assets, according to a Reuters report.

De- dollarization is already gaining momentum globally, as many countries face the risk of a weaponized, dollar- centered global payment system and a growing urgency to find a lternatives.

Amid volatile ties and as a way to diversify the risk of US dollar assets, China may also reduce the proportion of such assets by purchasing Russian state bonds and promoting China- Russia bilateral currency swaps, Dong noted.

The dollar’s share in bilateral trade between China and Russia fell sharply from 90 percent in 2015 to 46 percent in the first quarter of 2020.