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Can Russia and China succeed in dethroning the dollar? | Counting the Cost

Russias Weakness Spurs Move to Chinese Yuan, US Dollar Loses Ground

  • Russia’s adoption of the Chinese Yuan is a story of weakness due to Western sanctions
  • It has caused foreign currency in the Russian banking system to fall to an all-time low, and has overtaken the US dollar as the most traded on the Moscow exchange
  • Putin and Chinese President Xi Jinping have agreed to expand economic ties, with China being a major buyer of discounted Russian oil and gas
  • The US dollar’s share in global Central Bank Reserves has dropped while the Euro share has gone up slightly
  • The yuan constitutes less than three percent of Global Currency reserves but Russia is dependent on China for trade as well as commodities
  • China has not offered Russia long-term financing with the Yuan.

Economic War between Russia and Ukraine Intensifies, IMF Steps In

  • Russia and Ukraine are in an economic war due to US dollar hegemony
  • Putin has long opposed the privilege of the US dollar, and he wishes to replace it with the Chinese Yuan
  • However, China is hesitating to partner with Russia because they want to be number one and undermine the order completely
  • The IMF has granted a loan to Ukraine due to extraordinary circumstances and strong support from European Union countries and the US.

Sri Lanka Secures IMF Bailout After Crucial Restructuring Deal

  • Sri Lanka has secured a nearly three billion dollar bailout from the International Monetary Fund (IMF) after tough negotiations with its creditors
  • China, India and Japan have all agreed to support Sri Lanka’s debt restructuring which was crucial to secure the package
  • The government has imposed unpopular measures such as raising taxes, utility prices and cutting subsidies on fuel and electricity in order to meet IMF requirements
  • The loan will enable Sri Lanka to move forward with reforms, partner with other development departments of the World Bank and ADP, and start the debt restructuring process
  • This deal gives Sri Lanka access to seven billion dollars of funding but is not a game-changer – the real impact will be seen in the medium-to-long term.

Sri Lankas Economic Recovery: Austerity Measures and Reforms Aimed at Rejuvenation

  • Sri Lanka’s economy has contracted as a result of decreased demand
  • Reforms are necessary, such as energy-related reforms, to move forward
  • Austerity measures have been taken and taxes, particularly on high income earners, have been increased
  • There is a required minimum spend on social welfare
  • Electricity and fuel subsidies have been removed and prices made cost reflective
  • The government is aiming to reduce barriers and regulations in order to increase exports
  • Money will be directed towards the poor
  • If Sri Lanka can stick to its reform trajectory, there is cause for optimism.

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[Music][Music]thank youhello I'm Nick Clark this is counter thecost on Al Jazeera we'll look at theworld of business and economics thisweek Russia is increasingly turning toChina's Yuan as its foreign currency ofchoice and Moscow supports the use ofthe yuan in trade with other countriescould that threaten the US dollaralso this week Ukraine wins the imf'sfirst loan to a country at War why didthe international monetary fund changeits rules to lend the nation and whatare the terms and conditions for Kievand the IMF has agreed to injectbillions of dollars into Sri Lanka'seconomy but is it enough to help theisland nation raid in its debt and canthe government revive economic growth[Music]so since being shut out of much of theGlobal Financial system Russia hassought alternatives to soften the impactof Western sanctions it's turned toChina for an economic lifeline and tradebetween the two countries hit a recordof 190 billion dollars last year much ofthose payments were made in Chinese andRussian currencies the two biggestgeopolitical Rivals of the U.S want tocounterbalance the dominance of thedollar worldwide and Russia isincreasingly embracing the Yuaneven before the war Russia's CentralBank tried reducing the country'sdependence on Western currencies but theinvasion has further accelerated thoseefforts in the third quarter of 2022foreign currency in the Russian bankingsystem fell to an all-time low of 15percent and in the past year the shareof the dollar and the Euro transactionson the Russian Market has declinedmeanwhile the Yuan overtook the USdollar as the most traded currency onthe Moscow exchange last month with amarket share of close to 40 percent oftrading volumewell Russia's president is making aneffort to get other countries to pay fortrade in Chinese currency after hismeeting with the Chinese president XiJinping in Moscow more than a week agoVladimir Putin said we support the useof a Chinese one in payments betweenRussia and the countries of Asia Africaand Latin America the Russian leaderalso expressed confidence that suchforms of payment will be developedbetween Russian partners and theircolleagues in third countriesthe meeting between she and Putin wasmeant to cement their No Limitspartnership which was announced lastyear and the two leaders have agreed toexpand their economic ties China isalready a major buyer of discountedRussian oil and gas its Imports ofRussian coal have surged 20 to more than68 million tons Russia has also beenramping up Imports of Chinese Goodsincluding Machinery Electronics baseMetals Vehicles ships and aircraft wellthe US dollar has dominated global tradeand capital flows for decades but itsshare in global Central Bank Reservesit's dropped to less than 60 percentfrom roughly 70 20 years ago the Euroshare has gone up slightly since itslaunched more than two decades ago from18 to just under 20 and while the yuanis being widely used it constitutes lessthan three percent of Global Currencyreserves and China's attempts to expandthe currency's international role hasfaced roadblocks will dig more into thatwith our guests now joining us fromLondon is Maximilian Hess who's a fellowat the foreign policy Research Instituteand their political risk consultant Maxwelcome to the program first up in yourview how significant is this shift thisRussian adoption of the wine thank youfor having me I think that Russia'sadoption of the Iran is not really astory about the Iran's strength andcertainly not a story about the Yuanreplacing or immediately challenging thedollar is the key Global reserve andmore importantly global trade currencythis is a story about Russia's weaknessand the fact that Russia has huge issuestrading the dollar what the Westernsanctions regime mean is that any hardcurrency that crosses the Borderphysically or digitally with Russiaautomatically has a discount compared tothat currency abroad how large that isis the key effort of sanctionsauthorities and Russia tries to resistit but because of that Russia hasshifted to trading in the Yuan but eventhen it's still not quite as much of ashare of Russian exports as dollar tradeis still today uh 14 months on from thebeginning of this phase of the war rightand Max what are the risks associatedwith it especially bearing in mind youknow in China's propensity to suddendevaluations certainly that is one riskthe other issue is that there are stillCapital controls in China and havefreely Russia can move Chinese you wantHoldings into other currenciesum is achallenge for them as well we saw thisactually in the aftermath of Putin andcheese Summit in Moscow last week theKremlin formally requested the Chinaease its restrictions on uh rendering Btrading and exchangeability so that itcould denominate more of its trade withAfrica in the currency and Beijing sofar has just not responded to thatrequest and how widespread is it yuan'suse within Russia Russian people andbusinesses encouraged to use itwell until last February it was veryrarely used the Russian Central Bank didshift some of its Holdings over thepreceding eight years since Putin firstinvaded Ukraine in 2014 uh into the Yuanuh but it hadn't really been a majorinstrument of trade savings or uh creditfinancing we've now seen Russians openup some savings products in uh the Yuanwe've seen trade obviously with Chinaand as I said with some other countriesincreased pretty substantially but forme what's really key is that China stillhasn't offered Russia long-termfinancing even with the Yuan so thecredit Market there is still reallyincredibly underdeveloped and uh tinyiota of what the dollar credit Marketonce was in Russia hey Max you weretalking about the influence of theUkraine war and what's happened therewith the sanctions and so forth inmaking this happen and to what degreewill this this pivot make a differenceto the Russian economywell uh you know I think it really putsRussia in a position where it isdependent on China for trade Russiaactually runs a trade surplus with Chinaum unlike you know Western countries butthe way to think about this in my viewis not really from a position ofstrength but really that China is happyto say well we'll take as many RussianCommodities some of which we now get ata discount as a result of sanctions onthem oil in particular although thediscounts aren't as great as they are onRussian seabourne traded oil for therest of the pipe oil that comes in soRussia's essentially become a commoditysupplier state to Chinaum Chinese exports you know to Russiahave increased somewhat but uh the keything is that the Putin regime wantsparticularly uh material uh defensesupplies and advanced technology has notyet been forthcoming soum you know I think it's reallyrepresentative of the imbalance of powerin that relationship and what aboutPutin encouraging other countries inAsia and Africa in America to use theGuanwell Putin has actually criticized whathe calls the dollar system for the last20 years and uh what is known as theexorbitant privilege of the US dollar istraditionally its ability to borrow indeficits but on a geopolitical basisalso gives the U.S significant politicalstrength through the extraterritoriality of its sanctions regimeand Putin long has shaped against thisand wants uh to push to have a move awayfrom it but the ruble is not really acurrency that is attractive for anyoneum to serve as an alternative so he'swilling to promote the Chinese one butthis is rhetoric we've heard from Putinfor 20 years and as you mentioned in thebeginning although the dollar share ofglobal reserves is down a little bitover the last 20 years it's actuallycome back up a little bit in the lastfew years it is still by far the keyTrade Currencyum and I am very much of the view thatdollar hegemony is you know not under uhimmediate threat um you know we've foundourselves in an economic war between thewest and Russia and the West's Weaponrythrough the dollar system there is farlarger far more powerful and makes thatan unbalanced conflict and Putinnaturally chafes against that because uhhe wants to take on that order as partof his conflict in Ukraine the dollarnot under immediate threat you say butperhaps down the line are there stormcloudswell I think that you know China has a20 or 30 year planum to really replace uh the dollar or atleast to put china as the key node inthe global international economic orderum you know what's very interesting isyou know from my view I'm very much aRussian specialist by backgroundum Russia has long shaped against thesethings um but the U.S largely has beenunaware of some of the geopoliticalstrengths of the dollar and the historyof how it came to be uh so powerful isreally a series of U.S policy mistakesand inadvertent effects whereas Chinaseems to have a very coordinated anddriven long-term strategy so I don'twant to say that it is not a risk but Ithink you know for China it is along-term effort and my view is one ofthe issues with this you know RussianChinese imbalance and why we haven'tseen the credit aspect to it so farbecause that's what's most strictlysanctioned by the West is that for nowChina still sees Russia's efforts asmore of a threat to its agenda than itdoes an opportunity to advance it thatmay change at some point and I thinkthat's a key question around theeconomic aspects of this global conflictum but uh for now I think you knowChina's strategy really is not one ofembracing Russia as a partner there andmore being hesitant uh because it hasthis much more long-term strategy andit's happy with the order it just wantsto be number one whereas Russiaeffectively wants to undermine itentirely right and as far as China isconcerned just to wrap it up long-termstrategy for sure but what kind ofroadblocks are in the way of itexpanding its currency well you know thecapital controls that are still in placeon the Chinese Yuan are really by farthe the key one until that happensum the Chinese currency won't be seen asa an effective means of um uh savingsand depositsum internationally or as trade becausepeople won't want to get uh caught inthat you know despite there being sometalk elsewhere in uh recent years we seethis every time this geopolitical crisisat the end of the dollar systemum you know there's still very fewpeople in nationally who are willing toget paid in Yuan whereas U.S dollarbills are usually acceptedum pretty much everywhere even from afish market in Russia toum you know trainers in Hong Kongregardless of the level of geopoliticaltensions Max just great to get yourperspective I appreciate that thanks alot thank you for having mewell Russia pivots to China Ukraineappeals for international Aid to keepthe country running the economy isshrank by around a third last year itsbudget deficit has risen to 38 billiondollars and to rebuild the war-tornnation well that would cost billions ofdollars more but as estimated less thanhalf of the money pledged by the Westhas reached Kiev the nation is now setto receive a loan from the internationalmonetary fund and that is a first for acountry at War the IMF has agreed on a15.6 billion dollar funding package toUkraine it's expected to be approved inthe coming weeks at the four-yearfunding deal is also one of the largestfinancial packages Kiev has receivedsince that Russia's Invasion last yearit will help Ukraine close its massivebudget deficit and support its bid forEuropean union membershiplet's take this on joining us fromStockholm is tourbillon Becca he's thedirector of the Stockholm Institute oftransition economics also a board memberof the Kiev School of Economicstourbillon welcome to the show so theIMF has not granted loans to countriesat war in its entire history why does itchange the rules now do you think Ithink these are extraordinarycircumstances that's a very short answerto this if we remember the the IMF wasset up after the second world war whenwe had all the difficulties in the warworld back then and this now is thefirst large-scale war in Europe withthese aggressions from Russia to Ukraineso you know these are extraordinarycircumstances and I think we have tolook at it from from this perspectivesure but why this particular War I meana lot of Wars unfortunately over theyears haven't they so why wouldn't theysupport those two those countries tooyeah I think yeah I think they'redifferent aspects to this of course oneis of course that the IMF is a politicalinstitution in some ways we have membercountries that need to think about howthey want to support countries that havedifficulties and one importantingredient here is of course thatUkraine has very strong and powerfulfriends at the board of the IMF thatthat controls a large share of thevoting of the IMF Board of course likethe countries of the European Union theUS other partner countries that havesupported Ukraine now uh over this lastyear or so so this figure of 15.6billion dollars how will it bedistributed and how will it be managedwill it be all for the rebuildno I mean there are different faces ofof this program the first one is ofcourse to make sure that the country candeal with its economic challenges in inthe shorter run you know plugging thethe hole in the budget as you mentionedand making sure that Ukraine does notneed to print money itself to financeits its big deficits so this is more inthe short run stabilization of themacroeconomic situation and then goingforward it will also be part of theReconstruction process but we're notthere yet as you know yeah I mean whilethe war goes on it's just like trying tostem a flooding Dam isn't it andultimately the country needs the war toend to rebuild its economy yeahabsolutely and it needs the continuedsupport of countries from the EuropeanUnion and from the US Canada Japan Etcand what about the conditions of thisfunding tell us about thosewell I mean all of the IMF programs havethe idea that countries have to justpolicies so they will be able to repaythe the IMF at some future day andthere's always this idea that moneyshould be spent in a way that supportssustainable growth and and all sorts ofother different dimensions of theeconomy and and this is no exception inin that so you know there will bediscussions about the size of budgetdeficits how you run monetary policy andthen also institutional reforms linkedto Independence or Central Bank legalsystem Etc which is you know standardthings in an IMF program right standardbut it's not a standard situationUkraine is a country at War can it honorcommitments when it's at war in this waywell I mean there's much moreuncertainty to this program thanstandard IMF programs of course but Ithink if we connect back to the ideathatthis is based on the fact that theimportant powers that are part of theIMF is actually agreeing to this programI also think of this as a signal thatthey will commit their own funding andhelp and assistance in different ways tomake sure this is a sustainable IMFprogram so basically what what thismeans is that I think this is a signalthat the EU the Us and other partners ofUkraine are serious about theircommitment to to help Ukraine for aslong as it takes basically we weresaying earlier how a lot of money thatshould have gone to the Ukrainiangovernment has not reached the projectsit it was meant to go to a lot ofcorruption how do we how are we surethat that won't happen here and howshould that be fought there has been alot of progress of course in terms ofdealing with corruption a lot of thedifferent parts of the Ukrainian societyand external Partners have a lot offocus on on Corruption of course as weknow and this is one of the reasons thatthese recent you know scandals withcorruption has come to the surface so Iin some ways this is a pretty good signthat now people and and institutionstake this very seriously in Ukraine itdoesn't mean that it goes away overnightbut it will continue to be one of thetop priorities to Monitor and make surethat money is not going away in this wayin the future of course a final questionto you told Beyond going forward do youthink Ukraine will get as much fundingfor reconstruction and Recovery as itdid to try and assistance wartimeeconomy well I think it's going to needeven more support in the future ofcourse but there it's also the issue ofof Russia paying reparations for thedamage this has done to Ukraine uh as asmost of us have have been discussed inthe past about 300 billion or so ofRussian assets are frozen uh in Westerninstitutions so you know that is alsogoing to be part of the discussion whenit comes to funding the Reconstructionof Ukraine but then of course it's goingto also need private sector Investmentsbilateral donors and and everyone elseto help out with the Reconstruction inthe futureToby on Becca great to get your analysisthanks very much indeedthank youcues for fuel are now a thing of thepast food shortages reduced and cookinggas available again Sri Lanka's worsteconomic crisis in decades is showingsigns of improvement but the islandnation is struggling to find the fundsto import necessities and repay morethan six billion dollars every yearuntil 2029. the government has secured anear three billion dollar bailout fromthe international monetary fund the loancomes nearly a year after toughnegotiations between the IMF Sri Lankaand its creditors China has agreed tosupport Sri Lanka's debt restructuringwhich was crucial to secure the packagethat followed similar Arrangements byother creditors including India andJapan the government has also imposedunpopular measures to meet the IMFrequirements including raising taxesutility prices and cutting subsidies onfuel and electricity well joining usfrom Colombo in Sri Lanka is ciao Damsinger he's the product head ofmacroeconomic and thematic research atFrontierwelcome to the program so this dealnearly three billion dollars but itenables another seven billion dollarshow useful is this going to be for SriLanka to the deal in itself uhespecially the money that comes initself the money that comes in itselfright now itself is not something that'sgoing to be a game changer what is agame changer and has the potential tochange the future for Sri Lanka is thatthis is essentially the next spot in theoverall economic uh restructuring of thecountry the overall economic pathway ofthe country so this allows Sri Lanka tomove forward on some further reforms itallows Sri Lanka to partner with otherdevelopment Departments of the WorldBank the ADP to you know Finance some ofthose reforms and move forward and alsoallows us to move forward with the debtrestructuring part so starting thatprocess is what this Ira programbeginning really crystallizes and ofcourse there's a long road ahead but thelong road is now able to start now thatwe got in the bank so we should belooking more at the medium to long termas far as this is concerned very much Imean the part the factors or the reformsneeded the economic policy measuresneeded to take us to the medium and longterm really have to start now of coursebut this allows us to start theprocesses and more yeah I was going tosay because the conditions mean that youhave to act now to have the loan in thefirst place so immediately will it helpShore up the economy so over the lastlet's say six months or so a lot of theforeign shortages in the country thatreally started to clear out and let usstart the clear out primarily as aresult of the economy's contracturereally dampening down demand uh that hasmeant that some significant amount ofthose foreignthings are looking a lot better alreadythis does allow us now to for exampleyou know reforms that are required forthe state or the Enterprises reformsthat are required on the energy sideperhaps to move forward with that so yesthis is very much a critical part ofmoving forward uh but it's of coursejust a First Step at the stage thecountry's been through a lot ofausterity as it is it's just the way itgoes with these kind of deals that youhave to go through more austerity canthe country cope with that will we seemore protests it's not the packagingitself that requires the austerity aboutthe fact that Sri Lanka's economy hadtaken itself to a very unsustainablelevel and then from that point if youare to recover you need to forget thetithing offense you need to reverse someof those unsustainable policies and oneyou've taken those on a very consumptiondriven based tightening those that doesin fact end up there by being Australiaso moving forward one thing that SriLanka has currently done is hype taxesespecially on the Progressive and forhigh income earners of course there areprogress about that there areapplications on how in the future thatmight be changed so there will be uhopposition to some of these reformsespecially those that are directlyaffected but in terms of what directlyaffects for example the majority of thecountry well I think one thing thathelps is the fact that there is actuallya minimum spend required in IMF programuh for social welfare so this governmentis required to spend the minimumpercentage of GDP uh on social media butof course the one that really hurts todo is the fact that electricity and fuelsubsidies have been removed and theterrorists have been made costreflective they probably wasn't anyother option other than that because ofthe absolutely terrible State of Affairsin the two so is dealing with that uhthe alternative could have been muchworse but the fact that that is the casedoesn't mean that the pain is there sothat part of it remains uh recently someprices have to come down with thecurrency starting to see a little bit ofstrength with global oil prices comingdown as well so hopefully that kind ofaction can help mitigate some of thepain on the especially on the poor uh inthe short term there's a need to driveup exports how does the government planto do that so there are I mean Sri Lankais always wanted to drive up export andthey've had different differentstrategies different different plansum for me from my perspective I thinkit's about getting uh any barriers outof the way and creating an environmentthat is more conducive to expand uh foran export services so that would looklook like structural reforms that wouldlook like uh improving or getting rid ofRegulation or over regulation uh andthus allowing for the currenciesparticularly to reflect marketconditions would also be a prettyimportant part of the Sri Lanka'seconomy has a traditions of traditionallast 15 20 years kept the currencycontrol which has served as it isincentive for export so these factorsoverall changing could help and create abetter environment for examples but onlytime will tell how much uh how muchimpact that happens businesses havereally suffered over the last few yearsespecially in the past year and the poortoo will money be directed in thatdirectionespecially on the I think the poor anduh on that side I think like I saidthere is a minimal thread required forwelfare and that is expected toultimately in nominal terms in Rubyterms mean and increases the amount ofwelfare uh being spent in the country weare also seeing some of the factors thatled to the deepest contraction that SriLanka has really seen for a very longtime reversing so the interest rates arestarting to fall in Sri Lanka thecurrency also seeing some sort of tradelike I said so these factors hopefullyjust mean that both directly in terms offor example where investment butindirectly in terms of the overalleconomic environment improving just tocreate a situation where uh Sri Lankansof the ground do feel less pain and lesspay more informed and moving forward howwould you see Sri Lanka's economy in acouple of years timeso as long as Sri Lanka can't stick tothis overall reform uh trajectory Ithink there is cause for quite a lot ofoptimism among cautious on it becausehaving to stick to the reform agenda isthe little bit of the difficult partbecause the political economy of thecountry hasn't traditionally lent itselfto stick into these kinds of Pathwaysbut of course the fact that Sri Lankastarting this this time from a very verydeep contraction there's no realphysical or monetary or financial spaceto reverse because previously you couldreverse and wait three years for theimpacts to be felt politically now ifyou reverse you feel the impactsimmediately within the next month or soso hopefully that prevents a reversal onthe Sri Lankan side but on that basis Iam optimistic but cautiously optimisticon what the future of the country can bethank youso we have our show for this week ifyou'd like to comment on anything you'veseen you can tweet me at Nick Clark AlJaz please use the hashtag ajctc or justdrop us an email counting the cost is our address but there'splenty more for you online at target.comforward slash CTC that'll take youstraight to our page which is individualreports links and entire episodes foryou to catch up onso that's it for this edition of countto the cost I'm Nick Clark from thewhole team thanks for joining us 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