Breton Woods III

Photo by Eric Prouzet on Unsplash

Breton Woods III is coming and the US isn't happy about it as the US will not be able to continue to pass along its debt to the world without restriction due to the fact the unique status of the dollar being the world's sole reserve currency is going away as we speak. In light of this, the notion of inflation and/or stagflation becomes all too real in the land of the brave and home of the free.

The old economic order, in which the dollar's centrality to global trade remains king, is beginning to fade. The latest example of the dollar's demise comes as China purchases coal and oil from Russia in yuan due to Western sanctions isolating Russian banks from the SWIFT payment system. 

Chinese commodity firms purchased Russian coal in local currency in March, and the first shipments are expected to arrive in China this month, according to Bloomberg, citing Chinese consultancy Fenwei Energy Information Service Co. Traders said this coal shipment paid in yuan would be the first since the U.S. and Europe unleashed harsh sanctions severing some top Russian banks from SWIFT. 

Traders are also reporting Russian crude bought in yuan. The first Eastern Siberia Pacific Ocean grade crude shipment will arrive at Chinese refiners in May. 

Say hello to Russian gold and Chinese petroyuan

The Russia-led Eurasia Economic Union and China just agreed to design the mechanism for an independent financial and monetary system that would bypass dollar transactions.

The World Island looms ...

The Russian ruble is sitting pretty right now, having regained its pre-sanctions value and set to become a major commodity currency. Photo Credit: The Cradle

Saddam, Gaddafi, Iran, Venezuela – they all tried but couldn’t do it. But Russia is on a different level altogether.

The beauty of the game-changing, gas-for-rubles, geoeconomic jujitsu applied by Moscow is its stark simplicity.

Russian President Vladimir Putin’s presidential decree on new payment terms for energy products, predictably, was misunderstood by the collective west. The Russian government is not exactly demanding straightforward payment for gas in rubles. What Moscow wants is to be paid at Gazprombank in Russia, in its currency of choice, and not at a Gazprom account in any banking institution in western capitals.

That’s the essence of less-is-more sophistication. Gazprombank will sell the foreign currency – dollars or euros – deposited by their customers on the Moscow Stock Exchange and credit it to different accounts in rubles within Gazprombank.

What this means in practice is that foreign currency should be sent directly to Russia, and not accumulated in a foreign bank – where it can easily be held hostage, or frozen, for that matter.

All these transactions from now on should be transferred to a Russian jurisdiction – thus eliminating the risk of payments being interrupted or outright blocked.

Ruthless, cunning and savvy, Putin's crazy like a fox ...