Putin wants ‘unfriendly’ countries to pay for Russian gas in roubles

LONDON, March 23 (Reuters) – Russia will seek payment in roubles for gas sold to “unfriendly” countries, President Vladimir Putin said on Wednesday, and European gas prices soared on concerns the move would exacerbate the region’s energy crunch.

European nations and the United States have imposed heavy sanctions on Russia since Moscow sent troops into Ukraine on Feb. 24. But Europe depends heavily on Russian gas for heating and power generation, and the European Union is split on whether to sanction Russia’s energy sector.

Putin’s message was clear: If you want our gas, buy our currency. It remained unclear whether Russia has the power to unilaterally change existing contracts agreed upon in euros.

The rouble briefly leapt after the shock announcement to a three-week high past 95 against the dollar. It pared gains but stayed well below 100, closing at 97.7 against the dollar, down more than 22% since Feb. 24.

Some European wholesale gas prices up to 30% higher on Wednesday. British and Dutch wholesale gas prices jumped.

Russian gas accounts for some 40% of Europe’s total consumption. EU gas imports from Russia this year have fluctuated between 200 million to 800 million euros ($880 million) a day.

“Russia will continue, of course, to supply natural gas in accordance with volumes and prices … fixed in previously concluded contracts,” Putin said at a televised meeting with government ministers.

The changes will only affect the currency of payment, which will be changed to Russian roubles,” he said.

German Economy Minister Robert Habeck called Putin’s demand a breach of contract and other buyers of Russian gas echoed the point.

“This would constitute a breach to payment rules included in the current contracts,” said a senior Polish government source, adding Poland has no intention of signing new contracts with Gazprom after their existing deal expires at the end of this year.

Major banks are reluctant to trade in Russian assets, further complicating Putin’s demand.

A spokesperson for Dutch gas supplier Eneco, which buys 15% of its gas from Russian gas giant Gazprom’s German subsidiary Wingas GmbH, said it had a long-term contract denominated in euros.

“I can’t imagine we will agree to change the terms of that.”

According to Gazprom (GAZP.MM), 58% of its sales of natural gas to Europe and other countries as of Jan. 27 were settled in euros. U.S. dollars accounted for about 39% of gross sales and sterling around 3%. Commodities traded worldwide are largely transacted in the U.S. dollar or the euro, which make up roughly 80% of worldwide currency reserves.

“There is no danger for the (gas) supply, we have checked, there is a financial counterparty in Bulgaria that can realize the transaction also in roubles,” Energy Minister Alexander Nikolov told reporters in Sofia. “We expect all kinds of actions on the verge of the unusual but this scenario has been discussed, so there is no risk for the payments under the existing contract.”

Several firms, including oil and gas majors Eni, Shell and BP, RWE and Uniper – Germany’s biggest importer of Russian gas – declined to comment.

“It is unclear how easy it would be for European clients to switch their payments to roubles given the scale of these purchases,” said Leon Izbicki, associate at consultancy Energy Aspects. He said, however, that Russia’s central bank could provide additional liquidity to foreign exchange markets that would enable European clients and banks to source needed roubles.

Moscow calls its actions in Ukraine a “special military operation.” Ukraine and Western allies call this a baseless pretext.

ONE WEEK DEADLINE

Putin said the government and central bank had one week to come up with a solution on moving operations into the Russian currency and that Gazprom would be ordered to make the corresponding changes to contracts.

In gas markets on Wednesday, eastbound gas flows via the Yamal-Europe pipeline from Germany to Poland declined sharply, data from the Gascade pipeline operator showed.

“The measures taken by Russia may also be interpreted as provocative and may increase the possibility that Western nations tighten sanctions on Russian energy,” said Liam Peach, emerging Europe economist at Capital Economics.

The European Commission has said it plans to cut EU dependency on Russian gas by two-thirds this year and end its reliance on Russian supplies “well before 2030.”

But unlike the United States and Britain, EU states have not sanctioned Russia’s energy sector. The Commission, the 27-country EU’s executive, did not respond to a request for comment.

Habeck said he would discuss with European partners a possible answer to Moscow’s announcement. Dutch Prime Minister Mark Rutte said more time was needed to clarify Russia’s demand.

“In their contracts it’s usually specified in what currency it has to be paid, so it’s not something you can change just like that,” Rutte said during a debate with parliament.

Russia has drawn up a list of “unfriendly” countries corresponding to those that have imposed sanctions. Deals with companies and individuals from those countries must be approved by a government commission.

The countries include the United States, European Union member states, Britain, Japan, Canada, Norway, Singapore, South Korea, Switzerland and Ukraine. Some, including the United States and Norway, do not purchase Russian gas.

The United States is consulting with allies on the issue and each country will make its own decision, a White House official told Reuters. The United States has already banned imports of Russian energy.

($1 = 0.9097 euro)

The END GAME for the Dollar: China vs the U.S. | Grant Williams and Luke Gromen

In this episode of On The Margin Mike is joined by returning guests Grant Williams & Luke Gromen. We welcome back two financial market veterans for a special episode exploring the fracturing geopolitical landscape between the east and the west. Grant and Luke share their insight surrounding China’s declaration of war on the U.S, how the current monetary system could collapse China’s economy, the consequences of globalization, what the end game is for the dollar & how to prepare for the changing world order as two global superpowers collide.

Timestamp:

00:00introductions

00:55 ・ The great power competition: China vs U.S

08:39 ・ Is it ethical to be in business with China?

18:44 ・ The consequences of globalization

20:11 ・ A battle of ideologies between the east and the west

24:51 ・ The current structure of the monetary system

31:30 ・ Inflation is the only way out of a sovereign debt crisis

31:30 ・ Emblematic of moral decay

49:38 ・ Understanding the financial oppression

55:06 ・ Opinion on how Bitcoin plays in all this

 

 

Charlie Rose Interview with Sir James Goldsmith on Trade, 1994

Goldsmith warned elites about the dangers of free trade.

 

Timestamps:

00:00・Introduction

00:55・The great power competition: China vs U.S

08:37・The difference in financial markets between China & the U.S

18:42・The consequences of globalization

20:08・A battle of ideologies between the east and the west

24:48・The current structure of the monetary system

28:45・Coinbase Prime Ad

30:02・Ledger Ad

31:26・Inflation is the only way out of a sovereign debt crisis

36:52・The end of an empire

41:15・Financial repression

49:32・What assets to buy during financial repression

54:58・Grant & Luke’s framework for Bitcoin

Fed explores ‘once in a century’ bid to remake the U.S. dollar

The rise of private cryptocurrencies motivated the Fed to start considering a digital dollar to be used alongside the traditional paper currency.

The Federal Reserve is taking what may be the first significant step toward launching its own virtual currency, a move that could shake up banks, give millions of low-income Americans access to the financial system and fortify the dollar’s status as the world’s reserve currency.

The idea of creating a fully digital version of the U.S. dollar, which was unthinkable just a few years ago, has gained bipartisan interest from lawmakers as diverse as Sens. Elizabeth Warren (D-Mass.) and John Kennedy (R-La.) because of its potential benefits for consumers who don’t have bank accounts. But it’s also sparking strong pushback from those with the most to lose: banks.

The United States should not implement a [central bank digital currency] simply because we can or because others are doing so,” the American Bankers Association said in a statement to lawmakers this week. The benefits “are theoretical, difficult to measure, and may be elusive,” while the negative consequences “could be severe,” the group wrote.

The explosive rise of private cryptocurrencies in recent years motivated the Fed to start considering a digital dollar to be used alongside the traditional paper currency. The biggest driver of concern was a Facebook-led effort, launched in 2019, to build a global payments network using crypto technology. Though that effort is now much narrower, it demonstrated how the private sector could, in theory, create a massive currency system outside government control.

Now, central banks around the world have begun exploring the idea of issuing their own digital currencies — a fiat version of a cryptocurrency that would operate more like physical cash — that would have some of the same technological benefits as other cryptocurrencies.

That could provide unwelcome competition for banks by giving depositors another safe place to put their money. A person or a business could keep their digital dollars in a virtual “wallet” and then transfer them directly to someone else without needing to use a bank account. Even if the wallet were operated by a bank, the firm wouldn’t be able to lend out the cash. But unlike other crypto assets like Bitcoin or Ether, it would be directly backed and controlled by the central bank, allowing the monetary authorities to use it, like any other form of the dollar, in its policies to guide interest rates.

The Federal Reserve Bank of Boston and the Massachusetts Institute of Technology’s Digital Currency Initiative are aiming next month to publish the first stage of their work to determine whether a Fed virtual currency would work on a practical level — an open-source license for the most basic piece of infrastructure around creating and moving digital dollars.

But it will likely be up to Congress to ultimately decide whether the central bank should formally pursue such a project, as Fed Chair Jerome Powell has acknowledged. Lawmakers on both sides of the aisle are intrigued, particularly as they eye China’s efforts to build its own central bank digital currency, as well as the global rise of cryptocurrencies, both of which could diminish the dollar’s influence.

Democrats have especially been skeptical about crypto assets because there are fewer consumer protections and the currencies can be used for illicit activity. There are also environmental concerns posed by the sheer amount of electricity used to unlock new units of digital currencies like Bitcoin.

Warren suggested the Fed project could resolve some of those concerns.

“Legitimate digital public money could help drive out bogus digital private money, while improving financial inclusion, efficiency, and the safety of our financial system — if that digital public money is well-designed and efficiently executed,” she said at a hearing on Wednesday, which she convened as chair of the Senate Banking Committee’s economic policy subcommittee.

Other senators highlighted the potential for central bank digital wallets to be used to deliver government aid more directly to people who don’t have bank accounts. A digital dollar could also be designed to have more high-tech benefits of some cryptocurrencies, like facilitating “smart contracts” where a transaction is completed once certain conditions are met.

Neha Narula, who’s leading the effort at MIT to work with the Boston Fed on a central bank digital currency, called the project “a once-in-a-century opportunity to redesign the dollar” in a way that supports innovation much like the internet did.

Still, there are a slew of unanswered policy questions around how a digital dollar would be designed, such as how people would get access to the money, or how much information the government would be able to see about individual transactions. The decision is also tied to a far more controversial policy supported by Democrats like Warren and Senate Banking Chair Sherrod Brown to give regular Americans accounts at the Fed.

“What problem is a central bank digital currency trying to solve? In other words, do we need one? It’s not clear to me yet that we do,” Sen. Pat Toomey (R-Pa.) said. “In my view, turning the Fed into a retail bank is a terrible idea.”

And, “the fact that China is creating a digital currency does not mean it’s inevitable that the yuan would displace the U.S. dollar as the world’s reserve currency,” he said.

For their part, banks fear a Fed-issued digital currency could make it easier for customers to pull out large amounts of deposits and convert them to digital dollars during a crisis — the virtual equivalent of a bank run — putting financial stress on their institutions and making less money available to provide credit for people, businesses and markets.

It could also potentially deprive them of customers, something the lenders say would interfere with lawmakers’ vision of increased financial inclusion.

“While it is true that deposit accounts are often the first step towards inclusion, the benefits of a long-term banking relationship go well beyond a deposit account,” the ABA said in its statement. “The same is not true of a [central bank digital currency] account with the Federal Reserve, which would not grow into a lending or investing relationship.”

The Bank Policy Institute, which represents large banks, has also argued that many of the benefits of a digital dollar are “mutually exclusive (because they are predicated on different program designs) or effectively non-existent (because the program design that produces them comes with costs that are for other reasons unbearable).”

“The decision on whether to adopt a central bank digital currency in the United States is appropriately a long way off,” BPI President and CEO Greg Baer said. “There are also complex and serious costs that will need to be considered.”

But many lawmakers think it’s worth the effort to look into it.

“The Federal Reserve should continue to explore a digital [currency]; nearly every other country is doing that,” Sen. Bill Hagerty (R-Tenn.) said at the hearing, citing the risk for the U.S. to lose its ability to deploy economic sanctions as effectively with decreased usage of the dollar.

Have you ever wondered why the US is such a close ally of Saudi Arabia?

Why Saudi Arabia is an Ally

Have you ever wondered why the US is such a close ally of Saudi Arabia that American presidents bow to the king and hold the Saudi Crown Prince’s hand.  This isn’t just because the Saudi are the low-cast swing producer of oil, with the potential to influence oil prices.

It’s also because the Saudis have historically had the power to enable the US to remain the global reserve currency and finance the US debt, even when the state of US finances would suggest it is undeserving of such a position.

Breton Woods: Setting up a “Rigged” System

In 1944 at Breton Woods. The British advised the US to setup a neutral financial system (using a unit of account known as the “Bancor“) to be used for international trade.  Each of the major economies would have a share of the Bancor in proportion to the size of its economy.

The American’s rejected the British proposal, instead favoring a global reserve currency in which the US maintained a dominant and exclusive share.

The British Warning

The British advised the US that this would benefit the US in the short term but would later cause distortions in the market as American exports would become more expensive.

The British warning proved to be accurate.  Although the entrance of China into the WTO has also been a significant factor, the structure of the dollar as the sole reserve currency has led to the exporting of supply chains — one of Trump’s chief complaints.  The Council of Foreign Relations has cited one of its own articles arguing that the US should voluntarily relinquish the global reserve currency, but that is unlikely to happen as long as the policy benefits elites.

Breaking our own “Rigged” System

After a series of budget deficits forced the US to abandon the gold standard, the US risked losing its dominant status.

In 1971, after large deficits caused by the military industrial complex, wars in Korea and Vietnam, and LBJ’s “Great Society” spending , Nixon was forced to abandon the Gold Standard.

Nixon said this was a temporary measure to thwart speculators, but in reality, American’s allies had lost faith in the US’s fiscal discipline.

After rigging the financial system so that America benefited from exclusivity as the reserve currency, America’s allies thought the US was failing to live up to its commitments in its own rigged game.

France calls America’s Bluff

France decided to call the US bluff by converting the paper dollars to gold at the official rate of $35 per ounce.  They loaded up a naval vessel with the paper dollars that the US had paid them and sent it to New Jersey.  They they requested that the US convert their dollars to gold at the advertised rate.  Since the market was pricing gold at a significantly higher price than the US’s official rate, the French were signaling in a very visible way that the US was effectively bankrupt, based on the gold standard they themselves designed.  Because the British and Germans also intended to follow the French, on Aug 15, 1971 Nixon announced that he was going to thwart speculators by “temporarily” suspending the dollar’s backing with gold.

The Saudi Alliance: Avoiding Fiscal Discipline

The US then faced a challenge of maintaining its power without having to restore fiscal discipline.  They did this by devising the petrodollar system in which

  1. Saudi Arabia agreed to price oil exclusively in USD and convince their friends in OPEC to follow suit.  This generated demand for US dollars because every country that wanted oil had to obtain dollars to purchase it.  It also generated demand for US Treasury bills to hold as foreign reserves.
  2. They agreed to take to profits from those dollars and secretly purchase US Treasury bonds, thereby financing US debt.
  3. They also agreed to purchase US military equipment, thereby funding the military industrial complex and, at the time, purchasing surplus weapons manufactured for the Vietnam War.

 

Recently

Mark Carney has proposed reviving the concept of the Bancor.  Carney is formerly Governor of the Bank of Canada and later Governor of the Bank of England.

Zhou Xiaochuan, the governor of the People’s Bank of China has also endorsed Keyne’s Bancor approach.

Columbia University professor Jeffery Sachs calls for multiple reserve currencies.

The Council of Foreign Relations says that proposals for alternative global reserve currencies are unlikely as long as the US has a veto at the IMF.

Oil price collapse – The end of the petrodollar – end of US dominance… War?

The petrodollar has provided the US with unlimited fiscal power for decades. Now that the oil price has crashed, Russia has its own reserves, China has immense power and Iran is the sleeping giant being poked, it’s only a matter of time before war begins.

Main article link: https://www.middleeastmonitor.com/202…

Definition link: https://www.thebalance.com/what-is-a-…