Today the US Dollar still rules the roost among fiat currencies for all the reasons which have been exhaustively examined since Bretton-Woods by just about every financial analyst there is. However, for more than a decade the term “de-dollarization” springs up with ever-increasing frequency. There are several reasons, but key among them is today’s micromanaged “fixed” nature of what used to be “floating” rates of relative exchange between sovereign currencies and their economies. Equally, the politicization of the US Dollar has forced many countries, allied or not, to rethink their risk exposure to the US Dollar.
Another is the management of the US Dollar and the standards it must maintain for its fiduciary role as manager of the world’s reserve currency. The US recently established two records – $28 trillion in debt for the first time in its history, and the Debt to GDP ratio now at 133%. The dollarized service cost means Washington is spending some $2.50 in debt for every $1 in growth. Not an inspiring card house.
At present, no matter how much a country exports goods, its currency for some reason does not reflect increased value for the rest of the world. If free floats and competitive open market price discovery were allowed, the Chinese yuan, would long ago have held a dominant position in the world. Because when you get down to reality it is the manufacturing and exporting capital of the world. Why then is the yuan only ranked sixth in the world?
Because among the currencies of the developed countries of the world the most important currency belongs to the United States. America was able to establish and impose its financial “rules of the game” on other countries with the help of the Bretton Woods system, which was adopted back in 1944 when it was established that international trade would be carried out only for gold-backed US dollars. This advantageous position of the dollar allowed America to establish the production of dollars on an industrial scale and make them a major “export commodity”, the denomination itself being a commodity of value.
Consider the situation – you are country “X”, to buy something on some foreign market, you will need to either extract some kind of minerals, grow or make something, then sell those goods for dollars to another country, and then repeat this cycle in reverse. You exchange your goods for the goods of another country using the currency of a third country – the United States. The United States itself, to buy goods from any country in the world uses what has been called its “exorbitant privilege” and at the end of the day just has to recycle the in-house borrow and print mechanism.
The dominance of the US Dollar could have been disrupted back in 1971 when President Nixon decided to stop backing the dollar with gold. However, the replacement for the gold peg, which was required in the Bretton-Woods Agreement was nimbly replaced with the petrodollar standard, where Saudi Arabia agreed, then all of OPEC agreed to sell their oil only for US dollars.
As it happens, the Russian ruble is not even referenced when international currencies are discussed, so what might this ruble “long shot” be from those clever ever-sanctioned Russians? Might Russia ever develop the solid collateral base for the ruble so that it attracts the whole financial world or at least a fairly large number of countries? Judge for yourself…
Most people by now are aware that Russia has a lot of Oil, Gas, Gold, mineral, natural and agricultural resources. After all, every time a pipe or some other resource infrastructure is built by them a hue and cry are raised from Washington, London, and Brussels about highly likely Russian skullduggery for aggressive world domination.
I would by the same token venture to say that not many people know of the Russian state-owned company ingeniously called “Rosatom”. It has been doing business and expanding its silent, but inexorable expansion around the world. Looking ahead for the next 10 years, Rosatom has clinched foreign orders for more than 130 billion dollars (or 40% of the world market of enriched uranium). It has a 16% slice of the world nuclear reactor construction and services market. As of this writing 47 countries are already working or negotiating with Rosatom, and 78 nuclear reactors in the world use Russian nuclear fuel. Ok, you might think, but what do these radioactive facts have to do with a future ruble on steroids?
There are today 442 NPP’s in the world, the United States runs 96 nuclear reactors, 57 in France, 48 in China, and 38 in Russia. This US Nuclear energy dominance is changing. Today China has 44 reactors under construction and 168 planned. India has 14 reactors under construction and Russia has 24 under construction with 25 planned. In contrast, the United States has just three reactors under construction and 18 planned. As Russia, China and India expand their NPP footprint, U.S. exports of natural and enriched uranium continue to decline as a share of global exports, dropping from 29% in 1994 to less than 3.4% in 2020.
It is a long game to be sure. As demand for environmentally friendly and cheap energy increases, nuclear energy provides the cheapest and most environmentally friendly electricity. In conditions of diminishing energy resources and the seemingly perpetual fight against CO2 emissions, the importance of nuclear power plants will continually increase. The demand for new construction will also increase. This means that as these projects happen, Russia will concurrently enjoy a growing demand worldwide for the ruble.
In each country where Russian NPP’s are contracted or under construction, the invoices are solely calculated in rubles, not dollars. The fuel elements are only made in Russia, hence ongoing charges in rubles. All servicing and life-cycle extensions (Russia has the technology to add 15 years through annealing) can only be done inside Russia, by Russians, for rubles.
Perhaps this will be the “atomic” or energy ruble made digital along with the Yuan that can begin to put the squeeze on the petrodollar, and occupy a seat among other currencies to help Russia win its equitable share in international settlements.
Analyst Paul Goncharoff, Moscow