With tensions continuing to escalate between the United States and Russia over the crisis in Ukraine, Russia has threatened to remove the dollar as its reserve currency in retaliation for potential economic sanctions.
The Kremlin’s chief economic adviser, Sergei Glazyev, suggested the plan, which would call for Russia to either entirely abandon the dollar or to use a system that wouldn’t require the U.S. dollar to conduct international transactions.
“If sanctions are applied against state structures, we will be forced to recognize the impossibility of repayment of the loans that the US banks gave to the Russian structures. Indeed, sanctions are a double-edged weapon, and if the US chooses to freeze our assets, then our equities and liabilities in dollars will also be frozen. This means that our banks and businesses will not return the loans to American partners,” Glazyev told Russian state media.
He is also quite optimistic about the possibility of Russia pursuing this objective and he even believes that his country will prosper under this proposed arrangement.
“We have wonderful economic and trade relations with our Southern and Eastern partners,” Glazyev enthused. “We will find a way not just to eliminate our dependence on the U.S. but also profit from these sanctions.”
Other observers are not as optimistic about the possibility.
Jeremy Warner, a British financial commentator, considers this option unfeasible and views it as an empty threat from the Kremlin.
“[M]ore than 60 per cent of the world’s central bank foreign currency reserves are held in dollars. The euro, the next biggest reserve currency, comes nowhere close. This is not about to change. In other words, Russian threats are as vacuous as Western ones,” Warner wrote in The Telegraph.
On Monday, U.S. senator and Chairman of the Senate’s Europe subcommittee Chris Murphy called for economic sanctions against Russia that would freeze the assets of many Russian institutions and impose travel restrictions on top Russian officials.