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Countries Are Ditching This Currency to Avoid Sanctions

Note: This article may contain commentary or the author's opinion.

Countries are attempting to expropriate from the US dollar as our sanctions cut into Russian and Iranian economies while considering the yuan, ruble, and other currencies emerging as possible alternatives.

Russia has found new buyers in recent weeks for its coal and petroleum exports in non-dollar currencies, which has managed to keep its economy moving despite the sanction imposed on them by the US. 

“The current round of turbulence is likely to increase interest” and “momentum in the creation of a rival reserve currency or currencies to help supplant the oversized role of the dollar,” Anthony Kim, a research fellow at the Heritage Foundation, said. 

Ever since Western nations placed their heavy sanctions on Russia in response to their Eastern invasion, India has been one of several countries that have increased its imports of Russian coal and natural gas and paying them in Chinese yuan, United Arab Emirates dirham, Hong Kong dollar, and in euro,  according to Reuters. Agreements between Turkey and Iran have also been reached with Russia to base trade and investment on the Russian ruble; an effort to move away from dependence on what Russia refers to as the “toxic” US dollar while easing the effect sanctions have had on the Russian economy.

 60% of countries’ foreign exchange reserves were comprised of the US dollar in 2021 and dominated international transactions overall, according to the US Federal Reserve Board. The US sanctions have cut off countries from accessing dollars for international trade as a punishment for bad behavior. 

Moscow and Tehran have established cooperation amongst their major banking systems to set up a trade center co-owned by Russia’s Mir Business Bank and Iran’s Bank Melli. By doing so, they agreed to launch a ruble-Iranian rial currency exchange. The harsh Western sanctions aimed at the financial systems of both countries seem to have brought Moscow and Tehran closer together. Iran’s Bank Melli and Russia’s Sberbank signed cooperation agreements on July 17 and plan to strengthen Iranian-Russian trade ties.

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Kremlin spokesman Dmitry Peskov said Russia intended to eliminate trade with Iran based on the US dollar in an interview with Iran’s state broadcasting corporation, helping both countries mitigate US sanctions and reducing financial volatility, Tasnim reported.

The US began sanctioning Russia’s oil and gas exports in March, but the US and Europe have left most of Russia’s energy industry untouched. The EU plans to phase out Russian gas exports by two-thirds over the next year but will still allow exports to third countries.

“If commodities such as oil and other raw materials were priced in an alternative currency whose value is tied to commodities and less volatile than the dollar, this could reduce financial market instability in emerging economies in the long run,” said Anthony Kim. “The Chinese are gearing up for a valiant effort to promote the yuan into the big leagues,” he explained, but also noted that growing global distrust for the Chinese Government’s handling of money management will more than likely prevent the yuan from replacing the US dollar. Of course, anything is possible, considering the current turbulence in the world. That being said, The share of yuan in international transactions has plummeted since May of this year. 

“The bottom line is that with all of its … alleged or real downsides, the US dollar has proved its resilience.”