Takshashila Research Note - De-Dollarising Nexus: A Mirage
Executive Summary
Russia’s economy is experiencing an unprecedented downturn ushered in by economic sanctions, restrictions and high-tech export controls, which are causing the Rouble to depreciate and may cause high levels of inflation. In turn these will significantly erode Russia’s wealth and isolate it from the global economy.
Russia’s mitigation and retaliatory measures have not had a significantly reassuring effect, and it is uncertain if they can avoid a financial collapse.
Major Russian financial institutions’ isolation from worldwide standards like the SWIFT payments messaging service and the freezing of significant forex reserves belonging to Russia’s central bank will drive Russia to rely increasingly on China. Attempts to create a rival trading bloc may be made, but the historical precedent and current indicators don’t project it as feasible yet.
While Russia and China may be able to convince some of their trade partners to switch some percentage of their FOREX reserves to alternative currencies and adopt alternative mechanisms for exchange, a lot of uncertainty exists about the long-term sustainability of these alternative mechanisms.
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