Will Russia together with partners create an alternative to the dollar? And how will this affect the dollar to the ruble?

Why do we need a new reserve currency?

Russia and some other states began to think about creating its own currency so as not to depend on the US dollar, which is stored only in American banks.

Indeed, in order, for example, to open a dollar account, for example, a special correspondent account is opened for him in an American bank. That is, our dollar deposits can be blocked in the case of certain sanctions.

Because of this, now banks introduce various commissions to store dollars and euros. Well, Russia wants to gradually move away from these currencies. In addition, not so long ago, almost half of the reserves of the Central Bank in these currencies were blocked.

That is why Putin reported that work is underway on the creation of an international reserve currency based on the currencies of the BRICS countries: Russia, India, China, South Africa and Brazil.

BRICS reserve currency and its influence

BRICS countries are developing countries for the most part, these are raw materials (Russia, Brazil and South Africa). That is, their currencies cannot be stable, since countries with a developing economy are dependent on raw materials (China can somehow be ranked for developed stable economies).

It is also worth noting that the countries of the BRICS export prevails over imports. Therefore, it is more profitable for them to weaken their currency, thereby making their products more competitive in world markets.

It is logical to assume that if you make a currency based on the currencies of the BRICS countries, then we will get a currency that will also be devalued.

Yes, it will still be more protected from geopolitical risks, but it will gradually depreciate to the dollar and the euro. And this currency can grow during periods when the cost of raw materials grows.

I have a skeptical mood to create a new reserve currency, because there are not enough five countries. But the countries of Central Asia - Kazakhstan, Kyrgyzstan, Uzbekistan can also join.

Also, Iran, some African countries, Turkey (although NATO country) can also join this currency.

But in any case, the significance of these countries in the global economy is small. Therefore, most likely, the key factor here will be the course of the Chinese yuan, which will influence the course of this currency.

In general, it is assumed that the reserve currency will exist along with national currencies and will be used in calculations.

In addition, Russia offers its calculation system - a financial message transmission system (SPFS). And in principle, in the long run, this creates a certain threat to the dollar, which was warned in the IMF.

And just the same risk factor for the dollar in the IMF called unprecedented sanctions against Russia.

In the medium term, the positions of the dollar are unlikely to be challenged, but in the long run, certain problems may arise.

The IMF warned that such sanctions could lead to further diversification of the reserves of the Central Bank of different countries not in favor of the dollar.

Nevertheless, over 20 years, the role of the dollar in the global economy has decreased by only 10% (from 70% to 60%). In the next 10 years, the role of the dollar will still be preserved, and the American stock market will be the most interesting for investment.

Inflation in the USA and Europe

In the eurozone and the USA, record inflation due to a printed machine and unsecured debt. At the moment, inflation in the eurozone exceeded 8.1%, and in the United States reached a record - 8.6%.

And now the Fed is actively increasing the rate to reduce inflation, but this inevitably leads to a slowdown of the economy (it may lead to a recession in 2022).

An increase in bets in Europe can lead to a default of a number of countries (Italy, Spain, Greece, Portugal, etc.), in which public debt is much higher or approaches GDP.

For example, Italy has public debt - 170% of the runway. Obviously, with the growth of the interest rate of the ECB, Italy will be difficult to serve the debt.

Ultimately, this will lead to the creation of unified Eurobonds. That is, Germany and other more wealthy countries will have to pay on debts of the southern countries.

Naturally, this will lead to the devaluation of the euro, including because you will have to print more money to buy all these bonds. And in the next 2 years, the euro can easily sink to the level of 2000-0.8-0.9 euros per 1 dollar (20% lower).

Therefore, Russia does not plan to accumulate reserves in euros anymore. The dollars will still have to be used for world calculations for some time.

But the threats voiced by Putin (although a little exaggerated) is a fact, and of course they will create an alternative currency.

The only question is how developed countries will use this currency, and will it be stable?

For today, thanks for your attention!

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