The US goverment is making a strategic mistake by using the dollar as a political tool, according to the Russian president Vladimir Putin. During a press conference at the tenth BRICS summit in South-Africa, he explained that any restrictions on the use of dollar transactions will undermine confidence in the dollar as the world reserve currency.
According to the Russian president there are dozens of countries which are unsatisfied with the current status of the dollar als reserve currency and are exploring alternatives to the dollar in trade. A new world reserve currency or the increase of regional currencies could contribute to a more stable world economy and a more stable global financial system.
Question: You have said many times that Russia must reduce its dependence on the US dollar. Russia has recently been selling US treasury bonds, bringing the share in the reserves down to nearly zero. Is this all you plan to do?
Is this a new state policy, or just protection against the potential extension of the sanctions? If Russia abandons the dollar, what alternative currency would you use? Could it be a BRICS country currency, for example the yuan? We know that the Bank of Russia is increasing its share of yuan denominated assets.
If I may, there is one more question I simply have to ask.
Vladimir Putin: Let me answer this question first, and then you can ask your second question.
Russia is not giving up on the dollar, which is a universal reserve currency. The Euro can also claim this status more or less, but not fully. Therefore, we are well aware of what the dollar represents today.
As for reserve currencies as such, regional ones are already appearing. To a certain extent, the Russian ruble plays this role in the CIS or EAEU countries. In general, the strength and value of any national currency depends on the strength and value of the economy standing behind it. We must proceed from these fundamental assumptions.
A few words about the dollar again. We must minimise the risks. We are seeing what is happening with the sanctions that are essentially illegal restrictions. We are aware of the risks and are trying to minimise them.
As for the dollar as a reserve currency, we are not alone in talking about this problem, and it is becoming a problem. You are wrong if you think that this is Russia’s initiative. A great number of countries are talking about exactly this – the need to expand the capabilities of global finance and the global economy, and create new reserve currencies. This will make the global economy and global finance more stable. This is abundantly clear.
As for our American partners and the restrictions that they are introducing, including in those dollar settlements, I believe this is a big strategic mistake on their behalf because they are thus undermining confidence in the dollar as a reserve currency. This is the bottom line.
Quite recently, just several years ago, it did not occur to anyone that such instruments might be used in political struggle, in political competition. Everyone proceeded from the premise that politics is politics or as we joke here: “War is war but lunch is still on schedule.” The same should be true here: disputes are disputes, but when it comes to economics, some things are absolutely stable and immutable.
It turned out this was not the case: payment systems are being used as a political argument in political disputes and in settling differences; currency is being used, too. I believe it is absolutely clear that this is damaging the dollar as the world reserve currency and undermining trust in it – this is what it is all about. If this were not the case, there would not be a desire on the part of not one but dozens of countries to consider other options.
It is hard to say now what these options are, but the yuan is certainly acquiring such qualities. I believe that if it becomes freely convertible from an economic standpoint, this process will accelerate. But it has already been added to the IMF basket, so this is nothing special, a natural process. Let me repeat that the importance of a national currency depends on the significance of the economy behind it.
Again, we are not going to make any abrupt movements. We are not going to give up on the dollar in any way. We will use it to the extent to which the US financial authorities will not prevent the use of the dollar in settlements.