A Failed Russia ‘Reset’ Continues To Haunt Obama
“The sanctions we put in place against Russia are working as intended” – Barack Obama, August 6, 2014
In the summer of 2009, two dozen statesmen from Central and Eastern Europe issued a joint appeal for President Barack Obama not to forget the lessons of recent history. The White House had just rolled out its “reset” in relations with Russia as a centerpiece of Obama’s foreign policy. Flash-forward to 2014, and that reset, that “daring gamble” has proved to be yet another in a series of colossal failures of the Obama foreign policy. And now, it gets worse. Much worse.
Russia held it’s annual economic summit in St. Petersburg a week ago, and a number of insanely-interesting things have come out of that meeting. Not the least of which is the joint cooperation pact that Russia signed with China to step away from the U.S. dollar and promote their own currencies between themselves. Ouchies, Mr. Obama, guess those sanctions you put on Russia is really crippling them, huh?
“These actions, taken in the context of many other actions around the world including Saudi Arabia’s frustration with U.S. foreign policy toward Iran, and China’s voracious appetite for gold, these actions are meaningful steps away from the dollar,” Jim Rickards, portfolio manager at West Shore Group and partner at Tangent Capital Partners, told CNBC via email.
Meanwhile, VTB, Russia’s second biggest bank, has signed a deal with Bank of China that includes an agreement to pay each other in domestic currencies. Added to this, Russian Prime Minister Dmitry Medvedev spoke on Russian TV over the weekend saying sanctions imposed on the country by the EU and U.S. would make Russia use the ruble for trade and would eventually turn it from a “convertible into a reserve currency.”
With the two developing nations trading outside of the U.S. dollar, many questions are being raised about what this would do for the greenback and for the U.S. The dollar’s status as the global reserve currency has allowed the U.S. to borrow large sums of money, effectively living beyond its means, because there is always a demand for its currency.
China has become the largest holder of U.S. debt. Its authorities hold around $3.8 trillion of reserves, the majority of which is denominated in U.S. dollars. However, they have expressed a desire to diversify away from the greenback, and have already pared back their U.S. Treasury holdings.