Author: Ming shusource: official account: Ming shuzatan wechat ID: laomingdashu
On September 7, 2022, China and Russia released a major news related to energy cooperation between the two countries.
During the seventh Oriental Economic Forum in Russia, CNPC and Gazprom signed relevant supplementary agreements to the China Russia east line natural gas purchase and sales agreement.
Among them, the most shocking content is that China and Russia decided to abandon the US dollar in this cooperation and use ruble and RMB for settlement in a ratio of 50:50.
I believe many people will have many question marks in their minds when they see this news?
——Why should China and Russia implement “de dollarization” in the east line natural gas project?
——What impact will this move of China and Russia have on US dollar hegemony?
——Why is it that the disintegration of US dollar hegemony is the key battle in the Sino US game?
This article will answer these three questions.
It’s just for reference.
?1? Why should China Russia energy cooperation be “dollarized”?
Before discussing “de dollarization”, we must understand how the world economy is “dollarized”.
The United States was founded in 1776. By the end of the 19th century and the beginning of the 20th century, the United States had gradually grown into an emerging power with global influence. The industrial strength of the United States has leapt to the top in the world, and its economic aggregate has exceeded that of traditional powers such as Britain, France and Germany. On the other hand, in the first half of the twentieth century alone, Europe experienced the devastating impact of two world wars and was finally exhausted.
After the Second World War, the United States led the establishment of the so-called “Bretton Woods system”. One of the key contents is that the United States dollar is pegged to gold (35 dollars can be exchanged for 1 ounce of gold), and other currencies are pegged to the United States dollar.
The United States has gradually grown into the world’s major international currency by virtue of the rigid payment commitment between the United States dollar and gold, as well as its economic, scientific, technological and military strength, and has assumed four important roles in the world economic system:
——The US dollar is the main settlement currency of Global trade, and the trade between countries in the world is mainly settled in US dollars;
——The US dollar is the main pricing currency of global bulk commodities. Global crude oil, natural gas, iron ore, grain and other bulk commodities are mainly priced in US dollars;
——The US dollar is the main reserve currency in the world, and all countries regard the US dollar and US dollar assets as the main components of their foreign exchange reserves;
——The US dollar is the main investment currency in the world. The United States has developed a large-scale financial market (stock market, bond market, futures market, etc.), so that the US dollars owned by governments, enterprises and individuals around the world can have a very liquid investment destination.
After the establishment of the Bretton Woods system, although the stability of the international financial system has been achieved in a certain period of time, which is conducive to the development of international trade and the world economy, there are many internal contradictions and problems in this system.
With the expansion of the US trade deficit, rising inflation, and the post-war economic recovery of Europe and Japan, the US dollar is facing increasing depreciation pressure. After several US dollar crises, in 1971, the Nixon Administration formally abandoned the rigid US dollar commitment to gold, and the “Bretton Woods system” collapsed.
Although the US dollar can no longer be exchanged for gold at a fixed ratio, the role of the US dollar as the world’s major international currency has remained until today.
Over the past 45 years of reform and opening up, China has grown into the world’s largest trading country and largest industrial country. However, under the US dollar hegemony system, bilateral trade between China and other countries is mainly settled in US dollars.
For example, in 2021, the bilateral trade volume between China and Russia was close to 150 billion US dollars, and this year is moving towards the goal of 200 billion US dollars. However, for a long time before that, whether it was China’s purchase of crude oil, natural gas and grain from Russia or Russia’s purchase of various light industrial products from China, the settlement currency used by both sides was neither Russian Ruble nor Chinese yuan, but mainly US dollars.
In the past few years, with the deterioration of us Russian relations, Russia began to consciously implement “de dollarization”, and this situation has changed. China Russia east line natural gas transactions are settled in rubles and RMB, which is part of Russia’s efforts to vigorously promote “de dollarization” in recent years.
As the main settlement currency of international trade, the US dollar has brought great benefits to the United States. All countries in the world should strive to obtain US dollars to meet their import needs; At the same time, as the main settlement currency of Global trade, the US dollar has brought great risks and costs to other countries. The constant fluctuation of the US dollar exchange rate has led to frequent fluctuations in the import and export prices faced by various countries. Moreover, in the process of converting their own currencies into us dollars, all countries have to bear certain exchange costs.
As the main pricing currency of global bulk commodities, the main reserve currency and the main investment currency of the world, the US dollar has also greatly increased the demand of countries around the world for us dollars.
As the world’s main international currency, the US dollar has strong demand from all countries in the world, which eventually forms the so-called US dollar hegemony.
Through US dollar hegemony, the United States has gained two vital strategic interests:
First, the United States can impose “seigniorage” on other countries through US dollar hegemony.
For a long time, the Federal Reserve has helped the United States to plunder a large amount of wealth from countries around the world by printing money.
The inflationary pressure caused by the printing of money by the Central Bank of most countries is mainly borne by their own countries, but since the US dollar, as the main international currency, is owned by all countries in the world, the inflationary pressure caused by the printing of money by the Federal Reserve is also shared by all countries in the world.
In essence, this is that the United States abuses the hegemony of the United States dollar and collects “seigniorage tax” on other countries.
Second, the United States can impose sanctions on other countries by “weaponizing” US dollar hegemony.
In the conflict between Russia and Ukraine, the United States froze hundreds of billions of dollars of foreign exchange assets of the Russian Central Bank and excluded Russia’s major financial institutions from the swift international settlement system, which not only froze Russia’s national wealth, but also caused great obstacles to Russia’s international trade and balance of payments.
The United States “weaponized” its dollar hegemony and once devalued the ruble. In fact, it launched a financial war against Russia.
However, Russia is not a vegetarian anymore. By stipulating that so-called “unfriendly countries” must use rubles when purchasing Russian crude oil and natural gas, Russia has “weaponized” its energy advantages, which has greatly supported the exchange rate of rubles and, to a certain extent, evaded the financial sanctions imposed by the United States on Russia.
As for the implementation of “de dollarization” of China Russia east line natural gas project, instead of using ruble and RMB for settlement, we can understand it as follows:
Strategically speaking, this is Russia’s strategic choice to break with the United States and openly challenge US hegemony after the conflict between Russia and Ukraine; Tactically, this is a realistic choice for China and Russia to avoid the risk of the United States abusing US dollar hegemony and to make the payment and settlement in Sino Russian natural gas cooperation more convenient and efficient.
?2? What impact will the “de dollarization” of natural gas on the eastern route of China and Russia have on US dollar hegemony?
China Russia east line natural gas cooperation is not a small project.
The China Russia east line natural gas pipeline is a major project of strategic significance, an important part of China’s four major oil and gas strategic channels, and a world-class energy artery with super large caliber, high steel grade and high pressure.
In 2014, China and Russia finally reached an agreement after long and difficult negotiations. At that time, the two sides agreed that Russia would provide more than 1 trillion cubic meters of natural gas to China within 30 years, with a total amount of more than 400 billion US dollars.
On December 2, 2019, the China Russia east line natural gas pipeline officially supplied gas to China, reaching 4.1 billion cubic meters in 2020 and 10.4 billion cubic meters in 2021. According to the plan, with the implementation of the project, the designed annual gas transmission capacity will reach 38 billion cubic meters by 2025.
At the beginning of February 2022, Gazprom signed the second long-term contract with PetroChina – export through the far east route, and the total annual gas supply will increase to 48 billion cubic meters.
After the conflict between Russia and Ukraine, western countries led by the United States launched extreme sanctions against Russia in the hope of limiting Russia’s ability to wage war by cracking down on Russia’s energy exports, which directly caused a sharp rise in global energy prices.
In the same period of 2021, the spot price of natural gas in Europe was about $250-300 per 1000 cubic meters. By the end of August 2022, the price had once exceeded $3500, a sharp increase of more than ten times.
If at this price, the natural gas supply of China Russia east line exceeds 1 trillion, and the total amount will exceed 3.5 trillion US dollars.
Of course, the Sino Russian natural gas transaction is an agreed price, which is certainly much lower than this price.
Russia is one of the world’s largest exporters of crude oil and natural gas, with annual energy export income of hundreds of billions of dollars. If Russia implements a thorough “de dollarization” in the energy field, it will have a certain impact on the hegemony of the United States dollar.
However, to be realistic, compared with Russia’s annual energy exports of hundreds of billions of dollars and international trade volume of less than a trillion dollars, the actual circulation and use of US dollars in the world today is several orders of magnitude higher. Therefore, it is difficult to shake the hegemony of US dollars if Russia alone engages in “de dollarization”.
However, we Chinese often say, “the wind rises at the end of the green duckweed”. To look at problems, we should not only look at the current situation, but also look at the trend.
Russia’s “de dollarization” in a big way has provided countries in the world that have “suffered from dollar hegemony for a long time” with a way of thinking to fight back against the United States and get rid of dollar hegemony.
If other countries continue to follow suit, one day, along with the decline of US economic and financial strength, the world will surely form an overwhelming wave of “de dollarization” and eventually completely subvert US dollar hegemony.
For China, the two key questions are: why is it so important for China to disintegrate US dollar hegemony? Why should China take the initiative and follow the trend to accelerate the collapse of US dollar hegemony?
?3? Why is it that the disintegration of US dollar hegemony is the key battle in the Sino US game?
Over the past few years, we can understand this century struggle from different angles.
In essence, the game between China and the United States is a contest of governance systems and capabilities between China and the United States. But from a tactical point of view, US dollar hegemony may be the most powerful weapon of the United States against China.
The reason why we say this is not only that the United States can “weaponize” US dollar hegemony and impose extreme sanctions against China like Russia in the future, including freezing China’s foreign exchange assets and kicking China out of the switf international settlement system. The more important reason is that the United States can make use of us dollar hegemony to continuously obtain cheap funds in the process of Sino US game.
“When the cannon rings, there will be ten thousand taels of gold.”
The Sino US game is an invisible war, which also needs to invest and consume a large amount of funds.
Because the United States has dollar hegemony, the means by which China and the United States obtain funds and wealth are fundamentally different, which is the biggest unfair competition China faces in the Sino US game.
As a late developing country, China’s national wealth mainly depends on physical and mental labor.
However, the United States can easily levy “seigniorage” by taking advantage of US dollar hegemony.
Although in the long run, the abuse of US dollar hegemony by the United States will eventually lead to the collapse of US dollar credit, in the short run, the United States has obtained a steady stream of funds in the process of Sino US game.
For example, the Chinese people have worked hard for decades, exported various products and services to the United States and the world with the painstaking efforts and sweat of several generations, and finally accumulated $3 trillion in foreign exchange reserves.
Let’s take a look at how the U.S. government easily acquired huge wealth by issuing treasury bonds.
In 2019, US Treasury bonds increased by about $1.2 trillion. In 2020, US Treasury bonds surged again by about $5 trillion. In 2021, US Treasury bonds increased by about $2 trillion again.
It is through issuing huge national debt, exporting inflation to the world, and collecting “seigniorage tax” that the United States has the money to support domestic enterprises and people under the epidemic, to maintain an annual military expenditure of about $800 billion, and to enable the United States to pass plans such as the infrastructure construction act and the chip act, and to target China openly and secretly.
We can even say that if the United States can always issue treasury bonds so easily, plunder the wealth of other countries, and “return blood” for itself, China will face great pressure at the tactical level in the process of Sino US game.
It is precisely because of this that we can say that the disintegration of US dollar hegemony is the key battle in the Sino US game.
It is also for this reason that China must find ways to disintegrate the US dollar hegemony next.
The United States is like a devil who can “absorb stars”. By using US dollar hegemony, it can absorb “wealth” from its allies and enemies at the same time, and then use it to ease domestic conflicts, stimulate economic growth, maintain military expenditure, enhance scientific research strength, etc., and then turn around and deal with China more ferociously.
From now on, a prominent task faced by people in China’s strategic, economic and financial circles is to provide advice for the country and find ways to break up the hegemony of the US dollar,
Accelerate the historical process of the collapse of the US dollar hegemony.
This is also to write the paper on the land of China.
This is a very professional issue, which needs more professionals to participate and offer ideas:
——Should China stop buying US Treasury bonds because this is really lending money to the United States to attack itself?
——Can China make full use of its position as the world’s largest trading country to steadily promote the use of RMB or other currencies for settlement in international trade? As long as the use of US dollars as the main settlement currency of international trade can be reduced, it will be a blow to us dollar hegemony;
——How can China make use of its position as the world’s major importer and consumer of bulk commodities to gradually push bulk commodities from being denominated in US dollars to being denominated in RMB, thereby weakening the role of the US dollar as the main pricing currency of global bulk commodities?
——How can China increase the reform of its domestic financial system so that China’s financial market has sufficient depth, breadth and credibility to play the role of supporting the renminbi as the world’s major investment currency and reserve currency?
——How can China set the agenda in the global public opinion field, so that more and more countries and their people can see the harm that US dollar hegemony brings to all countries in the world, and the practical necessity and urgency for all countries to get rid of US dollar hegemony?
——How can China make good use of the BRICs countries, the Shanghai Cooperation Organization and other organizations to join hands with countries rich in strategic resources such as energy, minerals and grain, as well as emerging markets and developing countries that play a certain role in international trade, to steadily realize “de dollarization” and explore the establishment of a more just, reasonable and responsible international financial system?
This list of questions can be longer, and more people need to join in and contribute their professional knowledge and wisdom.
We must admit that the disintegration of US dollar hegemony is a big test for China in the Sino US game, and also a big test for China to break through us containment and finally achieve the great rejuvenation of the Chinese nation.
In this regard, we must make early plans and plan before moving.
In the long run, the relative decline of the comprehensive national strength of the United States and the continuous abuse of US dollar hegemony will objectively accelerate the collapse of US dollar hegemony. However, from the perspective of China, we should also be more proactive and do something to accelerate this process, which is not only beneficial to China but also beneficial to all countries in the world.