Friday, August 24, 2018

Russian Foreign Minister thanks the U.S. for imposing sanctions since it will mean Moscow can justify ditching the dollar even faster

There is an ancient proverb from Confusius that goes, when you seek a journey of revenge, be sure to dig two graves.  And ironically it appears that this saying also works in the realm of economics, especially when one nation chooses to impose sanctions against another.


Very few people remember back in the late 70's when President Jimmy Carter decided to impose economic sanctions on the then Soviet Union for their invasion of Afghanistan which cut off shipments of U.S. grain to the former Communist country.  However what ended up happening was that Moscow simply shifted their grain purchases over to Argentina, and at a lower cost, and where American farmers ended up being the the big losers from Carter's policies.

Economic sanctions rarely work against adversaries of like size, such as between the U.S. and Russia or China, and on many occasions they can even backfire such as with Iran who a decade ago created an alternative to the Petrodollar by trading its oil for gold.  Thus one has to wonder if Washington is either stupid in their current gambit or has a bigger agenda in mind with their ongoing sanctioning of Russia over the past five years.

Russia will definitely respond to Washington’s latest sanctions and, in particular, it is accelerating efforts to abandon the American currency in trade transactions, said Deputy Foreign Minister Sergei Ryabkov. 
“The time has come when we need to go from words to actions, and get rid of the dollar as a means of mutual settlements, and look for other alternatives,” he said in an interview with International Affairs magazine.
  
“Thank God, this is happening, and we will speed up this work,” Ryabkov said, explaining the move would come in addition to other“retaliatory measures” as a response to a growing list of US sanctions. Russian Energy Minister Aleksandr Novak recently noted that a growing number of countries are interested in replacing the dollar as a medium in global oil trades and other transactions. 
“There is a common understanding that we need to move towards the use of national currencies in our settlements. There is a need for this, as well as the wish of the parties,” Novak said. – Russia Today
Besides occasional fluctuations on their currency, Russia has actually prospered since the U.S. imposed economics sanctions on them over the Ukraine conflict.  And even more importantly, these sanctions have created a serious rift in U.S. - European relations to the point where many countries are defying Washington when it comes to the new sanctions they are planning to impose upon Iran.

All foreign policy decisions are gambits, where on many occasions a nation is willing to sacrifice something in the short term in the hope of gaining even more at the end.  However the use of economic sanctions has historically not been a good choice as a weapon of foreign policy, and in the case of Russia, they are even cheering for more since it will mean the quicker end to U.S. and dollar hegemony.

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