The dominance of the U.S. dollar as the global reserve currency is being robustly challenged on all fronts. Other geopolitical powers and smaller but important players are unwilling to accept the political influence Washington exerts through its fiat money. And in times of trade wars, sanctions, and even tensions between allies, the push to dethrone the Greenback is once again gaining traction. Turkey is now joining Russia’s version of Swift to trade with Moscow directly in rubles and liras.
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Trump vs Turkey
Moscow and Ankara have long since put the incident with the Russian fighter jet Turkey downed over Syria four years ago behind them. And since the 2016 coup attempt against Turkish President Recep Erdogan, the two Black Sea neighbors have been moving closer and closer together. In a controversial move from a North Atlantic perspective, Turkey recently bought Russian missiles made to shoot down Western airplanes and has been offered Russia’s Su-35 fighter jets after the U.S. kicked its NATO ally out of the F-35 program.
But relations between the United States and Turkey soured long before the Russian arms deal. President Obama’s administration blocked Turkish attempts to acquire elements of the U.S.-made Patriot missile system. And president Trump recently tweeted that he “will totally destroy and obliterate the Economy of Turkey” if Ankara “does anything that I, in my great and unmatched wisdom, consider to be off limits.” His message was issued on the backdrop of pressure from his own Republican Party and congressional leaders to impose sanctions on Turkey over the purchase of Russian military equipment, as the law now requires.
These are not the only sparks between the two historically strategic allies. Other points of tension include America’s backing of Kurdish fighters in Syria whom Turkey considers a threat to its own security. Ankara just launched a military offensive against some of them. Add to that suspicions of connections between U.S. military personnel at the Incirlik Air Base and the organizers of the failed coup d’état against the Turkish government. Erdogan’s numerous and friendly handshakes with Russian President Vladimir Putin didn’t help either.
Turkey to Settle Bills With Russia in Rubles and Liras
The rapprochement between Turkey and Russia has catalyzed trade between the two countries over the past few years, with Turkish contractors building infrastructure for the Sochi Winter Olympics and Russia’s giant Gazprom completing Turk Stream, a natural gas pipeline that runs through the Black Sea. Not to mention Turkey’s nuclear power projects to be realized with Russian technology and the six million Russian tourists visiting the country last year.
All this intensified economic interaction will be increasingly facilitated by transactions in the two nations’ fiat currencies. According to an announcement by the Russian finance ministry, issued October 4, Minister Anton Siluanov signed an agreement with the Turkish side to start using the ruble and the lira in cross-border payments and settlements, Reuters reported this past Tuesday.
As part of the agreement, Turkish businesses and banks will now connect to the Russian version of Swift and introduce Russian Mir cards in Turkey, an alternative to Visa and Mastercard. Moscow developed its System for Transfer of Financial Messages (SPFS) in response to proposals in the West to exclude the country from Swift following the annexation of Crimea back in 2014.
“We see attempts to use the dollar as a political weapon. I regard this as another big mistake,” Russian President Vladimir Putin said during the 2019 Russian Energy Week forum last week. He expressed his opinion that by implementing restrictions on the use of their currency, the Americans have “started sawing the branch on which they sit.” Putin also pointed out that “the dollar shrinks as a reserve currency in many countries around the world, including U.S. allies” and added that the same applies to dollar settlements in international trade. Putin stressed that the restrictions on Iran, the Russian Federation, and other sanctioned nations undermine the confidence in the U.S. currency.
As a result, not only Russia and Turkey have been looking for settlement solutions outside systems based on the dollar. Disagreeing with the Trump administration’s decision to pull out of the Iran nuclear deal and reintroduce sanctions against the Islamic Republic, the European Union announced its own Swift alternative in January. Instex, or Instrument in Support of Trade Exchanges, was developed by France, Germany, and the United Kingdom to facilitate non-dollar trade with Iran. And in March, a central bank official in Moscow revealed several Russian banks had joined the Cross-Border Interbank Payment System (CIPS), China’s version of Swift.
Is There a Better Swift Than Bitcoin?
Thinking about Swift and its alternatives as well as other fiat currencies that could challenge the dollar’s dominance as a reserve currency, all of them part of geopolitical weaponry, some questions arise. For example, will Britain remain part of Instex after Brexit? Will Russia invite Ukraine to the SPFS system? What stops China from banning Taiwan from the CIPS? Will the U.S. ever make the Greenback a true world currency?
There was an Eastern Bloc joke during the Cold War about a propaganda poster at a Russian hospital. “Soviet Patients Are the Healthiest Patients!” the slogan read… But there is no such thing as a healthy patient, is there? That’s why they’re all in hospital.
By coincidence or not for the people in Turkey, Russia, and China, none of their governments is particularly friendly towards Bitcoin, yet are among the most eager adopters of decentralized digital currencies. For example, according to the 2019 edition of the Global Consumer Survey conducted by market data provider Statista, 20% of Turks own cryptocurrency. China is eighth among 18 polled countries with 11% of Chinese citizens holding crypto, while 9% of the surveyed Russians also said they used or owned digital coins.
Until a cryptocurrency becomes the world’s reserve currency and its blockchain is used for international financial settlements, a lot of new Swifts may come into existence and many fiat currencies may try to challenge the dominance of the United States dollar. But that’s fine: bitcoin thrives in the face of adversary.
What are your expectations about the future of the U.S. dollar as the world’s reserve currency? Do you think a cryptocurrency can play that role? Let us know in the comments section below.
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