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What Currencies Will be Used Along the Belt and Road? And Who Will Monitor Them?

 October 30, 2018Posted bySilk Road Briefing

Op/Ed by Chris Devonshire-Ellis

With the US dollar being the defacto global currency, and the global banking system essentially routed via clearing banks in the United States, opposition to this is beginning to mount. Payment systems such as SWIFT may be useful; however, countries are increasingly finding them being used to provide competitive trade analysis or to monitor where a country may be targeted with sanctions should their policies not align with those of the United States. The data mining of SWIFT and similar bank transfer mechanisms for the purposes of US intelligence has become several steps removed from the original purpose of ease of trade facilitation, monitoring money laundering activities, and the funding of terrorists. The United States now uses this data for competitive purposes to benefit the US economy and not those of the transferring partners.

This has lead to an unease of the way in which this is being conducted, with countries such as China, Russia, and others looking to deleverage away from using the US dollar. However, this means creating an entirely new clearing system and one which does not involve the United States. It is a long, expensive process to develop such an alternative structure. However, there are increasing signs that a number of countries, not in constant agreement with US policy, are looking at alternatives.

Both China and Russia have long shown disquiet at the dominance of the US dollar, and both actively support the Euro as an alternative currency. While both the RMB and Ruble have a long way to go in terms of achieving global trade volumes, the Euro is well established.

Indeed, Russian analyst Andrey Perekalsky has stated, “Russia should unite with China and the European Union in creating a payment channel that can’t be controlled by the United States. The alternative to the SWIFT interbank settlement network that could bypass Iranian sanctions could be seen as a first step in that direction.” In fact that has already been happening. The European Union, in a rare moment of solidarity with Moscow, has set up specific financial channels to allow EU companies to trade with Iran despite US sanctions for doing so.

Petr Pushkarev, chief analyst at TeleTrade, says that Russia should diversify not only into Rubles, but also use the Chinese RMB, Vietnamese Dong, Indian Rupee, as well as the Euro. “The Euro shouldn’t be feared by Russia. The US Dollar is pretty much overvalued against the Euro; the IMF forecasts a gradual devaluation of the dollar by 10-15 percent.” Pushkarev says. “American policy is disliked not only in Russia. EU officials have already openly announced that they are starting to create their own system of settlements with Iran, in which transactions will not be transparent to the US authorities and therefore will not be subject to sanctions.”

Moscow has also just stated that it plans to “De-Dollarize its economy by 2024” essentially giving a five year timescale for this to happen.

China also long called for increasing use of the RMB, and has established specific RMB trading centres in key financial hubs such as London, Frankfurt, Seoul, Singapore and Paris. China has also been denominating specific trade partnerships in RMB with many countries, including along the Belt & Road. The signs that this, and other measures China has been taking effect can be seen in the latest statistics by the US controlled SWIFT network. The use of the RMB via the SWIFT payment system has now dropped into seventh place, behind the USD, Euro, Pound Sterling, Japanese Yen, Swiss Franc and Candian Dollar, and is responsible for just 1.63 percent of all SWIFT traded transactions. Yet, the Chinese economy is the world’s second largest. That low figure is not a symptom of the lack of internationalization of the RMB; it is indicative of a decoupling of the RMB from the SWIFT interbank routing.

This trend seems to be accelerating among other nations too. India is considering using the RMB to settle trade debts with China while India and Japan have just signed a US$75 billion currency swap deal. While that is mainly to do with a friendly Japanese government helping Delhi support a very low Indian Rupee, it is also likely to introduce the mechanism as a long running alternative.

Russia has also been dumping US treasurieswhile Russia, China, and India have all been increasing their gold reserves, including in deals for Russian reserves, currently being mined in Siberia.

China has also set up a Silk Road Gold Fund, which was launched in 2015, and trades on the Shanghai Gold Exchange. According to Xinhua, over 60 countries have invested in the US$16 billion fund, which aims to provide financing to extract gold from existing, but underutilized deposits. The main concept is that the fund will invest in extraction equipment and technologies, then split the value of the mined gold with the sovereign nation whose deposits are being exploited; this, both, creates value for the fund and generates much-needed sovereign wealth for the participating nations.

I have previously explored China’s search for gold deposits in Central Asia and South-East Asia along with Africa and South America on this website. These moves – bearing in mind Russia itself has some of the worlds largest gold reserves – are not a call to a return to a gold standard. But they are a financially academic shift away from the US, debt-based system of finance to a system based on real assets. That is significant as Russia possesses more than double the oil and gas reserves of the United States, and has essentially paid down nearly all of its sovereign debt.

Financing the Belt and Road and its associated projects is a network of projects that will take the next five decades to come to complete fruition. However, as that time passes by, more relevant will be the question as to whether it will be financed by the US-based debt finance model, and monitored by US controlled interbank systems, or whether it will be achieved via an asset based system of credit, and operated via non-US interbank routes. With the US even bullying the EU as concerns Iran, it seems that there is the beginning of vested interests right throughout Eurasia to develop a non-US dependent financial routing system. Should the EU begin to work together with the massive Eurasian economies of China, India and Russia to achieve this, both that and new digital payment and economic mechanisms currently being developed will usher in a whole new world of Eurasian commerce. The BRICS, for example, are already discussing a BRICSCointrading mechanism. Should these moves come to pass, the Eurasian region in future will largely exclude the United States from investment or monitoring involvement. To some extent, Chinese and Russian policy on this is already clear. Europe, however, has some hard choices to make.


About Us

Silk Road Briefing is produced by Dezan Shira & Associates. Chris Devonshire-Ellis is the practice Chairman. The firm has 26 years of China operations with offices throughout China, Asia and Europe. Please refer to our Belt & Road desk or visit our website at for further information.


 Related Reading:

Infoforum Shanghai 2018: China and Russia to Collaborate on New Digital Economy Technologies

China, India, Investing Hundreds of Millions in Siberia’s Klyuchevskoye Gold Mines

What Currency Will be Used Along the OBOR?


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