Russia formulates the future of the global financial system

On January 8, 2022, in the RUSSTRAT material entitled "Global trends and challenges for Russia in 2022", it was pointed out that Russia's demands for security guarantees to the United States and NATO are a statement of the breakdown of the old world order. On January 23, 2022 in the article "Russia passes the point of no return" it was concluded that Russia sets new rules for the world game.

This conclusion was confirmed on February 24, 2022 by the beginning of the Special Military Operation in Ukraine. However, a change in the world order cannot occur without a change in the financial system, and the moment has come when Russia is formulating its new contours.

On June 16, Aleksey Miller, Chairman of the Gazprom Management Committee, made a number of significant statements during his speech at the St. Petersburg Economic Forum, which were not accidentally ignored by the Western media, and the domestic ones, in my opinion, did not pay due attention.

"We are witnessing the breakup of two systems, on the one hand – the system of commodity markets, the resource system, and on the other hand - let's call it the nominal system – the system of central banks, the reserve system," Miller said.

Miller went on to explain that the world's central banks regulate the face value of money through interest rates and exchange rates. Through these nominal instruments, they manage and control demand. However, they do not control the supply of commodity markets, the supply of raw materials and the volume of this supply.

"We see that the dominance of the dollar is disappearing, settlements in national currencies appear, and, ultimately, the paradigm is changing. And if we recall the classic ‘money-commodity-money-price' scheme - this is the Bretton Woods paradigm, then now a completely different formula comes out in first place – ‘commodity-money-commodity’: first we sold gas, then we extracted it, our product – our rules. We don't play games that we didn't make up the rules for. Someone says: ‘Law - Atlantic’, and another says: ‘Law - Taiga’,” said Miller.

Here it should be clarified that the world is in a "perfect storm", a crisis is observed not only in the financial sector, in connection with the accelerated inflation of the dollar, there is an energy crisis, a food crisis, a crisis of leadership in the world, as such.

In these circumstances, the Bretton Woods system, which consolidated the role of the dollar as the main reserve currency, and the subsequent Jamaica Conference, which fixed the decoupling of the dollar from gold, lose all adequacy to the current situation.

The real value of money and the dollar, in particular, not backed by physical assets, is being eroded, and the accepted assessment of gold and foreign exchange reserves of states has always been very conditional. How much gold is actually in the American Fort Knox is not known for certain. Since 1971, the value of the dollar has been based on a general consensus, supported by the power of American carrier strike groups.

Explaining the situation, Miller gave another example: "You cannot describe the state of your energy system or economic system without knowing the rules of a particular commodity market or knowing the volume of supply in that market. And in this situation, it turns out that the institutions of the Bretton Woods system, global international institutions, lose their meaning. They don't work, and they die off quietly."

"The Bretton Woods system of nominal value regulation, in contrast to the possible control over the supply of commodities, provides a powerful inflationary impulse" - these words of Miller are now clearly reflected in soaring oil and gas quotes.

According to the head of Gazprom, in such conditions, the demand for raw materials will replace the demand for foreign exchange reserves, which in itself represents a very serious tectonic shift. "The outline of the new type of socio-economic structure will, of course, be determined to a very large extent by the Russian Federation, and there is no doubt about that," Miller concluded.

All these statements of the head of Gazprom could have been ignored, as was done in the West, but the conclusion made by Miller was reflected in his speech the next day by Russian President Vladimir Putin. During his speech, he stressed that truly revolutionary, tectonic changes are taking place in geopolitics, the global economy, in the technological sphere, and in the entire system of international relations.

"However, it seems that the ruling elites of some Western states are just under illusions. They do not want to notice the obvious things, but persistently cling to the shadows of the past. For example, they believe that the dominance of the West in global politics and the economy is an unchangeable, eternal value. Nothing is eternal," Putin said.

Speaking about the huge pace of "money printing" by Western countries and increased inflation, which is devouring gold-foreign exchange reserves, Putin said:

"According to experts, in the coming years (this is an objective analysis), the process of converting global reserves will be launched - they just have nowhere to go with such deficits - from currencies losing their value - into real resources, other countries, of course, will do this - such as food, energy, other raw materials. It is obvious that this process will further spur global dollar inflation."

Everything is exactly as Miller summed up – the demand for raw materials will replace the demand for foreign exchange reserves, and the Bretton Woods system, in contrast to the possible control over the supply of raw materials, gives a powerful inflationary impulse. Accordingly, this logic of development of the process is shared by the country's top political leadership. Many people may say that words are one thing, but real actions are another. However, this means that they do not notice what is already happening.

The government has made a decision, and Gazprom is selling gas for rubles right now. Yes, this is largely a consequence of the West's erroneous "green agenda" and its ill-conceived sanctions policy. Yes, all transactions take place in Russian jurisdiction, but the very fact that the ruble is already formally backed by Russian gas takes it out of the Bretton Woods paradigm.

In the face of sharp dollar inflation, many countries will wonder what their currency is backed by, and how it can withstand the threat of hyperinflation.

Thus, Russia has already challenged the entire Bretton Woods financial system, and the "gas for rubles" scheme has made it possible to maintain the value of the domestic currency and even increase it against the dollar, although a significant role in this issue was played by a drop in imports to our country.

However, if to step back and return to the old paradigm, the Russian economy will be broken. Perhaps not immediately, but the "gentlemen who write the rules", sooner or later, will definitely make changes in their favour and the 200 rubles per dollar declared by Joe Biden may become a reality.

Let's hope that those who want to return to the old ones have heard the president's words: "And it is a mistake to believe that the time of rapid changes can, as is said, sit it out, wait it out, that, supposedly, everything will return to normal, everything will be as before. It won't happen."

It is difficult to overestimate the importance of all these statements, because Russia is the first to formulate the concept of the future of the global financial system, where the role of all familiar financial institutions will be flattened to the level of only a transfer link.

We do not yet know what the new financial system will look like in reality, what place swaps, barter and regional currencies will occupy there. The Russian president has already announced that the issue of creating an international reserve currency based on a basket of currencies of the BRICS countries (Brazil, Russia, India, China, South Africa) is being worked out and suggested that other BRICS countries connect to the Financial Message Transmission System of the Central Bank of Russia, as an alternative to SWIFT.

Thus, Russia does not apply for a change in the global financial system alone, but "interested parties" in the form of BRICS and other countries that are not burdened with a huge debt burden can also contribute to the process.

Naturally, the collapse of the world's reserve currency will not happen overnight, because too many assets are denominated in dollars and no one wants to lose their value dramatically. However, due to the prospect of the collapse of world trade, due to sanctions and elements of protectionism, the issue of regional currencies will become more acute.

The fact that Russia is already raising all these issues gives us confidence that our country will really define the contours of the new world order.