Executive Intelligence Review


‘De-Dollarization’ Plans Won’t Work

Nov. 12, 2018 (EIRNS)—The Wall Street Journal reports that “Moscow is expected to publish its de-dollarization plan by the end of the year.” This is the “Kostin plan” (Andrey Kostin is president and chairman of VTB Bank), “including tax credits and other incentives for using the ruble.” Various reports have claimed its backing by Putin, and that it is intended to involve the Eurasian Economic Union (EAEU) countries as well.

The Journal quotes some people at the Eurasia Group consultancy saying that this plan may be largely intended as a public way of attacking sanctions, and that businesses will be reluctant, because using the ruble will cost more than using the dollar in most trading.

This is true, and is one reason why such plans are not a substitute for, nor a step towards, a new Bretton Woods system which tamps down currency speculation with stable exchange rates among currencies.

With the dollar the informal but effective international reserve currency, plans like the “Kostin Plan” to trade in other national currencies, require that those trading, invest in foreign exchange futures—derivatives. These derivatives—like the interest-rate swaps which cost so many cities and states so much suffering in “protecting” their bonds’ rates in the 1990s and 2000s—are aimed to keep the national currencies stable to the dollar and to each other. They cost the trading parties money, effectively giving a fluctuating “haircut” to the national currencies they are trading in.

Such derivatives were used in introducing the euro’s value against European national currencies in the late 1990s. Ironically, a key consultant in that process was the famous and “supersmart” Long Term Capital Management hedge fund, later infamous for nearly crashing the banking system in 1998.