Tuesday, March 1, 2022

Pakistani-American Banker Heads SWIFT, The World's Biggest InterBank Payments System

Pakistani-American banker Yawar Shah is the Chairman of the SWIFT Board of Directors. SWIFT stands for The Society For Inter-Bank Financial Telecommunications. SWIFT has been in the news recently for cutting off Russian banks to punish Russia's invasion of Ukraine. Russia is now disconnected from the global financial system used to settle the vast majority of payments in international trade.  

Yawar Shah. Source: SWIFT

In addition to his role as the Chairman of the SWIFT Board of Directors, Yawar is also a Managing Director in the Institutional Clients Group at Citigroup. Before joining Citigroup, Yawar was at JPMorgan for over 20 years. Positions there have included Global Operations Executive for Worldwide Securities Services, Retail Service and Operations Executive, Chief Operating Officer of the Global Private Bank, and General Manager of the Treasury Management Services business. He received his BA from Harvard College and his MBA from Harvard Business School.

Another Pakistani-American, a woman named Saira Malik, has recently been appointed the chief investment officer (CIO) of a $1.3 trillion Nuveen fund.  Saira held a variety of positions since joining Nuveen in 2003. Prior to being named CIO, she was head of global equities portfolio management, and before that, head of global equities research. Previously, Saira was with JP Morgan Asset Management, where her roles included vice president/small cap growth portfolio manager and equity research analyst.

The Society for Worldwide Interbank Financial Telecommunication (SWIFT) was founded in 1973 to replace the telex system. It is now used by over 11,000 financial institutions to send secure messages and payment orders. Disconnecting an entire country from SWIFT is considered the nuclear option of economic sanctions, according to South China Morning Post (SCMP). But even limited action can have a big impact. Any bank disconnected from SWIFT will have a very difficult time sending money to other financial institutions, and its customers will struggle to conduct their business. 

US$ Share of SWIFT Payments. Source: Atlantic Council

The only alternative to SWIFT is China's CIPS, the Cross-border Interbank Payment System. CIPS was launched in October 2015 to boost international use of China’s currency in global trade settlements.  The use of the yuan has increased since its inclusion in the International Monetary Fund’s Special Drawing Rights basket in 2015. In January this year, CIPS had 1,280 users across 103 countries, including 75 directly participating banks and 1,205 indirect participants. The operator said last year overseas indirect participants account for 54.5 per cent of the total. 

Russian Foreign Currency Reserves. Source: Statista

The central banks in western nations and Japan hold the bulk of the Russian foreign currency reserves of about US$630 billion which they have now frozen. But China is the single-biggest foreign holder of Russian central bank reserves as of June 30, 2021. 13.8% of the total of Russia’s reserves, held in gold and foreign currency, are located in China, roughly the same share of assets held in Chinese currency Yuan Renminbi.

Russia's Attempt to Sanction-Proof Economy. Source: Wall Street Journal

Latest round of western sanctions on Russia reinforce a growing perception that the United State is abusing its extraordinary financial power to arbitrarily punish different countries through its unilateral financial sanctions. This power stems mainly from the fact that the US dollar is the main international reserve and trade currency. It allows US to control multi-lateral financial institutions like SWIFT, World Bank, IMF and FATF. Many countries, including major US allies in Europe, are now looking to find alternatives to SWIFT. This has been specially true since former US President Donald Trump existed the JCPOA (Joint Comprehensive Plan of Action) agreed among the 5 permanent members of the UN Security Council (P5) plus Germany. Here's an excerpt of a recent New York op ed by Peter Beinart: 

"By deluding themselves about the extent of America’s might, they are depleting it. A key source of America’s power is the dollar, which serves as the reserve currency for much of the globe. It’s because so many foreign banks and businesses conduct their international transactions in dollars that America’s secondary sanctions scare them so much. But the more Washington wields the dollar to bully non-Americans into participating in our sieges, the greater their incentive to find an alternative to the dollar. The search for a substitute is already accelerating. And the fewer dollars non-Americans want, the harder Americans will find it to keep living beyond their means."

Share of Export Invoicing in US$. Source: Atlantic Council

Chinese analysts see the SWIFT sanctions on Russian banks as a wake-up call for Beijing. “As seen from Russia’s Swift exclusion and the China-US trade friction in recent years, it is necessary to reduce reliance on Swift to ensure financial security,” Dongguan Securities analysts Chen Weiguang, Luo Weibin and Liu Menglin wrote on Monday, according to SCMP.  The move to ban certain Russian banks from Swift is likely to accelerate expansion of CIPS, Beijing’s cross-border payment and settlement system, analysts say. 

Pakistan's State Bank and National Bank are members of both SWIFT and CIPS. CIPS has been used by Chinese and Pakistani banks for trade settlements in Chinese Yuan. In 2018, the China-Pakistan currency swap agreement was extended for three years, and the size was doubled to 20 billion yuan or 351 billion Pakistani rupees, as China became the largest trading partner, and the bilateral trade increased on yearly basis, according to China Economic Net

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Riaz Haq said...

The United States is open to imposing sanctions on Russia's oil and gas flows but going after its exports now could help Moscow, the White House said on Wednesday as oil prices surged to an 11-year high and supply disruptions mounted.


After Russia's invasion of Ukraine, the White House slapped sanctions on exports of technologies to Russia's refineries and the Nord Stream 2 gas pipeline, which has never launched. So far, it has stopped short of targeting Russia's oil and gas exports as the Biden administration weighs the impacts on global oil markets and U.S. energy prices.

"We don't have a strategic interest in reducing global supply of energy ... that would raise prices at the gas pump for Americans," spokesperson Karine Jean-Pierre said at a White House news briefing.

The administration warned it could block Russian oil if Moscow heightens aggression against Ukraine. "It’s very much on the table, but we need to weigh what all of the impacts will be," White House spokeswoman Jen Psaki told MSNBC earlier on Wednesday.

The National Economic Council's deputy director, Bharat Ramamurti, told MSNBC that the White House does not want to make a move just yet.

"Going after Russian oil and gas at this point would have an effect on U.S. consumers and actually could be counterproductive in terms of raising the price of oil and gas internationally, which could mean more profits for the Russian oil industry," he said.

"So we don't want to go there right now."

The White House deputy national security adviser, Daleep Singh, told CNN the Biden administration was looking at cutting U.S. consumption of Russian oil while maintaining the global supply of energy.

"There are other producers in the world that could backfill for any Russian oil we don't import," Singh said.

The Biden administration has taken pains to say it has not yet targeted Russian oil sales as part of sweeping economic sanctions it has slapped on Moscow since last week. read more

Even so, traders and banks have shied away from Russian oil shipments via pipeline and tankers, so as not to be seen as funding the invasion, sending energy markets into disarray. read more

And some U.S. lawmakers have pushed legislation that analysts said could lead to higher gasoline prices.

The top Democrat and a Republican on the Senate energy committee floated a bill that would prohibit the import of Russian crude, liquid fuels and liquefied natural gas. The United States imported an average of more than 20.4 million barrels of crude and refined products a month in 2021 from Russia, about 8% of U.S. liquid fuel imports, according to the Energy Information Administration.

Democratic Senator Joe Manchin and Republican Senator Lisa Murkowski are working on getting support for their bill, a Manchin spokesperson said.

The United States did slap sanctions on Russia's oil refineries, banning the export of specific technologies, a move that could make it harder for Russia to modernize those plants. read more

Nearly one week after Moscow invaded Ukraine, U.S. crude oil ended Wednesday at $110.60 per barrel, the highest close since May 2011, while global benchmark Brent settled at its highest since June 2014, at $112.93. read more

Meanwhile, OPEC+ oil producers meeting on Wednesday agreed to stick to their modest output rises, offering little relief to the market or consumers. read more

On Tuesday, the United States and its allies agreed to release 60 million barrels of oil reserves to help offset supply disruptions.

"We want to minimize the impact on the global market place ... and the impact of energy prices for the American people," Psaki said. "We’re not trying to hurt ourselves, we’re trying to hurt President Putin and the Russian economy."

Shams N. said...

China owns more than 1 trillion $ of US govt debt. So does Japan. The US govt debt is greater than the GDP of China, EU, and of the US itself. How much is it? US$ 29 Trillion against its GDP of $21 trillion.

It is greater than the rest of the world’s GDPs combined.

The only way to get out of this debt is a major world war.

Unfortunately, many countries are now militarily as powerful as the US and they are not paying $2.3 b for each F35.

So, for the US a new world war is the only option. The Ukraine war is a Troy horse.

Riaz Haq said...

Shams: "China owns more than 1 trillion $ of US govt debt. So does Japan. The US govt debt is greater than the GDP of China, EU, and of the US itself. How much is it? US$ 29 Trillion against its GDP of $21 trillion"

Almost all major nations with large currency reserves keep them in US$ debt. They all view US treasuries as the safest option. This hasn't changed in spite of US behavior in seizing forex reserves of several countries over the years. Will it change now? Only time will tell. https://www.riazhaq.com/2021/03/can-digital-yuan-challenge-us-dollars.html

Suhail H. said...

Interesting “The Telegraph” article:

Greater Russia is now a full-spectrum commodity superpower, less vulnerable to sanctions than Europe itself
The West’s pain threshold is about to be tested – Fortress Russia will endure this contest of self-reliance more stoically than Europe


24 February 2022

In a matter of hours, the world order has turned drastically less favourable for the western democracies

Vladimir Putin’s seizure of Ukraine elevates Russia into a full-spectrum commodity superpower, adding critical market leverage over global grain supply to existing strategic depth in energy and metals.

We wake up to the sobering reality that Russia is too pivotal for the international trading system to punish in any meaningful way. It influences or determines everything from bread in the shops, to gas for Europe’s homes and power plants, to supply chains for aerospace and car plants, or soon will do if Kyiv falls.

Who knew that almost 90% of Europe’s imports of rapeseed oil comes from Ukraine, or Spain's jamon iberica depends on grain feed from the black earth belt of the Ukrainian steppe?

Ukraine turns Putin’s neo-Tsarist empire into the Saudi Arabia of food, controlling 30% of global wheat exports and 20% of corn exports.

It is not just Brent crude oil that has spiked violently, hitting an eight-year high of $102. Aluminium smashed all records on Thursday. Chicago wheat futures have hit $9.32 a bushel, the highest since the hunger riots before the Arab Spring.

Do not confuse this with inflation. Rocketing commodity prices are a transfer of wealth to exporters of raw materials. For Europeans at the sharp end, it acts like a tax, leaving less to spend elsewhere. It is deflationary for most of the economy. If it continues for long, we will slide into recession.

So while there is brave and condign talk of crippling sanctions against Russia, it is the West’s pain threshold that is about to be tested. My presumption is that Fortress Russia will endure this contest of self-reliance more stoically than Europe’s skittish elites.

Sanctions are of course imperative as a political statement. The West would be complicit if it did nothing. But the measures on the table do not change the equation.

The debate in Parliament over whether to hit a few more oligarchs or restrict City access for more Russian banks has bordered on parody: Brits talking to Brits in a surreal misunderstanding of raw geopolitics, as if Putin was going to give up his unrepeatable chance to snatch back Kyivan Rus and shatter the post-Cold War dispensation of Europe because David Lamy is vexed by golden visas.

Nor does the temporary German suspension of Nord Stream 2 change anything. The pipeline was never going to supply extra gas this decade. The Kremlin’s purpose was to reroute the same Siberian gas, switching it from the Ukrainian corridor to the Baltic, depriving Kyiv of self-defence leverage.

Once Putin controls Ukraine, Nord Stream 2 instantly becomes irrelevant.

The cardinal error was made in June 2015 when Germany went ahead with the bilateral pipeline just a year after the annexation of Crimea, signalling that the first Anschluss of 21st Century Europe would go unpunished, or worse, that it would be rewarded with a strategic prize.

If you want to date the death of a sovereign democratic Ukraine, it was that Merkantilist decision. Royal Dutch Shell was an abettor. Putin got our measure.

The 36% fall in the MOEX index in Moscow on Thursday morning means that western investors with a Russian portfolio through pension funds or ETFs have lost money. It does not mean that Russian is being forced to its knees, as some would have it.

Nor does the modest decline in the rouble imply unmanageable economic stress. Russia’s exchange rate mechanism is designed to let …

Riaz Haq said...

Russia #finance & #trade unplugged! In just one week, #Western #financial firms severed ties with #Russia, in some cases going beyond #US #EU #sanctions. It’s opened a new chapter in the history of #economic conflict. #Ukraine #NATO https://www.wsj.com/articles/russia-ukraine-sanctions-banks-finance-11646428069?st=7ld0j519spkl9vq&reflink=desktopwebshare_twitter via @WSJ

Two weeks ago, Russia’s companies could sell their goods around the globe and take in investments from overseas stock-index funds. Its citizens could buy MacBooks and Toyotas at home, and freely spend their rubles abroad.

Now they are in a financial bind. Soon after Russia invaded Ukraine, another war began to isolate its economy and pressure President Vladimir Putin. The first move was made by Western governments to sanction the country’s banking system. But over the course of the past week, the financial system took over and severed practically every artery of money between Russia and the rest of the world, in some cases going further than what was required by the sanctions.

Visa Inc. V -3.35% and Mastercard Inc. stopped processing foreign purchases for millions of Russian citizens. Apple Inc. and Google shut off their smartphone-enabled payments, stranding cashless travelers at Moscow metro stations. International firms stepped back from providing the credit and insurance that underpin trade shipments.

This unplugging of the world’s 11th-largest economy opens a new chapter in the history of economic conflict. In a world that relies on the financial system’s plumbing—clearing banks, settlement systems, messaging protocols and cross-border letters of credit—a few concerted moves can flatten a major economy.

Russia now faces a repeat of one of the most painful episodes in its post-Soviet history—the financial crisis of 1998, when its economy collapsed overnight. In the decades that followed, Russia earned its way back into the good graces of financiers in New York, London and Tokyo. It is all being undone at warp speed and will not be easily put back together.

The ruble has lost more than one-quarter of its value and is now virtually useless outside of Russia, with Western firms refusing to exchange it or process overseas transactions. Moscow’s stock exchange was closed for a fifth straight day on Friday. The Russian Central Bank more than doubled interest rates to attract foreign investment and halt the ruble’s free fall. Two firms that are crucial to clearing securities trades, Euroclear and DTCC, said they would stop processing certain Russian transactions.

With their interest payments stuck inside the country—following the sanctions, Mr. Putin also ordered intermediaries in Russia not to pay—some Russian companies and government entities could default on their bond payments to international creditors. That could make the country toxic for investing for years. Shares of Russian companies, even those without obvious ties to the Kremlin, were booted from stock-index funds, which will further isolate them from pools of Western capital.

Analysts expect Russia’s economy to contract as much as 20% this quarter, roughly the same hit the British economy took in the spring of 2020 during the pandemic lockdowns.


Russia began trying to sanction-proof its economy. It built its own domestic payments network—called Mir, Russian for “peace”—to function alongside and, if needed, replace those run by Western firms. It shifted its overseas holdings away from the U.S. and its European allies and toward China, which has been relatively more accommodating of Mr. Putin’s efforts to expand his influence and territory. It doubled its gold reserves.

Those efforts to wall itself off may prove insufficient. At least 40% of Russia’s $630 billion in foreign reserves are in countries that have joined in the latest sanctions. The rest, mostly in China, it is free to spend—but only in China. Moving those reserves out of the country would require first converting them into a Western currency like dollars or euros, which no global bank will do.

Riaz Haq said...

#Russian #metals giant Norilsk Nickel, a key supplier of #nickel and #palladium, might be too big to sanction. Norilsk Nickel is a key supplier of nickel and palladium, two metals that are key for #ElectricVehicle batteries and #semiconductors https://www.wsj.com/articles/this-russian-metals-giant-might-be-too-big-to-sanction-11646559751?st=rzatpimfb2jwyeh&reflink=desktopwebshare_twitter via @WSJ

From its base at a former Arctic gulag, Russia’s MMC Norilsk Nickel PJSC digs up a large portion of two metals that are essential to greener transport and computer chips.

So far the U.S. and its allies haven’t sanctioned the company, or its oligarch chief executive, underscoring the dilemma some analysts say governments face in seeking to punish Russia without hurting their own access to key commodities.

The mining company is responsible for about 5% of the world’s annual production of nickel, a key component of electric-vehicle batteries, and some 40% of its palladium, which goes into catalytic converters and semiconductors. Nornickel, as the company is known, also supplies energy transition metals such as cobalt and copper.

The price of those metals has jumped since Russia invaded Ukraine amid concerns that Western sanctions or logistical difficulties stemming from the conflict could choke supplies. On Friday, nickel traded at its highest level for a decade, and is up 37% so far this year. Palladium is up around 57% year to date.

Despite the rally in metals prices, Nornickel’s share price—like that of other Russian commodity companies—has dropped, and is down 17% so far this year. The fall is likely to be more severe, given trading in Moscow listed stocks was suspended several days ago as they began to plummet. On Saturday, Fitch Ratings downgraded Nornickel’s debt to junk, reflecting the tougher environment in Russia and weakened financial flexibility of its commodity companies.

Several Western companies say they are looking to diversify their supply away from Nornickel. That mirrors a trend across several commodities, including oil and steel, as Western buyers steer clear of Russian suppliers amid concerns they could be hit by sanctions or simply have problems getting products out of the country.

A spokesman for Nornickel said the miner is committed to fulfilling its obligations to customers, partners and employees. Chie Executive Vladimir Potanin, who also holds a 31% stake in the company, declined to be interviewed.

Western sanctions in response to the current conflict have so far largely avoided companies that provide the West with oil, gas and other key commodities.

Few companies are as pivotal in large commodity markets as Nornickel, particularly for palladium.

“If we have sanctions and we can’t access that palladium, you have to expect disruption globally,” said Gabriele Randlshofer, managing director of the International Platinum Group Metals Association, a trade group whose members include buyers and suppliers of palladium.

“At the moment all companies are looking at [who supplies them], they have to,” she said.

Among the companies looking for alternative supplies of nickel is Outokumpu Oyj, one of the world’s largest stainless steel manufacturers. The Finnish company said around 6% to 7% of its nickel comes from Nornickel, with the rest coming from recycled steel. “Given the situation in Ukraine, we are looking for alternatives for Russian supply for nickel,” a spokeswoman said.

Germany’s BASF SE, meanwhile, said it would fulfill existing contracts with Nornickel but not pursue any new business with the Russian company. The chemicals giant described Nornickel as an important supplier of nickel and cobalt for its production of cathode materials as well as a source of palladium and platinum.

Riaz Haq said...

Russia Sanctions Could Help Undermine Dollar’s Global Status

By George Pearkes of Atlantic Council


Aggressive use of dollar weaponization has been signaled repeatedly by US policymakers to meet US goals in the current dispute over Ukraine. Though this would severely impact Russia today, negative feedback to dollar sovereignty will be measured in decades rather than years — and will inevitably arrive.

Given the power of dollar sovereignty, it feels inevitable that it would be turned into a weapon in a world that is deeply financialized. Global debt – or, equally accurate, global interest bearing assets – topped $300 trillion in 2021 according to the Institute for International Finance. In that context, the ability to restrict access to financial markets is vastly more powerful than it has been historically.There are restraints on the use of weaponized dollar sovereignty against Russia. A maximalist weaponization of the dollar would have a large enough impact on the Russian or other adversary’s economy that standards of living would plummet. While not as overt as a bombing campaign, the effects of a fully weaponized dollar would be severe enough that a bombing campaign would be an apt comparison for the impact on the civilian population. It’s not clear to what degree American policymakers are willing to impose pain on Russia’s civilian population, but it seems unlikely the most aggressive possible use of dollar weaponization and the cost to ordinary Russians it would impose would not create negative feedbacks to the United States.Another obvious restraint is domestic American interest groups. US companies may be users of Russian natural gas, aluminum, or other exports either in the United States or at overseas production facilities. These interests could dissuade US policymakers from using the dollar as a weapon.The weaponized dollar is already a fact of life in global affairs. The governments of Cuba, Iran, North Korea, and Venezuela can all attest to that fact, as can their civilian populations. In all four countries, dollar sovereignty has been weaponized in a contemporary context. Deeper historical examples abound in Latin America and other parts of the world. At a smaller scale, the wide range of sanctions activity tracked by the Atlantic Council’s Sanctions Dashboard are forms of dollar weaponization as well.It’s only a matter of time before the United States attempts a more aggressive and maximalist use of financial warfare. Whether Russia will be the target after an invasion of Ukraine remains to be seen. However, at least 40 Senators have signaled they favor that course, and the precedent for similar actions from the United States is well established. On January 19th, President Biden said “If they invade, they’re going to pay. Their banks will not be able to deal in dollars”, a reference either to just one of the wide range of dollar weaponization strategies that exist under current law and are being discussed in Congress.      While there is no current contender to replace the dollar as the dominant currency in global trade and finance, the weaponization of dollar sovereignty could catalyze a push for a new currency hegemony, or perhaps even a multi-currency global reserve system. Game theorists would call aggressive dollar weaponization for narrow national objectives a “non-credible” threat: a threat to do something a rational actor wouldn’t do, because ultimately it hurts the actor. By using the power of dollar sovereignty, dollar sovereignty risks endangering the reserve status which allows it to be weaponized.Over the foreseeable future of the next decade or so, dollar weaponization will not endanger the US dollar’s unique position as the global reserve currency. The various network effects outlined previously make a near-term shift away from the dollar extraordinarily unlikely. Unfortunately for US policymakers, the long-term is less certain.

Riaz Haq said...

China Considers Buying Stakes in Russian Energy, Commodity Firms


China Considers Buying Stakes in Russian Energy, Commodity Firms
Beijing’s talking with state-owned firms on opportunities
Any deal is to bolster energy, commodity imports: sources
Bloomberg News
March 8, 2022, 3:31 AM PST
China is considering buying or increasing stakes in Russian energy and commodities companies, such as gas giant Gazprom PJSC and aluminum producer United Co. Rusal International PJSC, according to people familiar with the matter.

Beijing is in talks with its state-owned firms, including China National Petroleum Corp., China Petrochemical Corp., Aluminum Corp. of China and China Minmetals Corp., on any opportunities for potential investments in Russian companies or assets, the people said. Any deal would be to bolster China’s imports as it intensifies its focus on energy and food security -- not as a show of support for Russia’s invasion in Ukraine -- the people said.

The discussions are at an early stage and won’t necessarily lead to a deal, the people said, requesting anonymity as the discussions aren’t public. Some talks between Chinese and Russian energy companies have started to take place, according to separate sources.

CNPC and China Petrochemical -- known as Sinopec Group -- declined to comment, according to the companies’ media officials. Chinese state-asset regulator Sasac, Aluminum Corp. of China and Minmetals didn’t immediately respond to requests for a comment. Representatives for Gazprom and Rusal didn’t immediately comment during a national holiday in Russia.

Russia’s war in Ukraine has increased the pressure on Beijing to secure imports as the cost of energy, metals and food skyrocket to unprecedented levels. Worried about the impact surging prices will have on the economy, China’s top government officials issued orders to prioritize commodities supply security, Bloomberg reported last week.

China has vowed to continue normal trade relations with Russia despite a massive corporate exodus from European and American firms. BP Plc, Shell Plc and Exxon Mobil Corp. took the energy industry by surprise by walking away from Russian assets worth billions of dollars.

Meanwhile, China Foreign Minister Wang Yi said earlier this week that China-Russia ties remain “rock solid,” even as Beijing expressed concern about civilian casualties and called for peace talks to end the war. Among China’s current energy investments in Russia, CNPC has a 20% stake in the Yamal LNG project and a 10% state in Arctic LNG 2, while Cnooc Ltd. also owns 10% of Arctic.

The two countries had already been strengthening ties, with Presidents Xi Jinping and Vladimir Putin last month signing a series of deals to boost Russian supply of gas and oil, as well as wheat. Gazprom and Rosneft PJSC were among Russian energy giants sealing agreements as the two leaders met in Beijing ahead of the Winter Olympics.

Still, any investment in Russia is fraught with risks that go beyond the geopolitical balancing act that Beijing faces. Russia has become a nearly un-investable market for global firms as the nation’s economy rapidly deteriorates. Sanctions have wiped billions of dollars from Russian assets and bonds have plummeted as default risks intensify. The yuan has surged against the ruble, raising questions over the strategic relationship of both countries.

An investment by China could help solidify Moscow’s effort to accelerate a so-called “Pivot to Asia” with oil and gas supply deals. China has doubled purchases of Russian energy products to nearly $60 billion over the last five years.

The Power of Siberia pipeline began sending gas to China in 2019, and Gazprom is already in talks with China over another route that could be signed this year, eventually allowing it to ship fuel from gasfields that supply Europe.

Riaz Haq said...

#US #inflation reached a four-decade high of 7.9% in February 2022, with the war in #Ukraine continuing to apply upward pressure on prices


A relentless surge in U.S. inflation reached another four-decade high last month, accelerating to a 7.5% annual rate as strong consumer demand collided with pandemic-related supply disruptions.

The Labor Department on Thursday said the consumer-price index—which measures what consumers pay for goods and services—in January reached its highest level since February 1982, when compared with the same month a year ago. That put inflation above December’s 7% annual rate and well above the 1.8% annual rate for inflation in 2019 ahead of the pandemic.

The so-called core price index, which excludes the often volatile categories of food and energy, climbed 6% in January from a year earlier. That was a sharper rise than December’s 5.5% increase and the highest rate in nearly 40 years.

Prices were up sharply in January for a number of everyday household items, including food, vehicles, shelter and electricity. A sharp uptick in housing rental prices—one of the biggest monthly costs for households—contributed to last month’s increase.

High inflation is the dark side of the unusually strong economy that has been powered in part by government stimulus to counter the pandemic’s impact. January’s continued acceleration increased the likelihood that Federal Reserve officials could speed up a series of interest-rate increases this spring to ease surging prices and cool the economy.

The yield on the 10-year Treasury note hit 2% for the first time since mid-2019 on the prospect of tighter monetary policy, while stocks slipped.

Kathy Bostjancic, chief U.S. financial economist at Oxford Economics, said what started as pandemic-specific inflation has now “broadened out across many, many categories both on the goods side of the economy and on the services side.”

“It reflects supply constraints both in the goods market and the labor market but it also is a function of still strong demand, particularly from U.S. consumers,” she added.

On a monthly basis, the CPI increased a seasonally adjusted 0.6% last month, holding steady at the same pace as in December.

Used-car prices continued to drive overall inflation, rising 40.5% in January from a year ago. However, prices for used cars moderated on a month-to-month basis, a possible sign that a major source of inflationary pressure over the past year could be easing.

Food prices surged 7%, the sharpest rise since 1981. Restaurant prices rose by the most since the early 1980s, pushed up by an 8% jump in fast-food prices from a year earlier. Grocery prices increased 7.4%, as meat and egg prices continued to climb at double-digit rates.

Energy prices rose 27%, easing from November’s peak of 33.3%, but a jump in electricity costs was particularly sharp when compared with historical trends.

Higher prices are putting pressure on consumers, with inflation adding as much as $250 a month to living expenses, and businesses, which are scrambling to keep up with rising materials and labor costs.

Alex Mishkit launched her salon, Alex Cher Beauty, a year ago. Since then, she has increased prices to keep up with the rising costs of key supplies. First it was the nitrile gloves, which leapt as much as 30%. Then the price of waxing sticks shot up, followed by the price of wax itself, which rose around 15%.

“To a small-business owner going on her second year, it adds up. So I’m hyper-aware of the slightest increase because every dollar counts,” she said. With overall supply costs running between 10% and 15% more than they were when she opened her doors, Ms. Mishkit in December nervously announced a price increase of around 10%. To her surprise, she said, customers were supportive.

Riaz Haq said...

‘After This War Is Over, Money Will Never Be The Same’: What Credit Suisse’s Shocking Prediction Means For The Bitcoin Price And Crypto


Zoltan Pozsar argues Bretton Woods II crumbled when the G7 countries seized Russia’s foreign exchange reserves. Keeping money inside financial institutions like the IMF was considered risk free. That is clearly no longer the case.


Credit Suisse: Ensuing New Financial Order Will Benefit Bitcoin


The foundations of Bretton Woods II crumbled last week when the G7 seized Russia’s foreign exchange reserves, the investment bank said.

The Russian-Ukrainian war will create a new world financial order from which Bitcoin is set to benefit, according to Credit Suisse.

Zoltan Pozsar, global head of short-term interest rate strategy at the giant investment bank, wrote in a Monday report that Western sanctions on Russia are likely to cause a paradigm shift in the way the world organizes money and reserves, a “Bretton Woods III” kind of scenario.

“From the Bretton Woods era backed by gold bullion, to Bretton Woods II backed by inside money, to Bretton Woods III backed by outside money,” the strategist wrote.

Pozsar argues that the fall of Bretton Woods II ensued last week as G7 countries decided to seize Russia’s foreign exchange (FX) reserves, leading to a rise of outside money – reserves kept as commodities – over inside money – reserves kept as liabilities of global financial institutions.

“We are witnessing the birth of Bretton Woods III – a new world (monetary) order centered around commodity-based currencies in the East that will likely weaken the Eurodollar system and also contribute to inflationary forces in the West,” the report states.

Russia, a surplus agent in the financial system, can now no longer make use of the hefty FX reserves it accumulated through its commodity exports over the decades to defend its falling ruble or aid its local economy. Moreover, Russia’s ability to export its commodities has been severely hurt due to the “buyer’s strike” in the West.

“What we are seeing at the 50-year anniversary of the 1973 OPEC supply shock is something similar but substantially worse – the 2022 Russia supply shock, which isn’t driven by the supplier but the consumer,” the strategist wrote. “The aggressor in the geopolitical arena is being punished by sanctions, and sanctions-driven commodity price moves threaten financial stability in the West.”

Pozsar argues that while Western central banks cannot close spreads between Russian and non-Russian commodity prices as sanctions lead them in opposite directions, the People’s Bank of China can “as it banks for a sovereign who can dance to its own tune.”

“If you believe that the West can craft sanctions that maximize pain for Russia while minimizing financial stability risks and price stability risks in the West, you could also believe in unicorns,” Pozsar wrote.

As outside money keeps trumping inside money, this crisis will likely emerge and end differently than all others ever since Nixon broke off the gold standard in 1971 – which marked the end of the era of commodity-based money.

Riaz Haq said...

See new Tweets
Zoltan Pozsar head of short-term strategy at Credit Suisse shocked #WallStreet by his report titled Brent Wood III.
After this Crisis, the US #Dollar should be much weaker and, on the flipside, the #renminbi much stronger, backed by #commodities.


Riaz Haq said...

#India's #payment giant #NPCI has #SWIFT alternative for 32 million #NRIs. UPI (Unified Payment Infrastructure) linkage with other nations will anchor #trade, #travel, #remittance flows between countries & lower the cost of cross-border transactions https://www.livemint.com/news/india/payment-giant-npci-has-swift-alternative-for-32-million-indian-expats-11657074479843.html?utm_source=share&utm_medium=social&utm_campaign=share_via_web

The company that built India’s digital payments backbone plans to make it cheaper and easier for the nation’s 32 million expatriates to bring their money home.

Indians overseas remitted $87 billion last year, the biggest inflow for any country tracked by the World Bank. The remittances market, where it costs $13 on average to send $200 across borders, is ripe for disruption, according to Ritesh Shukla, chief executive officer of NPCI International Payments Ltd.

“We have displaced cash in India to a large extent and are now looking to repeat the success in cross-border corridors," said Shukla. “Overseas Indians can use our rails to remit money inwards straightway into their bank accounts, and for the markets where Indians travel frequently, we will build acceptance for our instruments."

Successful overseas forays by NCPI would give India a home-grown alternative to SWIFT, the Belgium-based cross-border payment system operator, though Shukla stressed that the objective was not to displace existing platforms. About 330 banks and 25 apps -- including Alphabet Inc.’s Google Pay and Meta Platform Inc.’s WhatsApp -- share NCPI’s unified payment interface, which has helped make instantaneous digital transactions a $3 trillion market in India.

NPCI is in the process of connecting the UPI platform to systems in other countries to replicate its domestic success. It is negotiating collaborations with governments, fintech companies and service providers around the world, aiming to reduce transaction costs and enable more small-ticket transactions, Shukla said.

Cutting Costs

“This is going to take the payments world by storm," said Mayank Goyal, CEO of moneyHop, a cross-border banking app that lets users make international remittances through the SWIFT network. The company will seek to integrate UPI rails into the app as it makes cross-border payments easier, Goyal said.

UPI’s linkage with overseas nations will further anchor trade, travel and remittance flows between the countries and lower the cost of cross-border remittances, the Reserve Bank of India said in a report.

Riaz Haq said...

#Russia seeking #oil payments from #India in #UAE dirhams as #Moscow moves away from the #US #dollar to insulate itself from the effects of Western #sanctions. #Ukraine #energy #EU

Russia is seeking payment in United Arab Emirates dirhams for oil exports to some Indian customers, three sources said and a document showed, as Moscow moves away from the U.S. dollar to insulate itself from the effects of Western sanctions.

Russia has been hit by a slew of sanctions from the United States and its allies over its invasion of Ukraine in late February, which it terms a "special military operation".

An invoice seen by Reuters shows the bill for supplying oil to one refiner is calculated in dollars while payment is requested in dirhams.

Russian oil major Rosneft is pushing crude through trading firms including Everest Energy and Coral Energy into India, now its second biggest oil buyer after China.

Western sanctions have prompted many oil importers to shun Moscow, pushing spot prices for Russian crude to record discounts against other grades.

That provided Indian refiners, which rarely bought Russian oil due to high freight costs, an opportunity to snap up exports at hefty discounts to Brent and Middle East staples.

Moscow replaced Saudi Arabia as the second biggest oil supplier to India after Iraq for the second month in a row in June.

At least two Indian refiners have already settled some payments in dirhams, the sources said, adding more would make such payments in coming days.

The invoice showed payments to be made to Gazprombank via Mashreq Bank, its correspondent bank in Dubai.

The United Arab Emirates, seeking to maintain what it says is a neutral position, has not imposed sanctions on Moscow, and the payments could add to the frustration of some in the West, who privately say the UAE's position is untenable and siding with Russia..

The trading firms used by Rosneft have started asking for the dollar equivalent payment in dirhams from this month, the sources said.

Rosneft, Coral Energy and Everest Energy did not respond to Reuters emails seeking comment.

Russia wants to increase its use of non-Western currencies for trade with countries such as India, its foreign minister Sergi Lavrov said in April.

The country's finance minister last month also said Moscow may start buying currencies of "friendly" countries, using such holdings to influence the exchange rate of the dollar and euro as a means of countering sharp gains in the rouble.

The Moscow currency exchange is preparing to launch trading in the Uzbek sum and the dirham.

Dubai, the Gulf's financial and business centre, has emerged as a refuge for Russian wealth.

India, also maintaining a neutral position, recongnises insurance cover by Russian companies and has offered classification to ships managed by a Dubai-based subsidiary of Moscow's top shipping group to enable trade.

India's central bank last week introduced a new mechanism for international trade settlements in rupees, which many experts see as a way to promote trade with countries that are under Western sanctions, such as Russia and Iran.

Riaz Haq said...

The dollar sits atop a global monetary order shaken by sanctions
Countries tend to hold certain currencies as reserve assets mostly for economic, not geopolitical, reasons


"But ultimately, international reserves are held for specific economic reasons, not geopolitical ones: pegging or managing the exchange rate to another currency; paying for imports and international debt service; providing foreign exchange liquidity of last resort to domestic banks. So what will determine the extent of any shift in global reserve allocations is not the portfolio preferences of central bankers or the intrinsic properties of US dollar alternatives. It is whether new currencies come to play an important role in international trade and financial relations. The recent news of China negotiating with Saudi Arabia to pay for oil in renminbi is not, in itself, game-changing. If it finally happens and more of China’s inbound and outbound trade partners follow, it might well be"


Days after Russian troops invaded Ukraine, the G7 and a host of allies in Europe and Asia declared a freeze on the assets of the Central Bank of Russia. The move, unprecedented in its swiftness and scale, instantly incapacitated roughly half of its $630bn in international reserves. Up to this point, central bank reserves had only been frozen multilaterally after abrupt regime change — think of the Bolshevik and Chinese revolutions, or more recently Hugo Ch├ívez’s Venezuela.

Immediately, warnings were uttered about unintended consequences, in particular the stability of the US dollar in the international monetary system. As many have convincingly argued, the Russian reserves freeze alone is unlikely to end the dominant role of the US dollar. But it might, over time, induce major shifts in global monetary relations alongside a broader rewiring of globalisation, making the last 30 years look like a lost golden age.

Prudence and deliberation are in central banks’ DNA. They do not make rash decisions. So while many central bankers privately felt shock or dismay at the reserves freeze, they do not appear to have significantly reallocated assets away from the dollar or euro.

Yet there is consensus among central bank reserve managers that something fundamental has changed: geopolitical considerations now need to be taken into account when assessing the safety and liquidity of a reserve asset. For most, this is an argument in favour of currency diversification, a trend under way already over the past 20 years at the expense of the US dollar and to the benefit of smaller advanced economy currencies such as the Canadian dollar or the Korean won. This might now accelerate, and possibly extend to additional currencies.

Might the renminbi be one of the beneficiaries, as suggested by a recent survey? In fact, when it comes to the attractiveness of Chinese bonds in reserve portfolios after the sanctions on Russia, geopolitics is a clear dividing line. By and large, central bankers I talk to in countries in or close to the sanctioning coalition are reviewing — but not yet retreating from — whatever exposure or planned exposure they had to the renminbi. Others seem more inclined to stick to their holdings and plans to ramp them up further over time.

In the near term there is little practical scope to overhaul trade and financing patterns, even if some countries want to. But other forms of rewiring may develop. Countries that see themselves as politically aligned may try to create a mutual aid system, separate from the sanctioning coalition. China’s recent creation of a renminbi liquidity facility at the Bank for International Settlements can be seen in this light. Discussions could also resurface between large reserve holders from the global south about swap arrangements, like those between the Fed, European Central Bank, Bank of England and a few others in the 2008 financial crisis. Cross-border payment systems to rival Swift will probably continue to grow.

Riaz Haq said...

Salman Ahmed


Salman Ahmed joined Fidelity in August 2020 as Global Head of Macro and Strategic Asset Allocation. Previously, he was co-chair of Global Investment Committee and Chief Investment Strategist at Lombard Odier IM (LOIM). Before spending nearly 8 years with LOIM, Salman was head of Global Macro at Edf trading between 2009 and 2012. He also spent nearly 5 years with Goldman Sachs International as a global economist within the global macro team. He began his career in finance with Watson Wyatt (now Towers Willis Watson) in 2001. Salman holds a PhD and MPhil in Economics & Finance from University of Cambridge. He obtained his undergraduate degree from Lahore University of Management Sciences, Pakistan, in 1999.

Riaz Haq said...

Money and Empire: Charles P. Kindleberger and the Dollar System

By Perry Mehrling


Charles P. Kindleberger ranks as one of the 20th century’s best known and most influential international economists. A professor of International Economics at the Massachusetts Institute of Technology (MIT) from 1948-1976, he taught cosmopolitanism to a world riven with nationalist instinct. He worked to relieve the fears of his fellow citizens through education, thinking that if people understood how the dollar system worked, they would stop trying to destroy it. His research at the New York Federal Reserve and Bank for International Settlements during the Great Depression, his wartime intelligence work and his role in administering the Marshall Plan gave him deep insight into how the international financial system really operated.

In the new book, “Money and Empire: Charles P. Kindleberger and the Dollar System,” Perry Mehrling traces the evolution of Kindleberger’s thinking in the context of a “key-currency” approach to the rise of the dollar system, which he argues is an indispensable framework for global economic development in the post-World War II era. The overall arc of the book follows the transformation of the dollar system, as seen through the eyes of Kindleberger.

The book charts Kindleberger’s intellectual formation and his evolution as an international economist and historical economist. As a biography of both the dollar and Kindleberger, this book is also the story of the development of ideas about how money works. In telling this story, Mehrling ultimately sheds light on the underlying economic forces and political obstacles shaping a globalized world.

Riaz Haq said...

India's oil deals with Russia dent decades-old dollar dominance | Reuters


India in the last year displaced Europe as Russia's top customer for seaborne oil, snapping up cheap barrels and increasing imports of Russian crude 16-fold compared to before the war, according to the Paris-based International Energy Agency. Russian crude accounted for about a third of its total imports.

NEW DELHI/LONDON, March 8 (Reuters) - U.S.-led international sanctions on Russia have begun to erode the dollar's decades-old dominance of international oil trade as most deals with India - Russia's top outlet for seaborne crude - have been settled in other currencies.

The dollar's pre-eminence has periodically been called into question and yet it has continued because of the overwhelming advantages of using the most widely-accepted currency for business.

India's oil trade, in response to the turmoil of sanctions and the Ukraine war, provides the strongest evidence so far of a shift into other currencies that could prove lasting.

The country is the world's number three importer of oil and Russia became its leading supplier after Europe shunned Moscow's supplies following its invasion of Ukraine begun in February last year.


Some Dubai-based traders, and Russian energy companies Gazprom and Rosneft are seeking non-dollar payments for certain niche grades of Russian oil that have in recent weeks been sold above the $60 a barrel price cap, three sources with direct knowledge said.

The sources asked not to be named because of the sensitivity of the issue.

Those sales represent a small share of Russia's total sales to India and do not appear to violate the sanctions, which U.S. officials and analysts predicted could be skirted by non-Western services, such as Russian shipping and insurance.

Three Indian banks backed some of the transactions, as Moscow seeks to de-dollarise its economy and traders to avoid sanctions, the trade sources, as well as former Russian and U.S. economic officials, told Reuters.

But continued payment in dirhams for Russian oil could become harder after the United States and Britain last month added Moscow and Abu Dhabi-based Russian bank MTS to the Russian financial institutions on the sanctions list.

MTS had facilitated some Indian oil non-dollar payments, the trade sources said. Neither MTS nor the U.S. Treasury immediately responded to a Reuters request for comment.

An Indian refining source said most Russian banks have faced sanctions since the war but Indian customers and Russian suppliers are determined to keep trading Russian oil.

"Russian suppliers will find some other banks for receiving payments," the source told Reuters.

"As it is, the government is not asking us to stop buying Russian oil, so we are hopeful that an alternative payment mechanism will be found in case the current system is blocked."