Plus, Chinese Banks Can’t Save Russia From Western Sanctions
Welcome to your Sunday digest…my weekly breakdown of the things we’re thinking about and talking about in the Global Intelligence world.
The Russia-Ukraine conflict continues to dominate global headlines and we’ll come to some news stories about that in a moment. But first this week, we’re heading to New Delhi to talk about a very big development with crypto.
This week, India announced that it’s launching a central bank digital currency.
CBDCs, as they’re known, are digital versions of sovereign currencies like the dollar, euro, pound, or whatever, but based on the same blockchain technology as bitcoin and all other cryptocurrencies.
Lots of nations are pursuing CBDCs. Indeed, China’s e-yuan has been trialed across the country over the past two years and was used at the recent Winter Olympics. Now, it’s reportedly close to being rolled out nationwide.
It makes sense that India is also rushing down this path.
India has one of the world’s most cash-heavy economies. Sectors like black-market lending are rife.
The government has already taken radical steps to curtail this, including by removing its two biggest bank notes from circulation. However, a digital rupee, if it were widely adopted, could give the government far greater control and visibility over how money is moving in the economy.
According to India’s finance minister, the country plans to roll out its CBDC later this year. That’s an ambitious deadline…one the country is unlikely to meet. Still, I don’t doubt the country’s seriousness is launching the digital rupee.
This is yet another example of Western nations including the U.S. getting left behind as major developing economies like India and China embrace the blockchain future.
Speaking of China, since the West unveiled devastating financial sanctions against Russia, there’s been lots of talk in the mainstream media about Russia simply pivoting toward China and using that country’s financial system to trade globally. After all, China is refusing to enforce the West’s restrictions.
But the reality is that China can’t and won’t save Russia’s economy…
It’s true that Russia and China increasingly trade using currencies other than U.S. dollars. According to the most recent data, just over a third of Russian exports to China last September were settled in dollars, compared to 96% in 2013.
That doesn’t mean, however, that China’s financial institutions will be lining up to help their Russian counterparts.
Chinese banks risk losing access to Western markets and financial systems if they breach the sanctions.
Consider that when the U.S. sanctioned Hong Kong Chief Executive Carrie Lam in 2020, she had to collect her salary in cash. That’s because the banks in Hong Kong and mainland China refused to step in and help her, over fears that the U.S. would punish them, as well.
If China’s banks are unwilling to help one of their own (a high-profile leader, no less), they’ll hardly be willing to help Putin and his oligarch buddies.
The bottom line is that China is an export-oriented economy. It needs access to the U.S. and EU markets. There’s nothing Russia can offer China to change that reality.
A final note on the Ukraine-Russia conflict…
One of the global industries likely to be worst affected by the crisis is the auto sector.
Ukraine was a significant exporter of auto parts. Similarly, Russia is a major exporter of raw materials and parts used in the automotive sector, and it is home to auto manufacturing plants for Volkswagen, Toyota, Hyundai, and others. Those plants are all being shut down amid the conflict.
Analysts believe that global vehicle production could fall by 1.5 million to 3 million this year due to Russia’s invasion.
Given that automakers are already struggling with supply chain disruptions, we can now expect the prices for new and secondhand vehicles to continue pushing record highs in the months and perhaps years to come.
So, if you get sticker shock the next time you visit your local car dealer, you can thank Comrade Putin and his senseless war of aggression.
That brings us to the end of this week’s digest. Many thanks for being a subscriber. And if you have any feedback or questions, reach out through the contact form on the Global Intelligence website.
Enjoy the rest of your Sunday.