While the financial wars envelop more countries, the original financial war adversary gets even more aggressive.
Russia has been in the crosshairs of the U.S. since their Crimea annexation in 2014. U.S. sanctions have included bans on leading individuals, prohibitions on capital markets activities by top Russian corporations, trade sanctions, secondary boycotts and more.
Russia has responded with some trade sanctions on the U.S. but its primary response has been asymmetric. This includes cyber attacks, meddling in the U.S. election in 2016, propaganda on major media platforms, assassinations on UK soil and closer links to China, Turkey and Iran. Russia has gone even further, according to this article.
In the past four months, Russia has reduced its ownership of U.S. Treasury securities by 84% and has acquired enough gold to surpass China on the list of major holders of gold as official reserves. Russia has almost 2,000 tons of gold, having more than tripled its gold reserves in the past ten years. This combination of fewer Treasuries and more gold puts Russia on a path to full insulation from U.S. financial sanctions.
Russia can settle its balance of payments obligations with gold shipments or gold sales, and avoid U.S. asset freezes by not holding assets the U.S. can reach. Russia is also providing a model for other nations that want to achieve similar distance from U.S. efforts to use the dollar to enforce its foreign policy priorities.
The U.S. has been highly successful at pursuing financial warfare. But, for every action there is an equal and opposite reaction. As the U.S. wields the dollar weapon more frequently, the rest of the world works harder to shun the dollar completely.
We are getting dangerously close to the point where the dollar will suddenly lose its potency. In that world, investors will have to rely on gold to preserve wealth – just like Russia.
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