The end of the dominance of the US dollar is nigh as the Chinese yuan rises and the rest of the world sees the peril of the West’s failed attempt to bring Russia to its knees over Ukraine, one of Moscow’s most powerful bankers told Reuters.
Andrei Kostin, the CEO of state-controlled VTB, Russia’s second largest bank, said the crisis was ushering in sweeping changes to the world economy, undermining globalisation just as China was taking on the mantle of a top global economic power.
Asked if he thought the world was in a new Cold War, Kostin said that it was now a “hot war” that was more dangerous than the Cold War.
The United States and the European Union, he said, would lose from moves to freeze hundreds of billions of dollars of Russian sovereign assets as many countries were moving to settling payments outside the US currency and the euro while China was moving towards a removal of currency restrictions.
“The long historical era of the dominance of the American dollar is coming to an end,” Kostin, 66, told Reuters on the 59th floor of the gleaming VTB skyscraper overlooking southern Moscow. “I think that the time has come when China will gradually remove currency restrictions.”
“China understands that they will not become world economic power Number 1 if they keep their yuan as a non-convertible currency,” Kostin said, adding that it was dangerous for China to keep reserves invested in US sovereign bonds.
The US dollar has been dominant since the early 20th Century when it overtook the pound sterling as the global reserve currency, though JPMorgan said this month that signs of de-dollarisation are unfolding in the global economy.
China’s spectacular economic rise over the past 40 years, the fallout from the war in Ukraine and wrangling over the US debt ceiling have put the dollar’s status under fresh scrutiny.
VTB, Kostin said, was discussing using yuan in settlements with third countries.
A former diplomat who served in Australia and Britain and went into banking just after the Soviet Union collapsed, Kostin is one of Moscow’s most powerful and experienced bankers, having served previously as head of Vneshekombank, known now as VEB.
After President Vladimir Putin sent troops into Ukraine in February last year, the West unfurled what it said were the toughest sanctions ever imposed in an attempt to weaken the Russian economy and punish Putin for the war.
Kostin was sanctioned by the United States in 2018 over what it called Russia’s malign activity around the world. After the war, he was sanctioned by the EU and by Britain which called him “a close associate of Putin”.
He said the sanctions were unfair and a political decision that would “backfire” on the West, quipping that he had read interesting articles about the laundering of drug money through major Western banks.
“We have already entered into a hot war,” Kostin said of the crisis with Ukraine. “It is not cold when there are so many Western weapons and a lot of Western services and military advisers involved. The situation is worse than in the Cold War, it is very difficult and alarming.”
Kostin said VTB would see a profit of 400 billion roubles ($4.9 billion) in 2023 after a bumper first five months of the year and a record loss last year.
Russia’s economy, he said, would not be broken by the West. The International Monetary Fund in April raised its 2023 Russian GDP forecast to growth of 0.7 per cent from 0.3 per cent, but lowered its 2024 forecast to 1.3 per cent from 2.1 per cent.
“Sanctions are bad, and we suffer from them, of course. But the economy has adapted,” he said. “At the same time, we expect that sanctions will intensify, they will be tightened, some windows will be closed, but we will also find other opportunities.”
Asked if Russia’s economy would remain a free economy, Kostin said: “I very much hope so.”