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Samsom:  The European Union removes the largest Russian bank from the "SWIFT" system

31st May, 2022

The 27 countries of the European Union agreed, during a summit in Brussels, to exclude "Sberbank", the largest bank in Russia, from the SWIFT system for international money transfers.

This comes within the framework of the sixth package of European sanctions against Moscow over the "attack" on Ukraine.

"This package of sanctions includes tough measures such as excluding Sberbank, Russia's largest bank, from Swift," said European Council President Charles Michel.

Sberbank is the largest bank in Russia, as it controls about a third of the country's banking sector. LINK

Samson:  Russia's Sberbank declares that it is "operating normally" and that its exclusion from the "SWIFT" system has a limited impact

31st May, 2022

Russia's Sberbank confirmed, on Tuesday, that its exclusion from the SWIFT system for international money transfers, based on the European Union's decision, will have a limited impact.

"We are operating normally - the main restrictions are already in place," said the bank, which has previously been targeted by US and British sanctions. He added that "the exclusion from the SWIFT system does not change anything in the situation with regard to international payments." He stressed that "the internal operations in Russia do not depend on SWIFT, and the bank will implement them normally."

The United States imposed strict restrictions on Sberbank; In early April, it froze all of his assets “associated with the US financial system” and prevented him from conducting transactions with US actors. The United Kingdom also froze the assets of Russia's largest bank.

On Monday evening, the 27 member states of the European Union reached an agreement on a sixth package of sanctions against Russia due to its operation in Ukraine, which includes reducing its imports of Russian oil by 90% by the end of this year, adding 60 additional individuals to the European blacklist, and excluding Three Russian banks are part of the SWIFT system for international money transfers, including Sberbank.

The "Swift" system is considered one of the largest financial and banking messaging networks, and it allows the transit of payment requests between banks, requests to transfer bank customers' funds, requests to buy and sell securities, and others. Sberbank is the heir to the savings banks from the tsarist era, and almost all Russians have an account in it.  LINK

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Samson:  Russian Central Bank: All countries of the world will rethink the risks of the dollar and the euro

31st May, 2022

The Russian Central Bank reported that the West's precedent of freezing part of Russia's international reserves will prompt other countries to rethink the risks of placing their reserves in dollars and euros.

The Russian Central said that “the precedent of freezing the gold and foreign exchange reserves of the Bank of Russia (the Central Bank of Russia) will lead to the fact that the central banks of the world will rethink the risks of placing their reserves in US dollars and the euro. It is possible to expect an increase in the demand for gold and a decrease in the role of the dollar and the euro as reserve assets.”

After Moscow launched a special military operation in Ukraine, Western countries imposed sanctions on Russia, affecting companies, individuals and economic sectors, and within the framework of the sanctions, Russia's international reserves estimated at $300 billion were frozen.

Earlier, Russian President Vladimir Putin warned Western countries against confiscating Russian property abroad, and said that "stealing other people's property never leads to good."

“Violation of rules and norms in the field of international finance and trade does not lead to anything good,” Putin said. In simple words stealing other people's property has never done good to anyone, especially those who are involved in this unseemly act.”  LINK

Samson:  Get ready for reverse currency wars

31st May, 2022

Over the past year, the US dollar has appreciated against the euro by 12%, and at 0.93 to the euro, it is close to parity. If oil and other dollar-denominated commodity prices look high now, they look even higher in euros. 

With the value of the US currency rising, and inflation in many countries at levels not seen in decades, we may now be entering so-called “reverse currency wars” – where countries compete to enhance the value of their currencies against foreign currencies.

Originally, the term “currency wars” was a decorative description of what international economists have long called “competitive devaluations” or, after floating exchange rates began in the early 1970s, “competitive depreciations.” 

In these situations, countries feel aggrieved that their trading partners deliberately pursue policies aimed at weakening their currencies in order to gain an unfair advantage in international trade. 

Competitive devaluation may arise when all countries' major macroeconomic objectives, in addition to maximizing GDP growth and employment, include improving their trade balances. This generally describes the last few decades in the global economy.

On the other hand, reverse currency wars involve competitive currency appreciation. Here, countries imagine that their trading partners are deliberately trying to strengthen their currencies in order to rein in inflation. This could describe the period that began in 2021, when inflation returned to pose a severe problem in most countries.

In either case, it is impossible for all countries to pursue such strategies, because it is not possible to move exchange rates in the same direction simultaneously. Competitive devaluation or valuation is often seen as evidence of a lack of international cooperation to stabilize exchange rates, which sometimes causes calls for a new Bretton Woods-style arrangement for greater policy coordination.

The United States has often been quick to claim that other countries' currencies are unfairly undervalued. Since 1988, Congress has required the Treasury to submit semi-annual reports on whether America's major trading partners are manipulating their currencies. China and other Asian countries are the most common targets. But Switzerland, too, has always been in doubt, even though the Swiss franc can easily be considered the most expensive major currency by other standards.

In February 2013, the US Treasury took charge of a micro-form of the Bretton Woods agreement under which the G7 countries would refrain from taking any steps to devalue their currencies. In fact, the 2013 agreement is unknown to many, but it worked. Over the last decade, the G7 member states have not intervened to sell their currencies in the foreign exchange market.

As for China, which is not a member of the Group of Seven, it intervenes in the currency market. But since 2014, it has been doing so to slow, not encourage, the renminbi's depreciation.

The phrase “currency war” was coined in 2010 by Brazilian leaders to protest the monetary policies of the United States, Japan, and other countries. They did not accuse the US Federal Reserve or the Bank of Japan of openly devaluing the dollar or the yen, or interfering in the foreign exchange market to push the two currencies down, but rather of adopting excessively accommodative monetary policies. 

Brazilian policymakers claimed that their American and Japanese counterparts cut interest rates to zero and then made matters worse by introducing quantitative easing, deliberately devaluing the dollar and the yen, thereby boosting net exports, and exporting unemployment to their trading partners.

Similarly, no one today is accusing the US authorities of using foreign exchange intervention to raise the value of the dollar. Rather, the complaint revolves around the fact that the current interest-rate increases by the Federal Reserve are attracting capital inflows to the US and strengthening the US currency, leading to higher international interest rates and thus keeping global growth below its potential.

Fears of competitive devaluation are not without historical precedents, most notably in the 1930s, when major powers devalued their currencies against gold and thus against each other. But is there also precedent for competitive valuation?

Some observers have claimed that the early 1980s provided just such antecedents. When the Federal Reserve, led by Paul Volcker, decided to raise interest rates sharply to combat inflation, he knew that the appreciation of the dollar would help him in this task. But the corresponding depreciation of the currencies of US trading partners exacerbated their inflation rates and forced them to raise interest rates as well.

The most likely victims of today's euro appreciation are not the other big rich countries, but the emerging and developing economies. Many of them have large dollar-denominated debt, which has been exacerbated by the fiscal spending required to combat the COVID-19 pandemic. When the value of the dollar rises, the costs of debt servicing in local currencies increase. The combination of rising global interest rates and a stronger dollar could trigger debt crises, as happened in Mexico in 1982 and 1994.

But not all fears of competitive currency appreciation are justified or worth reforming the international currency system. Unlike most central banks, the Bank of Japan maintained a very loose monetary policy throughout the past year, continuing its long-running campaign to increase growth and inflation. So, while the Federal Reserve is raising interest rates in an attempt to slow the rate hike in the US, Japanese interest rates are still zero or less. As we expected, the widening interest rate differential has caused the yen to depreciate by about 15% against the dollar over the past year.

On the whole, such a large change in the exchange rate of the dollar against the yen is not a real problem. It pushed prices up in Japan while putting pressure on inflation in the United States. This is what both countries have been striving to achieve. Floating currencies allow each country to pursue monetary policy that suits its own circumstances.

But with high global inflation likely to persist for some time, the odds of counter-currency wars rise. Instead of racing to the bottom in the foreign-exchange market, we may see a rush to the top – and the poorest countries are likely to suffer the most in the process.   LINK

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Samson:  Oil continues to rise, recording 123 dollars a barrel

31st May, 2022

Crude oil prices rose today, Tuesday, after the European Union agreed to reduce oil imports from Russia by the end of 2022.

The decision raised supply fears amid increased demand ahead of the peak summer driving season in the United States and Europe.

Brent crude futures for July were at $1.45 to $123.20 a barrel at 04:40 GMT. US West Texas Intermediate (WTI) crude futures were trading at $118.49 a barrel, up $3.42 from Friday's close. LINK