Unintended Consequences of Russian Sanctions

With the U.S. continuing to strengthen its sanctions against Russia in response to the Ukraine crisis, it could have the unintended consequence of lessening the world’s dependence on U.S. dollars. Russia is now looking to have its major state-owned exporters, switch to accepting payments in Rubles, moving away from the U.S. dollar. Already, the U.S. dollar has been in free-fall vs. the Ruble for the last two months, with the USD/RUB declining from 36.59 on March 15th to a new 3-month low today of 34.71.

It is the U.S. dollar’s status as the world’s reserve currency that has allowed the U.S. to have record GAAP-based budget deficits of over $6 trillion for the last two straight fiscal years, without hyperinflation. If Russia successfully moves to a de-dollarized world, other countries will ultimately follow, and the U.S. will no longer be able to export its inflation to the rest of the world.