401kRollover Blog

According to local media, Russia is preparing to dump the dollar in a move which could be bad news for the strength of the greenback. Russia Today reported this week that President Putin has drafted a bill which would ban both the dollar and euro from being used in trade amongst “Eastern bloc” countries (Russia, Armenia, Belarus, Kazakhstan and Tajikistan). The Kremlin said in a statement that the measure  “would help expand the use of national currencies in foreign trade payments and financial services and thus create preconditions for greater liquidity of domestic currency markets.” The move would also serve to prop up the ruble, which has fallen dramatically thanks to the fall in the price of oil and Western sanctions on Russia.

But what would it mean for the United States? One of the reasons the dollar is such a strong currency is its popularity outside of the USA. The currency is used for trade between countries in Latin America, Asia and the Eastern bloc countries mentioned above. If Putin decides to dump the dollar, there would be a lot less of the currency in circulation and it would almost certainly weaken. This has already been happening to a certain extent — since last year, Russia has been unloading large amounts of reserves. In December 2014, for example, Putin sold off 20 percent of the country’s greenback. China has been doing the same, getting rid of half a trillion worth of dollar assets this summer.

Both countries have seen economic relations with the US sour. Things are tense between Russia and the United States over issues including Syria, Ukraine and oil. US relations with China have broken down recently, with accusations of spying, a growing trade deficit and Chinese warships spotted off the coast of Alaska last week. As these two countries grow closer, the possibility of a mass divestment of US currency grows bigger, meaning bad news for the greenback.

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