Why Russia Will Not Return to the G7

Clarification of positions

The current position of the Russian Federation on international issues is not only responsible and correct, but increasingly transparent and active.

Participants in global trade also expect the Russian Federation to increase transparency in the implementation of Russia’s strategy in the global economy and in world finance.

Transparency is not so much in the content of declarations as it is in methods, objects, and the degree of determination of the Russian Federation in the implementation of its strategy to achieve its priority goals. As early as June 2018, President D. Tramp and the Government of Italy expressed interest in returning the Russian Federation to the G7 countries.

The situation with the G7 plus the Russian Federation (G7+1) or without the Russian Federation requires further clarification of the positions of the parties, mainly the Russian Federation. In this regard, we recall that earlier the Russian Federation was invited to the G7 countries as a participant in the discussion and to search for solutions to exclusively political problems.

While the main focus of the G7 is in the area of finance. Initially the G7 was created to resolve financial problems between the countries participating in the G7 in order not to lead the matter to political conflicts and currency wars between them.

Representatives from the Russian Federation were not invited to the G7 financial summits, which are attended by Finance Ministers and heads of Central Banks of the G7 countries. The exception was joint G7 summits with the IMF to discuss specific topics to which financiers from other countries, including from the Russian Federation, were invited.

In this regard, it was surprising to observe how the-then Finance Minister of the Russian Federation was sent to the IMF to report on the implementation of their “recommendations”, and his visits to the IMF were presented in the media as fully-fledged “participation in the work of the financial G7”.

For objectivity, we specify that the financial system of the Russian Federation could not be, and has not yet been, perceived by the participants of the financial G7 as an equal partner.

Unfortunately, the financial system of the Russian Federation continues to be in the position of financial “dominion” of the US dollar empire, and in methodological terms continues to implement the recommendations of the expert pool, which is mentally close to the IMF.

Respectively, a half-return of the Russian Federation to the G7, in other words, again only in political option, is senseless, as is recorded in a position of the Russian government in relation to a return to the G7 (G7+1).

Moreover, it makes no sense for Russia to participate in the financial G7 without making urgent changes to Russian finances themselves, i.e., without turning them into a sovereign financial system with its own potential for the development of the domestic economy.

The lack of methodologically correct solutions in the finances of the Russian Federation is most clearly manifested in the absence of an investment cycle in the Russian economy on the basis of the national currency (ruble), which signals that the construction of a fully-fledged, and therefore sovereign, financial system of the Russian Federation is incomplete.

Confirmation of the weakness of the financial position of the Russian Federation, but at the international level, would be the declaration at the G7 summits, in one form or another, of wishes in the finance sphere, which would be publicly addressed to the United States, a sin the Russian side previously committed.

The US authorities cannot accept such “wishes” for two reasons. For a formal reason, since financial policy in the US is formed by the Federal Reserve, and for the main, actual reason – the US is not going to refuse to receive bonuses from all over the world, which is evident in the dynamics of the dollar mass, i.e., in the further issue of dollars.

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At the same time, the US will always declare the “strength” of the dollar and its excellent prospects compared to other currencies. In other words, the United States will not voluntarily refuse its bonuses and will take any wishes regarding itself concerning finance either as a provocation or as a weakness confirming the absence of a significant potential for the independent development of “questioners” outside the empire of the American dollar.

The maximum that the US can allow others, their chosen countries, is complicity in obtaining the permitted part of the total bonuses from the world economy through the use of financial technologies. Such joint decisions of the participants concerning the division of bonuses were earlier agreed at the financial summits of the G7.

And in the current conditions of a reduction in general bonuses for the G7 countries and with the tough position of President D. Trump to protect the interests of the United States, it is likely that there will be a redistribution of assets and also of the countries themselves that participate in the G7.

Financial “hellhole”

Recall one of the well-known long-standing decisions of the G7 – about the creation of the so-called “currency snake”. The essence of this decision was to maintain the ratio of the exchange rates of the G7 countries relative to each other with a significant issue of the currencies of these countries, in particular, US dollars.

Maintaining a relatively stable ratio of the exchange rates of the G7 countries themselves has become a method of eliminating the emerging imbalances in trade relations between these countries.

And the additional issue in each of the G7 countries of its currency allowed to compensate at the right time for the growth of energy prices, without creating insoluble problems in the economies of the G7 countries, although, as they say, in “parrots” energy resources become much more expensive.

However, the transition to the euro in most EU countries makes it difficult to link the euro issue to its benefits, in particular France and Italy.

In addition, all G7 member countries could send additional emission liquidity to other countries of the world for their participation in their revenue projects. This is the common interest of the participants of the G7, which is to receive bonuses from the rest of the world and to limit trade wars among themselves.

Not so long ago in the G7 it was decided, in fact, to further improve the principle of the “currency snake”. The previous financial methodology has been transformed into an agreed decision on unlimited swap transactions between the central banks of the G7 countries.

Respectively, the issue of general liquidity (the total volume of liquidity of the G7 countries) will increase with the help of this financial instrument in the presence of the formal stability of the agreed exchange rates between the currencies of the G7 countries.

The exchange rates of the G7 have long not been derived from the natural ratio of currency supply to demand. The foreign exchange market is governed by the financial instruments of the G7 countries, mainly the US Federal Reserve. To some extent, such a state of affairs can be defined as “friendly” assistance to each other.

It is only natural that such close financial relations can be maintained only in politically close states (a kind of “mutual responsibility”). Hence both the constant “synchronisation of clocks” at the political summits of the G7 countries and the problems with the participation of the Russian Federation in these summits.

By definition, it is impossible to act in opposition to G7 policies and gain access to the common financial system of the G7 countries. This suggests deep differences in the positions of the G7 countries and Russia. This is why Russia will not return to the G7.

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Russia cannot be integrated into the “currency snake” of the G7, and it is predetermined to create a financial system autonomous of the dollar empire. At the same time, the Russian financial system will become equivalent to the financial systems of the G7 countries in terms of their rights to participate in the global financial market, but the scale and methodology of Russian finance will differ.

The scale of Russia’s independent finances, i.e., without full dependence on the US dollar, will be modest at first. But it is much more important what physical volumes of commodity flows a particular currency serves, and not its nominal weight. In this sense, no one can repeal the laws of the economy.

If the money supply grows in nominal value and the commodity flows are the same in volume as before, the money supply is devalued. This process is going on with the currencies of the G7 countries: the money supply was issued a lot, and the commodity supply itself produced less and less.

The only way to block the actual depreciation of these currencies is through the non-economic lowering of the currencies of their competitors in order to grasp service with their own currency.

We understand commodity flows as goods, services, raw materials, technologies, and the acquisition of property and various rights. Consequently, the privatisation of property in different countries for someone else’s “strong” currency also supports, ultimately, the status of the issue mass of the currencies of the G7 countries.

If Russia removes its natural resources and privatisation from the financial flows of G7 countries, it will strengthen its financial system and reduce the negative activity of the “tangle of snakes” from the G7.

At the same time, Russia should not encourage other countries to do similar actions, as there may be some destabilisation in the entire world financial system, which, of course, the Russian Federation should avoid.

Russia will not start to destroy the existing financial architecture, but it is obliged to ensure its priorities instead of serving hostile external interests that pay for this with “appointed commission”.

Sovereignty in finance

Russia’s compelling argument for its position is its military strength. Military power is important not in itself, but as a means of cementing the sovereign disposal of its natural and other resources in its interests.

And its interests are ensured only in conditions of equivalent trade exchange, in particular, mutual trade turnover without any exceptions, restrictions, or sanctions.

An equivalent exchange cannot, by definition, take place when one party to a trade relationship accumulates significant reserves of the other party’s currency. If reserves appear, it means subsidising someone else’s economy with one’s own resources.

The presence of significant foreign exchange reserves in Russia means a non-equivalent commodity exchange between the Russian Federation and indirectly the United States, which secures the dependent position of Russia’s finances in the global financial system organised by the United States in its interests.

However, as was noted above, it is not appropriate for Russia to initiate changes in the current configuration of global finance, as there is quite a lot of movement in world finance.

At the same time, forcing other countries to respect Russian interests is quite possible for Russia. In particular, the Russian Federation has the right to give preference to certain major currencies, which in the conditions of the global financial system does not amount to counteracting G7.

The dominant interests in global finance do not need the independent role of Russian finance, but only their assistance in using Russian resources and assets to maintain their dominance in the world. Geopolitical and finance in today’s world are, if not the same, then at least interrelated entities.

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Consequently, the chosen strategy for strengthening the Russian state is the only right one. The Russian Federation will be able to maintain its military power for a long time only on the basis of the development of its own economy and its correct positioning in the world community in order to fully take advantage of the advantages of the international division of labour.

In order to develop its financial system, Russia should actively move to sell natural resources in its national currency. At the same time, the ruble should not be a transitional link for the transfer of revenues from Russian resources to dollar or other assets regulated by the United States.

The ruble is obliged sooner or later to become an instrument for accumulating all revenues in Russia itself, in particular in the national financial system. As a result of this process, the volume of money supply in the financial system of the Russian Federation will significantly increase in any units of its measurement.

With the help of this growth of the money supply, the development of both the Russian economy itself and the servicing of the growing commodity exchange between Russia and other economies of the world will be ensured.

One of the priorities of the Russian Federation is the involvement of the country’s economy in the global economy on the basis, inter alia, of the use of its natural resources to meet the needs of the economies of other countries, while respecting, of course, equivalent trade exchange.

Russia’s strategy is to strengthen the defence capacity and security of the Russian state. At the same time, military power ensures Russia’s sovereignty over huge resources, and sovereignty means the right to equivalent trade exchange. This right is realised only by correctly constructed finances, in particular, by equivalent financial relations with all international partners without exceptions.

Russian finance is obliged to contribute to the growth of Russia’s economic and military potential. In turn, maintaining military capabilities at the necessary level will ensure the preservation of Russia’s sovereignty in the future. A strong Russia, as a result, will always be rich.

The geopolitical successes or failures of most countries are linked to the success or failure to build their finances and economy.

The use of someone else’s financial system and the adaptation of its economy to someone else’s financial rules did not allow the Russian Federation from the 1990s until recently to fully realise its economic potential. The use of someone else’s currency, especially in its cashless form, is the subordination to foreign’s interests through financial technology.

Russia has passed through the most difficult part of its historical path of recent decades. In the 1990s the economic “strategy” worked against Russia’s achievement of its geopolitical priorities. The weaker Russia was, the less income from its mineral resources remained in the country, the weaker the economy became, the more dependent the finances became, and the less funds were received to provide social guarantees to Russian citizens.

Today, Russia has clearly added to its military power, which leads to the improvement of its geopolitical status in the world, to new opportunities in the development of its economy, and to the real establishment of equivalent trade relations with other countries on a basis more favourable for the Russian Federation.

Whether Russia’s strength will be limited to a short period of time or whether its strength will grow at the moment depends only on the correct organisation of Russian finances.

The finance of the Russian Federation is obliged to, and necessarily at some point will, become a significant instrument of geopolitical positioning and the achievement of Russia’s priorities in the 21st century. Both the Russian government and Russian society are jointly interested in this.

Aleksandr Mikhailov

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