Annexation of Crimea and the Russian effort to trade in the Asian Currencies By Dr. Bobby Srinivasan and Dr. Sudhakar Balachandran

The world is slowly but steadily heading towards a crisis. The Sunnis from Iraq along with their counterparts from Syria are in the process of destabilizing Iraq. The election was over in Iraq in end April and Nauri-al-Maliki took over power. He is a Shia and definitely is not acceptable to the Sunni insurgents. In the meanwhile the Crimean annexation by Russia in March 2014 is encouraging sanctions from the US and its NATO allies including freezing of the Russian accounts.

Russia has since decided to shift some of its banking activities to the Asian locations. They are currently busy opening accounts in Hong Kong and Singapore with the view to trade in renminbi. After the Crimean invasion, US and the European banks have dramatically slowed their lending activities in Russia. Russian bankers are in full support of Putin and they say “There is no reason why you have to settle the trade you do with Japan in US dollars”.

For all we know, some of the big countries may be involved in the promotion of this crisis. Look at oil price. Brent Crude has already touched 115 dollars a barrel and is only a stone throw away to 146 dollars where it was a few years back. The gainers are obviously oil producing countries and the price of gold has also moved up helping both South Africa and Russia, major gold producing countries.

Whenever a crisis builds up internationally investors rush to keep their funds in the US dollars. For Indians, it will be a double whammy hit. The rupee will weaken and our import bill will shoot up. It will definitely hit our growth rate which is currently below 5 percent.

Finally, countries which have ulterior motives are creating these global uncertainties. For Russia it is a first step in the resovietization process. For the US, it is the cold war and a bigger defense budget. For Europe they need the Russian natural gas and require it badly and hence cannot take a hostile position towards them. For India and the Indians the already high cost of living will head even higher if these problems are not resolved soon. We should hope for the best because there is nothing in our control.

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