The decision to remove Russia from the SWIFT system that is used for international transfers, is setting off a strange split in the global financial system. It is bifurcating. On the one side the West is continuing with its endlessly expanding intangible transactions: mostly making money out of money. On the other, side, non-Western countries are moving towards seeing wealth in terms of tangibles, especially energy, minerals and food.
For the last 40 years the advanced nations have progressively invented new forms of wealth for themselves as the necessities of life became easier to satisfy. The widespread availability of energy, massive improvements in food productivity and long-term efficiency gains in manufacturing meant that survival became much less of a challenge. It has been a world-wide phenomenon, one that gets too little attention. In 1981, more than four people in 10 lived below the poverty line; now it is less than one in 10.
On that foundation, it became possible for Western countries to invent new forms of money and value. It has consequently been easy to forget that all these intangible confections depend on the use of tangible resources. That is why the West was so confident about punishing Russia by causing the country’s financial collapse. America and Europe believed that Russia would be ruined when they were forced out of the Western-dominated financial system. But the country is not part of the global matrix. It had already been heavily sanctioned, so had become largely economically self-sufficient, and its main exports are fossil fuels and diamonds, which can easily find markets. The financial and economic attack largely failed.
Having been pushed outside the Western financial system Russia is making moves to align with non-Western countries. In July, president Vladimir Putin unveiled a plan for a new reserve currency based on a basket from: Brazil, Russia, India, China and South Africa (BRIC). These five countries represent about a fifth of world trade, although only six per cent of their trade is with each other. Russia is also looking to promote the use by members of its financial messaging system instead of SWIFT.
There are signs amongst the BRIC countries of greater interest in using such a basket. Saudi Arabia seems to be moving away from its commitment, which has been in place since the 1945, to have all its oil sales in US dollars. Riyadh has been in talks with Beijing to price some of its oil sales to