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Rouble Gas Payments are probably a False Flag

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Summary

This article discusses the implications of the Russian demand that Europe pays for its gas in Russian Roubles. It explains that in every international transaction the consumer pays with the currency they have, and the producer gets the currency they want to hold. Banks transact internationally by finding a path of banking relationships around the world between the buyer and the seller, however sanctions mean there is now little money going in the direction of Russia. This could lead to a Rouble appreciation or a full blown EUR-RUB liquidity crisis, which is why Russia is now demanding that future gas contracts are not only settled in Roubles but also priced in them.

Q&As

What is the job of the finance industry to make international transactions happen?
The job of the finance industry to make international transactions happen is to make the match magic happen.

What is the process of hopping the transaction around called?
The process of hopping the transaction around is called correspondent banking.

What did the Russian government's demand to pay in Roubles not alter?
The Russian government's demand to pay in Roubles did not alter the fact that Gazprom already gets paid in Roubles for the part of its operation that is based in Russia.

Why are banks risk averse and don't want to hold open positions in foreign currencies?
Banks are risk averse and don't want to hold open positions in foreign currencies because they want to get rid of the foreign currency position as soon as they can.

What is the possible reason why Russia is demanding that future gas contracts be not only settled in Roubles but priced in them in the first place?
The possible reason why Russia is demanding that future gas contracts be not only settled in Roubles but priced in them in the first place is to shift the exchange rate risk to the Europeans, as they are convinced that sanctions are going to make the Russian currency depreciate.

AI Comments

👍 This article does an excellent job of breaking down the complexities of international banking transactions and explaining the implications of Russia's recent edicts.

👎 The article is too long and could have been condensed to make its points more succinctly.

AI Discussion

Me: It talks about the Russian demand that Europe pays for its gas in Russian Roubles. The article argues that in international transactions, the consumer pays in the currency they have and the producer gets the currency they want to hold. It also explains how the banking system works when it comes to international transactions.

Friend: Interesting. So what are the implications of this article?

Me: It looks like the Russian government's demand for payments in Roubles is more of a political tool than an economic one. The article also suggests that the current edict would force Gazprom to stop holding Euros, while also creating confusion amongst those who don't understand how international banking works. On the other hand, the Bank of Russia may no longer be able to take Euros from Russian commercial banks due to sanctions, which could lead to a large appreciation in the value of the Rouble or a full-blown EUR-RUB liquidity crisis.

Action items

Research the current sanctions against Russia and their potential impacts on the Rouble.
Join the New Wayland community to discuss topics related to Modern Monetary Theory (MMT).
Analyze the potential implications of the Russian government's demand that all future gas contracts be settled and priced in Roubles.

Technical terms

Rouble: The official currency of Russia.
False Flag: A deceptive tactic used to create the appearance of a particular event or action being carried out by a group or individual other than the one actually responsible.
Gazprom: A Russian energy company that is the largest extractor of natural gas in the world.
Finance Industry: The sector of the economy that is concerned with the management of money and investments.
Correspondent Banking: A type of banking relationship in which one bank (the correspondent bank) provides services on behalf of another bank (the respondent bank).
Routers: A device that forwards data packets between computer networks.
Nostro: An account held by a bank in a foreign currency in another bank.
Vostro: An account held by a foreign bank in the domestic currency of the country in which the foreign bank is located.
Reverse Repo: A transaction in which a security is sold with an agreement to repurchase it at a higher price at a later date.
Sanctions: A type of economic or political penalty imposed on a country or individual in order to influence their behavior.
Liquidity Crisis: A situation in which there is a lack of liquidity in the market, making it difficult to buy or sell assets.