Ecuador: A Key Player in the Game of Chess against the Dollar?

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According to a study published by the Centre for a Secure Free Society (SFS), which has its headquarters in Washington, Ecuador is part of a complex global game of chess led by China and Russia, whose objective is to displace the dollar as currency for international trade. While Moscow and Beijing plan to use rubles or yuan, dollarized Ecuador is trying out electronic money.

According to the report ‘Anti-Dollar Alliance: Russia, China and Ecuador Advance Against the Global Dominance of the U.S. Dollar’—which was prepared by the executive director of the SFS, Joseph Humire, Fernando Menéndez and a Latin American economist who writes under the pseudonym Juan Cordero—Ecuador is part of a group made up of Moscow and Beijing, which aims to ensure that the dollar ceases to be used as the main currency in international transactions and to create interbank payment systems to displace the international SWIFT system. Almost all banks in the world are currently affiliated with the SWIFT system, which enables global payment transfers.

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Although the report acknowledges that Ecuador is one of the smallest countries in South America and that its economy is closely tied to the U.S. dollar, which it uses as currency, the authors present a worrying theory: the government of Rafael Correa’s flirtation with Russia and China is aimed at making Ecuador, which is considered to be the largest territory outside the United States that uses the dollar as currency, the bridgehead in a complex international operation, captained by Vladimir Putin and his allies, whose objective is to weaken the dollar as international currency and replace it with transactions in rubles or yuan, the currencies of Russia and China respectively.

The rapprochement between Russia, China and Latin America

For the authors of the report, the presence of the Russian president, Vladimir Putin, at the summit of the Group of 77 and China, which was held in Santa Cruz de la Sierra, Bolivia, in June 2014 was not a coincidence.

In response to Russia’s geopolitical strategy, one of its advisors, Sergey Glazyev, advocates the necessity to oust the dollar and create a new global economic order. According to the report, Glazyev is the author of a new doctrine: ‘Eurasianism’, which seeks to strengthen the power of Slavic Europe and the former Soviet Union and to consolidate a closer alliance with China with the objective of weakening the hegemony of the United States.

To do this, Russia and China are betting on economic initiatives, among which is the creation of an interbank payment system, similar to the SWIFT system, which could eventually be under their control, and which could also interest other emerging countries such as India, South Africa and Brazil, among others.

But, where does Ecuador fit in to what seems to be the major league of international economic diplomacy? The study carefully analyses Ecuador’s current political situation, its similarity to the Chavista model, and also the differences in Rafael Correa’s governing style and that of deceased president Hugo Chávez.

In the quest to break the United States’ hegemony in the hemisphere, Chávez’s Venezuela and Correa’s Ecuador, under the heading of ‘multilateralism’, have sought to create new international bodies in the region. The SFS report cites the creation of the Bolivarian Alliance (ALBA – Spanish acronym), headed by Venezuela, the Union of South American Nations (UNASUR – Spanish acronym), which has its headquarters in Quito, and the Community of Latin American and Caribbean States (CELAC – Spanish acronym), which precludes the United States and Canada from being members in an effort to be a kind of new Organization of American States (OAS).

Also, the study mentions the implementation of the Regional Clearance Unitary System (SUCRE – Spanish acronym), a controversial program of international payments for exportations between Ecuador and Venezuela, regarding which several corruption cases have been reported, as an effort by Quito and Caracas to displace the dollar and the SWIFT system.

Regarding Ecuador specifically, the SFS mentions the recent financial reforms adopted by the government to address bank lending and, above all, the ‘electronic money’ managed by the Central Bank, which Ecuadorian analysts eventually criticized as an instrument with which Correísmo is seeking to exit dollarization.

To these measures in Ecuador, initiatives like Banco del Sur [Bank of the South] and the creation of multilateral lending organizations specific to the region should be added. These organizations have as their objective the displacement of traditional institutions like the World Bank, the Andean Development Corporation, the Inter-American Development Bank and the International Monetary Fund.

The report also reviews the controversial oil presale agreements with China and the way in which, according to the journalist Fernando Villavicencio, Ecuador sells its oil to Chinese companies that do not bring it to their country but re-sell it to Chevron’s refineries in California, despite the international campaign that Correísmo has declared against the North American oil company.

A house of cards

The authors of the report believe that Ecuador’s current economic crisis is the consequence of having built an economic ‘house of cards’ which, in light of the fall in oil prices and the appreciation of the dollar, is collapsing. According to the study, for each dollar that the Ecuadorian government receives, at least four dollars are lost as a consequence of the flow of illegal money, among other aspects, which the Financial Action Task Force (FATF) warned of when it pointed out that Ecuador did not take adequate measures against money laundering in its economy.

Although the study acknowledges that Ecuador is one of several countries in the region with which Russia has strengthened ties, it highlights how Ecuador has become a jack-of-all-trades for Putin’s regime, supplying Russia with certain foods, flowers, bananas and other Ecuadorian export products that do not come from Europe due to the sanctions imposed on Russia because of the crisis in Ukraine.

According to the study, Ecuador is currently one of Russia’s most important economic partners in the region, along with Argentina, Mexico and Brazil. The report also points out that a naval route has been created which connects the main Russian port, Saint Petersburg, with Guayaquil, crossing the Atlantic and the Panama Canal.

Meanwhile, the analysts maintain that it is possible that Ecuador is interested in carrying out its international commercial transactions using the Chinese yuan, as this currency could be depreciated and selling in yuan would be more competitive than in American dollars. This could be one of the explanations for the affinity Correa’s government has with China and Russia.

The three pillars of the alliance

Considering these precedents, the SFS came to three important conclusions: the alliance between Russia, China and Ecuador to oust the dollar rests on the need to create alternative development banks, like Banco del Sur.

The second pillar is to establish international payment systems that displace the SWIFT system for commercial transactions. In this regard, they would be internal payment systems developed in China and Russia and Ecuador’s controversial ‘electronic money’. Also, the SUCRE system between Ecuador and Venezuela should be improved.

The third pillar, according to the report, is to look for new ways to endorse their currencies: China and Russia are accumulating physical gold, while Ecuador is doing the opposite, and has pawned its gold reserves to North American banks.

 

 

 

 

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