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RUSSIA-UKRAINE WAR
Is this Cold War II? | Battle for the Black
Sea | Ukraine war impact on the US dollar
 Russia-Ukraine conflict: Is this Cold War II?
The Hindu|Authored by Stanly Johny
The writer is the International Affairs Editor of The Hindu

The Russo-Turkish war of 1768-74 was one of the most consequential conflicts for
the global balance of power in the 18th century. After the war, Russia, under
Empress Catherine the Great, got access to the Black Sea through the Kerch and
Azov seaports and officially became the “protector” of the Orthodox Christians of the
Ottoman Empire. In 1783, nine years after the war was over, Prince Grigory
Potemkin, a Grand Admiral in the imperial Russian Army and a favourite of the
Empress, annexed the Crimean Peninsula that juts into the Black Sea in the name
of protecting its Christians, amid violent clashes between Christians and Crimean
Tatars (a Turkic ethnic group). The annexation gave Russia seamless access to the
Black Sea’s warm waters, helping its rise as a naval power.
There are interesting parallels between the imperial annexation of Crimea in the
18th century and the Russian annexation of the peninsula in 2014. Prince Potemkin
is credited to have built Russia’s Black Sea fleet in 1783 with Crimea’s Sevastopol
being its principal base. Ever since, Russia has retained its influence over Crimea in
one way or the other. During the Soviet period, Crimea was the centre of Russia’s
Black Sea manoeuvres. When the Soviet Union disintegrated in 1991, Crimea
became part of the newly independent Ukraine, but continued to host Russia’s
Black Sea fleet. Moscow’s grip over the peninsula faced its first real threat in 2014
when the elected government of President Viktor Yanukovych in Ukraine was
brought down by violent protests that were backed by the West. Six years earlier,
the US had offered NATO membership to Ukraine and Georgia, both Black Sea basin
countries and former Soviet republics.

With the regime change in Kyiv, Russia, faced with the prospect of Ukraine having a
pro-Western, NATO-friendly government hostile towards Moscow, moved quickly. If
protection of the Orthodox Christians was the raison d’être of Prince Potemkin’s
annexation of Crimea in the 18th century, protection of the Russian-speaking
population was President Vladimir Putin’s official explanation for the annexation of
the region in 2014. In the end, the annexation allowed Russia to retain a
strategically important peninsula where it could project force through the
Mediterranean Sea and the waters beyond. But there was one key difference. If the
imperial annexation cemented Russia’s “great power” status and led to the rise of its
Navy, Putin’s annexation of Crimea and his support for separatists in the Donbas
region of eastern Ukraine (Donetsk and Luhansk Oblasts) marked the beginning of a
prolonged conflict, which has snowballed into Europe’s largest security crisis,
especially after the Russian leader’s decision to invade Ukraine on February 14,
2022.
Russia’s security concerns

Russia, the world’s largest country by land mass, lacks natural borders except the
Arctic Ocean in the north and the Pacific in the far east. Its vast land borders
stretch from northern Europe to central and north-east Asia. Its heartland, from St.
Petersburg through Moscow to the Volga region, that lies on vast plains is a
defender’s nightmare. Historically, expansion was the best defence for Russian
leaders—as Catherine the Great once famously said: “I have no way to defend my
borders but to extend them.” And this nightmare was proven right twice in the last
two centuries when Russia saw two devastating invasions from its western
borders—the 1812 attack by Napoleonic France and the 1941 attack by Nazi
Germany. Russia defeated them both, but only after suffering enormous material
and human losses.

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After the Second World War, Russia expanded its buffer by re-establishing its
control over the rim land in Eastern Europe, Caucasus and Central Asia, which it
hoped would protect its heartland. But the disintegration of the Soviet Union, which
saw Russia losing some 3 million square kilometre of sovereign territory, was the
greatest geopolitical setback for Moscow in centuries. Having lost its territories and
geopolitical influence and left with a free-falling economy and political instability at
home, Russia had to force itself into a strategic retreat. It was at this point that
Putin emerged as a strongman promising a way out for the “motherland” from this
phase of chaos and humiliation.
In the Soviet Union’s last days, the West had promised Russia that NATO, created at
the beginning of the Cold War to push back against the Soviets, would not “expand
an inch to the east”. It was after getting these assurances that Mikhail Gorbachev,
then the leader of the Soviet Communist Party, agreed to pull back Soviet troops
from East Germany, which eventually led to German unification. But this assurance,
which has been widely documented, was not a written agreement. And a weak,
inward-looking Russia grappling with its own problems was not in a position to
make sure that the West stayed committed to the verbal assurances it had made.

In March 1999, in the first expansion since the end of the Cold War, the Czech
Republic, Hungary and Poland (all were members of the Soviet-led Warsaw Pact)
joined NATO. Five years later, seven more countries — including the three Baltic
countries of Estonia, Latvia and Lithuania, all of which share borders with Russia—
were also taken into the alliance. If in the early 1990s, NATO’s border with Russia
was limited to the northern fringes of Norway, now the distance from NATO’s
Estonian border to St. Petersburg, the imperial capital of Russia, is less than 160
km.
But NATO didn’t stop there. In 2008, the US promised membership to Georgia and
Ukraine at the Bucharest summit. Russia, coming out of the post-Soviet retreat,
responded forcefully. For the Kremlin, both Ukraine and Georgia are critical for its
national security calculations. If these countries join NATO, it will not only bring the
trans-Atlantic nuclear military alliance even closer to Russia’s borders (the distance
from the Ukrainian border to Moscow is less than 500 km), but also make Russia’s
position in the Black Sea, its gateway to the world, more vulnerable. Turkey,
Bulgaria and Romania, all Black Sea basin countries, are already NATO members.
So, in 2008, Putin sent troops to Georgia over the separatist conflict in South
Ossetia and Abkhazia; and in 2014, he annexed Crimea and threw his weight
behind the separatists in the Donbas.
The road to war

Since 2008 Putin has made several calculated geopolitical moves seeking to address
Russia’s security challenges and restore its role as a major global player. By sending
troops to Georgia that year, he effectively stalled the country’s NATO ambitions. In
2014, he took Crimea through a referendum without fighting an actual war with
Ukraine. In 2015, he took advantage of Barack Obama’s strategic ambivalence over
Syria and sent troops to the civil war-struck West Asian country where the regime of
President Bashar al Assad was on the brink. The Russian intervention helped Putin
not only keep Russia’s Tartus naval base in the Mediterranean—its only naval base
outside the former Soviet sphere—but also establish some leverage over Syria’s
neighbours Turkey and Israel (both have stayed neutral in the Ukraine war).
Putin has also strengthened the Russian presence in Central Asia and the
Caucasus—he sent “peacekeepers” to Nagorno-Karabakh to end the war between
Armenia and Azerbaijan in 2020, and dispatched soldiers to Kazakhstan earlier this
year to restore order in the protest-shaken country. While all these moves—
exploiting geopolitical opportunities with limited forces for maximum gain—helped
Putin reposition Russia, they appear to have been trial runs before his biggest
strategic bet—the invasion of Ukraine.

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Why did Putin go into Ukraine? He had practically ended Ukraine’s NATO dreams in
2014. He had Crimea, and pro-Russian separatists controlled a substantial amount
of territories in Ukraine’s industrially rich Donbas region, which could also act as a
buffer for Russia. But Moscow was irked by the advanced weapons the West was
supplying to Ukraine as also the military training it was giving to Ukraine’s
forces. Besides, the Minsk II agreement, which called for a full ceasefire in the
Donbas in February 2015, was a non-starter as Ukraine went back on key clauses,
including amending its Constitution and giving more autonomy to the Donbas. New
neo-Nazi militias sprang up in Ukraine’s east, which targeted the Russian-speaking
populations in the region, accusing them of being “collaborators”. Of them, the Azov
Brigade, a paramilitary battalion drawn from neo-Nazi groups and the Social
National Assembly (SNA) that believes in a “final crusade of white races against
Semite-led Untermenschen [inferior humans]”, was integrated into Ukraine’s
National Guard in November 2014.
When the crisis in Ukraine’s east persisted and Ukraine’s armed forces, began to
gain strength with military assistance coming in from the US and the UK, Russia
decided to escalate the pre-existing conflict into a full-scale war—with de-
Nazification and demilitarisation of Ukraine as its declared goals.
Whatever Putin’s objectives, be it a total subjugation of Ukraine or capturing
territories north, east and south of the country to carve out an arc of buffer land
along Russia’s border to the Black Sea coast and render Ukraine land-locked, he
wanted to meet them quickly and with limited forces. So he mobilised some
1,50,000 troops to invade Europe’s largest country. Russian troops opened multiple
battlefronts and tried to make a sharp thrust into Ukraine towards Kyiv and Kharkiv
from the north, Donetsk and Luhansk from the east, and Kherson, Mykolaiv and
Zaporizhzhya from the south. But war, even for great powers, is an unpredictable
business.
Gains and losses

With limited deployment, the Russians made substantial territorial gains in Ukraine
but fell short of their actual goals. Seven months into the war, Russia has not got
even the whole of the Donbas (it has the whole of Luhansk and some 65 per cent of

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Donetsk). It never managed to seize Kharkiv, Ukraine’s second largest city which lies
roughly 40 km from the Russian border. In the south, the Russians took parts of
Zaporizhzhya, including the eponymous nuclear plant, and the Black Sea port city
of Kherson, but they stopped at the borders of Mykolaiv. Odesa, Ukraine’s pearl in
the Black Sea, was not in their control.
The Ukrainian resistance opened new avenues for Russia’s rivals in the conflict. The
US and Europe, which had imposed crippling sanctions on Moscow, began to
provide direct military assistance and intelligence to Ukrainian forces. Advanced
weapons such as armed drones and High Mobility Artillery Rocket Systems (HIMARS)
were flown in. Mercenaries travelled to Ukraine from the West to fight against the
Russians. US Defence Secretary Lloyd Austin even commented publicly that the US
wanted to see “Russia weakened”. Suddenly, Putin’s Russia found itself in the
middle of a long war with a long front line (roughly 1,000 km long, stretching from
the Oskil River in the northeast to Mykolaiv in the south) against a force armed,
trained and supplied by the collective West.
In late September, a lightning Ukrainian counter-offensive forced Russian troops to
retreat from the Kharkiv Oblast, rendering a humiliating defeat to Putin’s superior
forces in the battlefield. Caught between setbacks in the battlefield and political
pressure at home, Putin ordered partial mobilisation—3,00,000 additional troops,
which is twice the number of soldiers he mobilised to launch the war—on September
21, escalating the conflict.
The global disorder

For realists, the international system is essentially anarchic. And in an anarchic

system, countries will constantly seek greater powers and security at the expense of
the security of weaker powers because the more powerful you are the better your
chances of survival. As the Athenians told the Melians during the Peloponnesian
War, “the strong do what they can and the weak suffer what they must”. While the
system’s essential character remains anarchic, there could be a balance of power
created by great powers in order to install a semblance of order—it could be
multilateral (pre-World Wars), bipolar (post-Second World War) or unilateral (post-
Cold War).
While unipolarity is quite rare in the history of international relations, the US
enjoyed unprecedented powers after the disintegration of the Soviet Union. But the
US-led unipolarity did not last long. America’s inconclusive wars in the Muslim
world, which ended with its ignominious retreat from Afghanistan in 2021, the rapid
rise of China, an aggressive Russia, and the emergence of several middle powers
have effectively brought an end to American unipolarity.
But a new order has not emerged yet. The US’ economic primacy is being strongly
challenged by China, which has already become the world’s second largest economy.
While the US’s military pre-eminence remains, today it is wary of entering into open
conflicts on account of its its experiences in the Muslim world, the need to refocus
its resources to tackle China in the Indo Pacific, and the growing isolationist political
tendencies at home. So the world is in a confused transition phase and its primal
anarchic tendencies are dictating great power behaviour.
It is this chaos that Putin tried to exploit when he went to war with Ukraine. He
knew the old order was changing, which had opened an opportunity for Russia to
make a military push to rewrite the post-Soviet security architecture of Europe. It is
hardly surprising that Putin timed his invasion of Ukraine a few months after the
US retreated from Afghanistan after 20 years of fighting, leaving the country at the
mercy of the Taliban. But where Putin erred was in miscalculating the power of
Ukrainian nationalism, the resolve of Ukrainian troops to fight back, and the
capability and appetite of the West to sustain a prolonged proxy war. This
miscalculation has left Putin, who appeared to be rebuilding Russia’s lost glory until
February 2022, in a spot.

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 No victors
True, Russia has gained territories in Ukraine, but the slow progress of the war and
the setbacks it has suffered have created a perception of weakness, which could
create fresh geopolitical challenges for Putin. The decision by Sweden and Finland to
seek NATO membership was the biggest geopolitical setback for Putin, who built his
muscular foreign policy on the agenda of resisting NATO’s eastward expansion. For
Ukraine, which resisted the Russians valiantly, even recapturing territories once
held by Russian troops, the losses it suffered are irreparable. While reclaiming the
whole of the lost land, including Crimea, remains Ukraine’s self-declared objective, it
appears to be an unrealistic one.
For the US and Europe, the war offered an opportunity to weaken Russia. But the
irony is that they cannot do it without weakening themselves. The economic costs of
the war have been devastating across Western economies. Europe, struggling with a
cost-of-living crisis and rocketing energy prices, has been particularly devastated.
And far-right parties with neo-Nazi roots are on the rise in the continent, riding the
wave of public dissatisfaction with the establishment parties.
As the war grinds on with no off-ramps in sight, the simultaneous security,
economic and political crises across the trans-Atlantic world are expected to only get
worse, which could dramatically remake the socio-political landscape of the West.
The Crux

 As things stand today, there are no victors in the Ukraine war.

 NATO’s eastward expansion has created serious security challenges for Russia.
 Since 2008, Putin has made several calculated geopolitical moves seeking to
both address Russia’s security challenges and restore its role as a major global
player.
 Russia got into Ukraine because it was unhappy with the way Ukraine was
getting sustained military training and advanced weapons from the West.
 The presense of neo-Nazi groups, hostile to Russians, in Ukraine was also a
cause for concern.
 Putin decided to wage war, taking advantage of a moment in history when the
unipolarity of the US no longer rests on solid ground.
 But Putin had not bargained for the sustained resistance of Ukraine and the
power of the West to persist in a prolonged proxy war.
 The war is also however taking a heavy toll on the West.

* This article was published in the Frontline on Oct 20, 2022.

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 SNAKE ISLAND: Battle for the Black Sea
On June 29, 1788, imperial Russian troops laid siege to Ozi, an Ottoman fortress on
the northern Black Sea coast. On the same day, a Russian naval squadron,
commanded by Admiral M.I. Voinovich, left Sevastopol in Crimea for Ozi. Their
mission was to prevent any Turkish attack on the Crimean shores and also to offer
support to the Russian ground troops at Ozi. But in the Black Sea waters, the
Russians were encountered by a far superior Turkish squadron. After days of
manoeuvring in the open sea, on July 14, near a small island in the north-west
of the Black Sea, fighting broke out. After hours-long battle, the Russians inflicted
deadly damage on the Turkish fleet and forced them to retreat.

The Battle of Fidonisi, named after the island which was called Fidonisi by the
Greeks, was the first naval battle of the 1787-1792 Russo-Turkish War. While the
Russian victory in the waters near Fidonisi did not have an immediate impact on the
war, the defeat of the superior Ottoman Navy was a morale booster for the Russian
troops. The Russians had taken Crimea a few years earlier, ending Ottoman
Sultan’s dominance in the Black Sea. Its fleet was relatively new and weaker
compared to the Ottoman Navy. Still, they managed to force the Ottoman ships to
retreat. Five months later, Russian troops stormed Ozi, captured the town and
renamed it as Ochakov, which is now home to Ukraine Navy’s operational control
centre.

Fidonisi is now called the Snake Island. On the first day of President Vladimir
Putin’s invasion of Ukraine, Russia’s Navy seized the island, which lies just 35 km
off Ukraine’s southwestern coast. For over four months, the Russians held the
island under their control, while they made battlefield gains in Ukraine’s eastern
Donbas region. But on Thursday, faced with relentless Ukrainian attacks, Russia
announced that it was exiting the island. The Russian version is that they were
withdrawing troops as a “goodwill gesture” to show that Russia wasn’t blocking food
exports from Ukraine. But Kyiv says they forced the Russian troops out of the rock.

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For the Ukrainian troops which suffered back-to-back defeats in the Donbas and
took heavy casualties in recent weeks, the ouster of the invading forces from the
Snake Island (also called Zmiinyi Island) is a rare battlefield victory.

The island covering just 0.17 square km (roughly the size of 20 football fields) has
played an outsize role in most of the wars Russia fought in the Black Sea since the
Battle of Fidonisi. It came under the control of Romania in 1877. In the First World
War, Russia, in an alliance with Romania, had operated a wireless station on the
island, which was destroyed by Ottoman warships. But as the Ottomans were
defeated in the war, the island continued to stay in Romanian hands. During the
Second World War, Romania, which had joined the Nazi invasion of the Soviet
Union, allowed the Axis powers to establish a radio station on the island.
The Nazis and the Romanians had mined the waters around the island during the
war to stop the Soviet submarines and vessels from getting closer. But in 1944, as
the momentum of the war had clearly shifted in favour of the Soviet Union,
Romanian troops were forced to exit the island. Four years later, as part of a frontier
delimitation protocol signed between Romania and the Soviet Union, the Snake
Island came under the rule of Moscow. It would stay so until Ukraine became an
independent country in 1991, along with several other republics, as the Soviet
Union collapsed.

There was a maritime border dispute between Ukraine and Romania in the waters
around the Snake Island, which was resolved in 2009. At that time, Ukraine had
said the island was home to some 100 people, including military personnel,
scientists, their families and keepers of the lighthouse, which was built in 1842 by
Russia’s Black Sea Fleet and rebuilt several times thereafter. The largely rocky
outcrop has only one village, Bile, which was founded in 2007. Ukraine wanted to
build a settlement on the island, but it, once again, turned out to be the focus of
Russia’s battle to control the Black Sea.

The capture of the island on February 24 allowed Russia to tighten its naval
blockade on Ukraine. But the defence of the island, which was in Ukraine’s artillery
range, became increasingly difficult after Russia lost its flagship Moskva on April
14. Ever since, Ukraine has stepped up attacks not just on the Russian
forces defending the island, but also the supply ships. When the defence became
increasingly costly, Russia finally decided to make a pull-back.

This doesn’t mean that Ukrainian troops can take direct control of the island,
because they might also come under fire from Russian warships. But Ukraine has
clearly pushed the enemy farther away from Odessa, its ‘pearl of the Black Sea’, and
taken a tactical victory, for now.

* This article was published in The Hindu on July 3, 2022.

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Ukraine war impact on the US dollar
The Hindu|Authored by Prabhat Patnaik
The writer is Professor Emeritus, Jawaharlal Nehru University, Delhi.

Capitalism requires a stable medium for holding wealth—stable in the sense that the
prices of commodities in terms of this medium must not be expected to rise “too
much” (that is, at a rate higher than the “carrying cost” of commodities, for then
commodities themselves will become the medium of wealth-holding). Gold has
historically played this role, or some currency convertible to gold at a fixed rate, that
is, some currency “as good as gold”. The pound sterling in the pre-war years had
been one such currency; and the dollar under the post-war Bretton Woods system
has been another.
Even after the convertibility of the dollar into gold was officially ended towards the
end of the Bretton Woods system, the dollar continued to be considered by the
world’s wealth-holders to be “as good as gold” because the dollar prices of goods in
general were expected to be relatively stable. This was because the unit wage cost in
the US (that is, money wage divided by labour productivity) was expected to be
relatively stable, as was the dollar price of the most important current input, oil,
notwithstanding its short-term dollar price fluctuations. The pre-eminence of the
dollar owed so much to the stability of the dollar price of oil that the world may be
said to have been on an “oil standard” of late, reminiscent of the Gold Standard of
the old days.

The United States, however, has upset this entire arrangement underlying the
supremacy of the dollar, because of the sanctions it has imposed, along with the
European Union, on Russia following upon the Ukraine war. In effect, the Western
powers have scored several self-goals, one of which is the weakening of the dollar.
(Europe’s closure of factories because of the absence of Russian natural gas is
another, not to mention Europe’s prospect of freezing in the coming winter months.)
Ironically, the sanctions were imposed with the confidence that the “rouble will be
reduced to rubble” in no time, bringing Russia to its knees; and in the beginning it

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appeared that this prognostication had been right. The financial sanctions that
basically constrained Russia from bringing back home the dollars it earned through
its exports meant a dollar shortage in Russia that pushed up the price of the dollar
against the rouble to astronomical heights. From a price of around 77 roubles in
mid February 2022, the dollar rose to 136 roubles in mid March 2022.
Dollar vs Rouble: Western miscalculation

Then two things happened: first, to stem the fall of its currency, Russia declared
that it would sell oil in future only against rouble payments; and, second, the
reduction in the volume of Russian oil exports, even though it was small, enabled
speculative activity to push up the dollar price of oil in the world market. Both these
developments contributed to a decline in the value of the dollar vis-à-vis the rouble.
The insistence on rouble payment for oil did so for obvious reasons; and the rise in
the dollar-price of oil did so because the dollar price of a barrel of oil suddenly went
up relative to its rouble price.
So significant was the turnaround that on September 20, a dollar exchanged for 62
roubles, a far smaller figure than when the Ukraine war began. And because of the
rise in the dollar price of oil in the world market, Russia’s export earnings have
increased despite lower export volumes. The higher oil price is also a major
contributor to the acceleration in the inflation rate in the U.S., for controlling which,
given the confines of orthodox economic thinking, a recession is being engineered in
that country and elsewhere, which would involve a significant increase in the
unemployment rate.

This Western miscalculation has been a product of sheer hubris. First, it was
believed that sanctions could be simultaneously imposed on any number of
countries with impunity; at this very time, apart from Russia, several other
countries like Iran and Venezuela (both oil producers), not to mention Cuba, are the
victims of Western sanctions. Second, it was believed that a country as large as
Russia, which accounts for 10 per cent of the world’s oil production and meets a
substantially larger share of Europe’s oil needs, would be as helpless as the smaller
victims of sanctions (and even the smaller countries have by no means been brought
to their knees by these sanctions). And third, it was believed that most countries of
the world would fall in line with the Western diktat. In fact, however, not only China,
but a host of other countries including India, Pakistan, Bangladesh and Indonesia
have carried on trade with Russia despite the Western sanctions.
The consequences of this hubristic decision would not have been as serious for the
West if the shortfall in Western oil imports from Russia had been offset through
larger production, and hence exports, from other oil producers. But two of the oil
producers are themselves under sanctions and would hardly be willing to help
Western powers in their fight against Russia by producing more oil; and Saudi
Arabia, despite being a close ally of the West, declined to raise its output, citing
various logistical reasons. As a result, sanctions against Russia have lowered overall
oil output and have boomeranged devastatingly on the West.
If the rouble price of oil is fixed, and can be kept fixed as Russia happens to be a
major oil producer, while the dollar price of oil cannot be kept fixed, and has indeed
risen, as the U.S. cannot overcome the demand-supply mis-match in the world oil
market caused by sanctions, then the dollar effectively loses out to the rouble as a
currency under the present de facto “oil standard”; this is exactly what has been
happening.
Dollar woes: Bilateral arrangements

There is, however, an additional factor as well. The economic agents who hold
dollars as their assets are of two kinds: private and public wealth holders; and
central banks of different countries that hold dollar reserves. While the wealth-
holders’ decision depends on expectations about the price of dollars, vis-à-vis both

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other currencies and also commodities, central banks’ decisions are influenced by
an additional factor: since the dollar is the medium of transaction in much of world
trade, they carry dollar reserves for settling accounts.
Now, one of the consequences of the sanctions against Russia has been the revival
of bilateral payments arrangements between Russia and other countries, of the kind
that used to exist between the Soviet Union and India in the old days. The dollar
simply does not enter as the medium of transaction into such trade. In a bilateral
arrangement between Russia and India, for instance, the exchange rate between the
two currencies is fixed, and the balance of trade is simply held as a claim by one
country upon the other. Such arrangements, therefore, eliminate the demand for
dollars as a reserve currency, replacing it with a plethora of currencies, including
the rouble.
It would be utterly premature, however, on the basis of the foregoing arguments, to
start writing obituaries for the dollar. Dollar hegemony is certainly being challenged
like never before in the last half-century but is nowhere near being replaced. Much
of the world’s trade is still carried on with the dollar as the medium of transaction.
Most of the world’s wealth-holders still see the dollar as a stable medium of holding
wealth, and a move to the dollar as synonymous with “returning home”. True, the
US is facing unprecedented inflation at the moment, but this problem, it is assumed
with confidence, will be resolved at the expense of the working class (by engineering
recession, and hence unemployment which reduces workers’ ex ante share in
output and thereby controls inflation); and wealth-holders, needless to say, never
shed tears over the fate of the working class.
An indication of this “returning home to the dollar” syndrome is provided by the
other important development occurring in the world economy today. The interest
rates in the US which had been close to zero for a long time are being jacked up as a
means of controlling inflation (through ushering in a recession). This has the effect
of sucking in finance from all over the world, especially from the third world
countries, back to the US, causing a depreciation of their currencies vis-à-vis the
dollar; the recent depreciation of the Indian rupee is part of this process.
To counter this outflow, the central banks in all these countries are also raising
interest rates (and their governments will certainly pursue policies of fiscal austerity)
which would transmit the recession of the “metropolis” to these countries. But even
if such interest rate hikes stabilise their exchange rates vis-à-vis the dollar for a
while (until the next round of exchange rate slides begins), the fact that the dollar
continues to remain at the top of the hierarchy of currencies belonging to the rest of
the world (leaving aside Russia for the moment) remains indubitable.
Put differently, there are two different tendencies visible in world currency markets
at the moment: one is the decline of the dollar vis-à-vis the rouble because of the
sanctions against Russia that have backfired on the West; the other is the rise of the
dollar vis-à-vis a host of other currencies because of the outflow of finance from
countries of the third world to the U.S. The decline of the dollar on the one side is
accompanied by its strengthening on the other. Paradoxically, the dollar has
strengthened vis-à-vis the Chinese currency too in recent months.
I have so far discussed currency movements in purely economic terms, but the
economic links are just mediations through which the underlying power relations
make themselves felt. The hegemony of the pound sterling, arising proximately from
the economic factors I have mentioned, such as expectations about its stability, was
rooted in the reality of British colonialism which contributed to this stability in
diverse ways. Likewise, the hegemony of the dollar was rooted in the reality of post-
war American hegemony over the capitalist world as a whole (some have called it
“American super-imperialism”).
The challenge to the position of the dollar we see today is in reality a challenge to
this American hegemony over the world. In fact, the whole Ukraine war represents a
major episode in this challenge, a crucial marker in the transition from a so-called

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“unipolar world” to a “multipolar world”. To believe that the dollar will remain forever
hegemonic would be tantamount to believing that the current unipolar world will
continue for ever. Democratic opinion, however, should wish not for a transition
from one “pole” to just a few “poles”, but rather to a world where there are no “poles”
at all, where countries come together through local, bilateral or multilateral
arrangements to accept each other’s currencies for settling transactions among
themselves.
The Crux

 The sanctions against Russia over the war in Ukraine are turning out to be
counter productive for the United States and Europe.
 Among the self-goals scored by the West are Europe’s closure of factories
because of the absence of Russian natural gas, not to mention Europe’s
prospect of freezing in the coming winter months.
 Another self-goal is the weakening of the dollar, whose pre-eminence owed
much to the stability of the dollar price of oil.
 The rouble price of oil can be kept fixed, as Russia happens to be a major oil
producer, while the dollar price of oil cannot be kept fixed, and has indeed risen,
as the U.S. cannot overcome the demand-supply mis-match in the world oil
market caused by sanctions.
 The dollar is therefore effectively losing out to the rouble as a currency.
 One of the consequences of the sanctions against Russia has been the revival of
bilateral payments arrangements between Russia and other countries, and the
dollar does not enter as the medium of transaction into such trade.
 The fact that the dollar continues to remain at the top of the hierarchy of
currencies belonging to the rest of the world (leaving aside Russia for the
moment) remains indubitable.
 Yet, the dollar continues to remain at the top of the hierarchy of currencies
belonging to much of the world.
 If the dollar has declined vis-à-vis the rouble, it has risen vis-à-vis a host of
other currencies because of the outflow of finance from countries of the third
world to the US.

* This article was published in the Frontline on Oct 11, 2022.

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