As we have mentioned before, Western ratings agencies have always been “overrated” and much credibility has been lost in recent years (except in the West) however, they can have more impact than a nuclear device. Economies and banks can be destroyed if, the procrastinating, hypercritical agencies decide to downgrade a bank or economy.
The Russians and Chinese have had enough, and will not be dictated too, by the very instigators of the 2008 Sub-Prime issues. The too big to fail, double standards mentality that prevails in the US, will no longer be of concern to Russia & China.
The two countries have recently signed an agreement. In a new joint venture, to try and re-balance the global finances, the new institution will investigate joint investment projects, Finance Minister Anton Siluanov announced during a recent visit to China. There is also talk of the creation of a new bank that will bring competition to the “all prevailing” IMF (international monetary fund). Also on the agenda is, a rival Credit Card payment system to counter the VISA/MasterCard monopoly that was used as a weapon against Russia recently.
Moscow recently discovered just how expensive a negative rating can be. S&P and Moody’s both downgraded Russia because of the Crimea situation. According to S&P rated just one grade above junk, of course in true American style the other agencies quickly followed suit (as they do).
The Russian bond market reacted negatively to the downgrades. Interest rates raised up so far, that Moscow had to curb plans to issue any new bonds. The downgrades were also detrimental to the Ruble and stocks on the Moscow exchange. After the S&P downgrade, the Central Bank of Russia was forced to intervene and raise interest rates, to put the brakes on investors withdrawing from the country.
China has also been irritated with its treatment by the Western rating agencies and has created its own agency, The Dagong, which still has to gain any credibility as an agency in the world.
The Dagong bases its ratings more strongly on fundamentals such as debt ratio, China and Russia are in considerably better positions than the US. Measured against economic performance, Moscow’s liabilities are less 13%. That’s as far as gross debt is concerned. If you include reserve assets from the sovereign wealth fund into which part of Gas/Oil proceeds flow, then Russia is “debt-free”. China’s is in the region of 20% as compared to the US where it’s over 100%.
Moody’s, Fitch etc. rate the US on average the top AAA grade, The Dagong rates it A-
Russia and China are far better with The Dagong, Beijing is given AAA, and Russia is given A, which is two grades higher than the US. At this time Western agencies rate Russia three grades below the U.S, and China two grades below it.
It appears that in the avoidance of being pushed into a third world war the Russians, Chinese and some members of the BRICS countries have grown weary of the “one sided US Dollar”, and their countries dependencies of the US currency. In the last 2 years China, Russia, Malaysia have been trading oil in their own currencies, putting further pressure on the Dollar.
Personally, i see this as a positive move to bring some “balance” back into the world, (all be it, the financial world). Having a ratings agency that offers a different perspective to the Western Monopoly that currently exists. After all “competition is good for the consumer, monopolies work better for businesses & Governments”.