North Korea And Russia's Latest Deal Undermines America's 'Weaponization Of Finance' Plan

Putin north koreaREUTERS/Mikhail Klimentyev/RIA Novosti/KremlinRussian President Vladimir Putin (R) and North Korea’s new Ambassador Kim Hyun-joon (2nd L) attend a ceremony to hand over credentials at the Kremlin in Moscow, November 19, 2014.

North Korea and Russia’s latest liaison suggests that Washington’s strategic weaponization of financemay not be working.

Russia’s Ministry for the Development of the Far East recently announced that Russian businesses doing trade through North Korea’s Foreign Trade Bank can make payments in rubles.

And last October the ministry announced that Russia was looking to expand economic exchanges with the hermit nation, including the increased use of the ruble between the two countries.

“This way, North Korea and Russia don’t need to rely on the dollar. All they have to do is stick with the ruble. They’re increasing their economic ties,” one person familiar with the matter told Business Insider.

Basically, what’s happening is that Russia and North Korea are looking to diversify away from the western financial system after the two nations have been repeatedly targeted by US-sanctions.

The US-imposed sanctions are part of Washington’s larger strategic geopolitical plan called “the weaponization of finance,” which Ian Bremmer defined as the “system use of carrots (access to capital markets) and sticks (varied types of sanctions) as tools of coercive diplomacy.”

When in comes to the weaponization of finance, US foreign policy goes like this: The US imposes sanctions (or other coercive economic measures) on “rogue states” (aka states that are acting contrary to the US’ interests) which should then force that state to change its behaviour if it wishes to have the sanctions lifted or to have access to US capital markets again. (The best example here is the US imposing sanctions on Russia following the annexation of Crimea.)

However, this is often not how rogue states view the situation: They feel like they are being punished — or even worse, bullied — by the US.

While financially weaker states that are dependent on the US may have no choice but to yield to the latter’s coercion, more powerful states can choose to diversify.

And that’s exactly what Russia and North Korea appear be doing here.

The moves show the how “weaponization of finance” strategy has glaring drawbacks — including this possibility that targeted countries can and will increasingly diversify away from the dollar, as Bremmer noted earlier in January.

“Over the longer term, though, others will diversify away from reliance on the dollar and US-dominated institutions, particularly in East Asia, where China has the muscle and the motive to create its own institutions, and where there is less dollar-denominated debt to complicate the process,” he wrote.

The Asia Infrastructure Investment Bank, the BRICS bank, and the Silk Route Maritime and Overland initiatives are all already existing examples of that, Bremmer noted.

Another layer to what’s going on is that over the past several months several non-Western countries (including Russia, Iran, China, India, and North Korea) have been publically strengthening their military, energy, and economic relationships among each other.

North Korea and Russia’s diversification away from the Western financial system by using rubles is just an additional part of that strategy.

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