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28 Feb, 2008 03:38

Dollar drowning: boon or bane for Russia?

Oil prices hit $US 102 a barrel on Wednesday and the dollar's fallen to a fresh low of 1.51 against the euro as investors flee America's economic woes to the safe haven of commodities.

In his twice-yearly address to Congress on Wednesday, Federal Reserve Chairman Ben Bernanke referred four times to the “downside” risks for the economy.

Analysts agree the greenback's already losing its status as the world currency, multinationals like Hyundai no longer accept contracts in dollars.

With no single currency to take its place investors have flocked to commodities. Gold hit an all-time high on Wednesday of $US 964 an ounce.

The CIS chief economist at UBS Bank, Dr. Clemens Grafe, explained how Russia's profiting from America's distress.

“We don't agree on that but a lot of investors are trading on Russia as an oil country, and if they understand that oil prices are going to stay high even if the U.S. goes into recession, they're willing to bring their money here,” he said.

But experts warned the strong currency and fantastic commodity prices like $US 100 oil were actually a dangerous drug, with no obvious de-tox.

“The stronger the currency the harder it is to diversify into new industries, because we actually have the oil industry in Russia playing a very important role in terms of financing Russia's growth. Russia would prefer to have oil prices at 50-60 dollars per barrel rather than 100,” believes Natalya Orlova, Alfa-Bank chief economist.

Add to that double-digit price inflation analysts predict will accompany a surge of investment in Russia, and the country's future in a recession-hit America doesn't seem so rosy after all.