In response to sanctions, Russia is seeking non-USD trade deals, most notably with China.  How will non-USD transactions impact the Forex market?  Already, US based intellectuals are calling for an end to the Dollar Hegemony:

Note that as long as the dollar is the reserve currency, America’s trade deficit can worsen even when we’re not directly in on the trade. Suppose South Korea runs a surplus with Brazil. By storing its surplus export revenues in Treasury bonds, South Korea nudges up the relative value of the dollar against our competitors’ currencies, and our trade deficit increases, even though the original transaction had nothing to do with the United States.

This isn’t just a matter of one academic writing one article. Mr. Austin’s analysis builds off work by the economist Michael Pettis and, notably, by the former Federal Reserve chairman Ben S. Bernanke.

Russia and China are agreeing to settle more trade in Rubles and Yuan.  From Reuters:

(Reuters) – Russia and China pledged on Tuesday to settle more bilateral trade in rouble and yuan and to enhance cooperation between banks, Russia’s First Deputy Prime Minister Igor Shuvalov said, as Moscow seeks to cushion the effects of Western economic sanctions.  Shuvalov told reporters in Beijing that he had agreed an economic cooperation pact with China’s Vice Premier Zhang Gaoli that included boosting use of the rouble and yuan for trade transactions.  The pact also lets Russian banks set up accounts with Chinese banks, and makes provisions for Russian companies to seek loans from Chinese firms.  “We are not going to break old contracts, most of which were denominated in dollars,” Shuvalov said through an interpreter.  “But, we’re going to encourage companies from the two countries to settle more in localcurrencies, to avoid using a currency from a third country.”

China has an explosive Forex market, and is negotiating swap arrangements with other central banks.  Retail demand for Forex in China is also exploding.   Although the US Forex market is not developed as in Europe, Asia, and the UK, the USD has been the global reserve currency since World War 2.  How will new players such as Russia and China impact the Forex market, and values of other currencies?  Certainly, they will not take the same view as the US.

The free-floating Forex system we have today was in fact created by the US (Nixon Shock) but since no standards were ever established, now it’s an unknown unknown how the BRICs will evolve the Forex market, but certainly it will be changed forever.  And certainly we can expect extreme volatility in the years ahead, even on the majors.