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China, Russia Quit Dollar

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St. Petersburg, Russia - China and Russia have decided to renounce the US dollar and resort to using their own currencies for bilateral trade, Premier Wen Jiabao and his Russian counterpart Vladimir Putin announced late on Tuesday.

Chinese experts said the move reflected closer relations between Beijing and Moscow and is not aimed at challenging the dollar, but to protect their domestic economies.

"About trade settlement, we have decided to use our own currencies," Putin said at a joint news conference with Wen in St. Petersburg.

The two countries were accustomed to using other currencies, especially the dollar, for bilateral trade. Since the financial crisis, however, high-ranking officials on both sides began to explore other possibilities.

The yuan has now started trading against the Russian rouble in the Chinese interbank market, while the renminbi will soon be allowed to trade against the rouble in Russia, Putin said.

"That has forged an important step in bilateral trade and it is a result of the consolidated financial systems of world countries," he said.

Putin made his remarks after a meeting with Wen. They also officiated at a signing ceremony for 12 documents, including energy cooperation.

The documents covered cooperation on aviation, railroad construction, customs, protecting intellectual property, culture and a joint communiqu. Details of the documents have yet to be released.

Putin said one of the pacts between the two countries is about the purchase of two nuclear reactors from Russia by China's Tianwan nuclear power plant, the most advanced nuclear power complex in China.

Putin has called for boosting sales of natural resources - Russia's main export - to China, but price has proven to be a sticking point.

Russian Deputy Prime Minister Igor Sechin, who holds sway over Russia's energy sector, said following a meeting with Chinese representatives that Moscow and Beijing are unlikely to agree on the price of Russian gas supplies to China before the middle of next year.

Russia is looking for China to pay prices similar to those Russian gas giant Gazprom charges its European customers, but Beijing wants a discount. The two sides were about $100 per 1,000 cubic meters apart, according to Chinese officials last week.

Wen's trip follows Russian President Dmitry Medvedev's three-day visit to China in September, during which he and President Hu Jintao launched a cross-border pipeline linking the world's biggest energy producer with the largest energy consumer.

Wen said at the press conference that the partnership between Beijing and Moscow has "reached an unprecedented level" and pledged the two countries will "never become each other's enemy".

Over the past year, "our strategic cooperative partnership endured strenuous tests and reached an unprecedented level," Wen said, adding the two nations are now more confident and determined to defend their mutual interests.

"China will firmly follow the path of peaceful development and support the renaissance of Russia as a great power," he said.

"The modernization of China will not affect other countries' interests, while a solid and strong Sino-Russian relationship is in line with the fundamental interests of both countries."

Wen said Beijing is willing to boost cooperation with Moscow in Northeast Asia, Central Asia and the Asia-Pacific region, as well as in major international organizations and on mechanisms in pursuit of a "fair and reasonable new order" in international politics and the economy.

Sun Zhuangzhi, a senior researcher in Central Asian studies at the Chinese Academy of Social Sciences, said the new mode of trade settlement between China and Russia follows a global trend after the financial crisis exposed the faults of a dollar-dominated world financial system.

Pang Zhongying, who specializes in international politics at Renmin University of China, said the proposal is not challenging the dollar, but aimed at avoiding the risks the dollar represents.

Wen arrived in the northern Russian city on Monday evening for a regular meeting between Chinese and Russian heads of government.

He left St. Petersburg for Moscow late on Tuesday and is set to meet with Russian President Dmitry Medvedev on Wednesday.

Beginning of the end for dollars hegemony, especially as the yanks wouldn't dare try to bomb these guys back into compliance.

Messy economic-military proxy wars will be on the horizon though.

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I think that this is a big deal, especially as it bypasses the assumed intermediate step of using the EUR instead of the USD in the process of disintermediating the West in world trade.

It is consistent with my theme that the First World will decline quite rapidly when the large, less develeoped nations begain to disintermediate Western banks and Western bond markets.

I have always thought that the death knell for the West would be a pan-Asian (followed by oter large blocs) bond market. This could be a back door way to accomplish the same thing, especially if bilateral trading partners start to invest their surpluses / borrow their deficits in the currency of their trading partners rather than in Dollars.

http://www.housepricecrash.co.uk/forum/index.php?showtopic=141319

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I think that this is a big deal, especially as it bypasses the assumed intermediate step of using the EUR instead of the USD in the process of disintermediating the West in world trade.

It is consistent with my theme that the First World will decline quite rapidly when the large, less develeoped nations begain to disintermediate Western banks and Western bond markets.

I have always thought that the death knell for the West would be a pan-Asian (followed by oter large blocs) bond market. This could be a back door way to accomplish the same thing, especially if bilateral trading partners start to invest their surpluses / borrow their deficits in the currency of their trading partners rather than in Dollars.

http://www.housepricecrash.co.uk/forum/index.php?showtopic=141319

Very very interesting view. I have been thinking that Germany might be the key pivot in this whole process for some time. All it would take would be Germany joining with a trans-asia trading block and it would be good-bye Mr. Chips...

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I think that this is a big deal, especially as it bypasses the assumed intermediate step of using the EUR instead of the USD in the process of disintermediating the West in world trade.

It is consistent with my theme that the First World will decline quite rapidly when the large, less develeoped nations begain to disintermediate Western banks and Western bond markets.

I have always thought that the death knell for the West would be a pan-Asian (followed by oter large blocs) bond market. This could be a back door way to accomplish the same thing, especially if bilateral trading partners start to invest their surpluses / borrow their deficits in the currency of their trading partners rather than in Dollars.

http://www.housepricecrash.co.uk/forum/index.php?showtopic=141319

Interesting.

And the world's biggest "intermediating" centre is the city of London.

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Wow this is huge news :o

It is.

I am not sure that the Western media and commentators have the ability to connect the dots and see what it actually means for trade and budget deficit financing for the large Western debtor nations though.

Some of the themes first developed here do appear elsewhere in the MSM media and the blogoshpere eventually. It will be interesting to see if someone like FTAlphaville or ZeroHedge develop it further.

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They should never have been going through the dollar for bilateral trade but they obviously have some problems with setting prices and exchange rates that suit both sides without the dollar benchmark, be interesting to see how this works out for them.

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Interesting.

And the world's biggest "intermediating" centre is the city of London.

Very true. London will limp on a little longer than New York though as London intermediates multilaterally while New York intermediates bilaterally.

The reality is that Moscow and Beijing have domestic markets reaching sufficient critical mass that they no longer need someone from Goldman or Bar Cap to "help" them and clip some money on every trade.

Now we just need India and Brazil to follow suit. Brazil has a more mature financial infrastructure than India so they would probably be my next candidate.

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They should never have been going through the dollar for bilateral trade but they obviously have some problems with setting prices and exchange rates that suit both sides without the dollar benchmark, be interesting to see how this works out for them.

After the end of the gold standard the only thing left for currencies was credibility, trust, confidence on the issuing authority, or country.

I am not 100% sure that Russia and China really trust each other's currencies more than the trust the dollar - just yet. I guess this may be more of a political and diplomatic gesture.

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I'm not convinced that this has any major implications. Finance has long since been divorced from geography so the currency shoudn't be a major issue if Western banks are still able to provide the right services.

What it will do is increase competition which should ultimately decrease profit margins globally in the banking sector. This has to be a good thing.

Edit - It also strikes me as anachronistic that this is worthy of comment by a Prime Minister. Imagine David Cameron dictating which currency BP trade in?

Edited by thecrashingisles

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It is.

I am not sure that the Western media and commentators have the ability to connect the dots and see what it actually means for trade and budget deficit financing for the large Western debtor nations though.

Some of the themes first developed here do appear elsewhere in the MSM media and the blogoshpere eventually. It will be interesting to see if someone like FTAlphaville or ZeroHedge develop it further.

Makes one wonder what is going on behind the curtains in Europe. Wouldn't surprise me to find out that diplomatic discussions are under way with certain European players (Germany/Scandinavia come to mind) regarding a trade/currency agreement with Russia/China/Central Asia. This may be what we see emerge if the Euro fails...

The potential complexity of the geopolitical manoeuvring is mind-boggling....

Goodbye new world order, hello newer world order...

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meanwhile, shells land on wrong side of border in SouthKorea...still, technically, at War with the North.

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"China will firmly follow the path of peaceful development and support the renaissance of Russia as a great power,"

I think we are near the end game for the USA and us as it's poodle, worrying how quick things could flip.

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Very true. London will limp on a little longer than New York though as London intermediates multilaterally while New York intermediates bilaterally.

The reality is that Moscow and Beijing have domestic markets reaching sufficient critical mass that they no longer need someone from Goldman or Bar Cap to "help" them and clip some money on every trade.

Now we just need India and Brazil to follow suit. Brazil has a more mature financial infrastructure than India so they would probably be my next candidate.

Interesting point.

I've just Googled it. It looks like we missed that one. See below.

And it looks like it is China the main agent in this.

http://www.marketwatch.com/story/china-brazil-plan-currency-trade-deal-reports

June 28, 2009, 10:54 p.m. EDT

China, Brazil reported planning currency trade deal

By MarketWatch

LOS ANGELES (MarketWatch) -- The central bank governors of China and Brazil have agreed in principle to allow trade between the two countries to be settled in their respective currencies, reports said Sunday.

People's Bank of China Gov. Zhou Xiaochuan and Banco Central do Brazil President Henrique Meirelles met on the sidelines of the Bank for International Settlement's annual general meeting in Basel and said they would study how to implement the plan, the reports said.

The move would bypass the U.S. dollar, to settle trade invoices in Chinese yuan and Brazilian reals.

The reports follow China's central bank's repeated assertion Friday that a new global reserve currency is needed. See full story on China's latest call for new global reserve currency.

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Interesting point.

I've just Googled it. It looks like we missed that one. See below.

And it looks like it is China the main agent in this.

http://www.marketwatch.com/story/china-brazil-plan-currency-trade-deal-reports

There is strong bilateral benefit for Russia and China to join, providing they can work out their political differences. Unfortunately the US is pushing them together by the activity in Afghanistan. Much better for the US to have supported the Taliban in an insurgency in Russia/China.

But for Brazil and China I don't see the benefit. The are both producer nations and have similar objectives. I don't think that Brazil wants to see all her raw materials exported to China, she wants to use those herself...

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There is strong bilateral benefit for Russia and China to join, providing they can work out their political differences. Unfortunately the US is pushing them together by the activity in Afghanistan. Much better for the US to have supported the Taliban in an insurgency in Russia/China.

But for Brazil and China I don't see the benefit. The are both producer nations and have similar objectives. I don't think that Brazil wants to see all her raw materials exported to China, she wants to use those herself...

Both countries (edit: I mean Brazil and China) are doing very well, partially thanks to each other. It is not a zero-sum game. Both are growing, industrialising, and growing their internal markets too. And reducing poverty. BTW, on this point, the past decade has actually been brilliant. We should keep this in mind.

Brazil has an enormous amount of natural resources, virtually inexhaustible. More than enough for both countries. The bottleneck there is the transport infrastructure - like in India.

Edited by Tired of Waiting

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Makes one wonder what is going on behind the curtains in Europe. Wouldn't surprise me to find out that diplomatic discussions are under way with certain European players (Germany/Scandinavia come to mind) regarding a trade/currency agreement with Russia/China/Central Asia. This may be what we see emerge if the Euro fails...

The potential complexity of the geopolitical manoeuvring is mind-boggling....

Goodbye new world order, hello newer world order...

I think it was Jim Willie who said that there would be a "Nordic Euro" which would include Germany, the Scandies and possbly Russia and the Netherlands.

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Beginning of the end for dollars hegemony, especially as the yanks wouldn't dare try to bomb these guys back into compliance.

Messy economic-military proxy wars will be on the horizon though.

Ha, how I laughed at this article.

Arbitrageurs must be chomping at the bit on this one, if Russia and China trade with each using a 'floating currency'. Infact all that needs to happen is for the rouble to float, and someone is going to make a huge amount of money out of it.

The Renminbi is a currency whose exchange rate is fixed against the dollar. So if the dollar goes up against the rouble, so does the Renminbi. If the Renminbi doesnt stay in step with the dollar, then you can arbitrage it for free money until it is the same value.

And that is what will happen.

So there is no news here, nothing to see. The dollar remains as fungible as ever, and can be used in trade anywhere, even between Russia and China.

The only news that counts is when the Chinese float the Renminbi freely. That isnt in this announcement.

And a free float of the Renminbi is what the Fed are trying to achieve with their QE policies.

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Ha, how I laughed at this article.

Arbitrageurs must be chomping at the bit on this one, if Russia and China trade with each using a 'floating currency'. Infact all that needs to happen is for the rouble to float, and someone is going to make a huge amount of money out of it.

The Renminbi is a currency whose exchange rate is fixed against the dollar. So if the dollar goes up against the rouble, so does the Renminbi. If the Renminbi doesnt stay in step with the dollar, then you can arbitrage it for free money until it is the same value.

And that is what will happen.

So there is no news here, nothing to see. The dollar remains as fungible as ever, and can be used in trade anywhere, even between Russia and China.

The only news that counts is when the Chinese float the Renminbi freely. That isnt in this announcement.

And a free float of the Renminbi is what the Fed are trying to achieve with their QE policies.

Good point, brings it all down to earth. China seems to be pulling every stop to continue keeping her currency behind a firewall, and still trade with the rest of the world.

[Edit] Still, if the Euro fails, then all bets are off.

Edited by Toto deVeer

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I think it was Jim Willie who said that there would be a "Nordic Euro" which would include Germany, the Scandies and possbly Russia and the Netherlands.

This was mentioned on Newsnight last night, but I don't think anyone will be rushing to join a new currency after the Euro experience. It is now glaringly obvious that in order to thrive in a currency block not based on fiscal union, that you have to be the most successful partner or least keep up with them in terms of trade and productivity.

The strains in the Euro have have been around for a long time and were only masked with the illusion of growth due to credit/property bubbles (in Ireland, Spain and Portugual) and cooking the books (in Greece and probably Italy).

Edited by Constable

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  • 141 Brexit, House prices and Summer 2020

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      • down 5% +
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      • up 5%



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