Home > China's economy, Economy > China and Russia Quit Dollar As Main Trade Currency

China and Russia Quit Dollar As Main Trade Currency


Premier Jiabao shakes hands with Putin in St. Petersburg, Russia.
Photo by Alexey Druzhinin of the AFP

11/24/2010/08:02
by Su Qiang and Li Xiaokun (China Daily)

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. – More here and here


Russia’s President Medvedev shakes hands with China’s Premier Jiabao
during their meeting at the presidential residence in Gorki, Russia – Reuter’s photo

China-Russia currency agreement further threatens U.S. dollar

11/25/2010/8:30 P.M. E.S.T.
by Hao Li

China and Russia have agreed to allow their currencies to trade against each other in spot inter-bank markets.

Russia’s President Medvedev shakes hands with China’s Premier Wen Jiabao during their meeting at the presidential residence in Gorki outside Moscow

The motive is to “promote the bilateral trade between China and Russia, facilitate the cross-border trade settlement of [the yuan], and meet the needs of economic entities to reduce the conversion cost,” according to Chinese officials.

This latest move — a continuation in a series of efforts by both countries to move away from U.S. dollar usage in international trade — further threatens the dollar’s reserve currency status.

The dollar has this status because it is currently the currency of international trade.

For example, when Malaysia and Germany exchange goods, the transaction is often denominated in dollars. In particular, oil — something that all modern economies need — is denominated in U.S. dollars, so the currency is almost as indispensable as oil itself.

The dollar reserve currency status allows the U.S. to run up high deficits and have its debt be denominated in the U.S. dollar, which in turn enables it to print unlimited dollars and inflate its way out of debt. America, understandably, wants to protect these privileges.

In fact, some allege that the U.S. wants to protect this status so badly that it invaded Iraq because the country began selling oil in euros instead of dollars. Now, the U.S. is allegedly threatening Iran because of the country’s desire to use euros or Russian rubles in oil transactions.

Meanwhile, China and Russia are gradually revolting against the U.S. dollar. This latest move to shift bilateral trade away from it is significant in itself because China-Russian trade — previously denominated in dollars — is currently around $40 billion per year. For Russia, trade with China is larger than trade with the U.S.

Moreover, as this policy extends to Russian exports of oil and natural gas to China, it threatens the global “petro-currency” status of the U.S. dollar.

According to the International Energy Agency, China is already the largest consumer of energy, although the U.S. is still the largest consumer of oil. However, China, now the largest automobile market in the world, is expected to rapidly increase oil consumption.

Russia is already the second biggest oil exporter and the biggest natural gas exporter in the world.

In other words, the growing importance of Russia and China in the global energy picture — and their phasing out of dollar usage for trading energy commodities — would marginalize the status of the dollar.

Russian ambitions against the dollar for energy exports go back to 2006. That year, former President Vladimir Putin made plans to set up a ruble-denominated oil and natural gas stock exchange in Russia.

“The ruble must become a more widespread means of international transactions. To this end, we need to open a stock exchange in Russia to trade in oil, gas, and other goods to be paid for with rubles…Our goods are traded on global markets. Why are they not traded in Russia,” said Putin, according to RIA Novosti.

For China, it is promoting the use of yuan as a trade settlement currency in Asia. Recently, it allowed its currency to trade against the Malaysian ringgit. Just like the deal with Russia, the purpose of that agreement was to “promote bilateral trade between China and Malaysia and facilitate using the yuan to settle cross-border trade.”

Trade is the major reason for the demand of foreign currencies in the first place. So as countries like China and Russia phase out the usage of U.S. dollars for international trade — including but not limited to oil trade — its status as the world’s reserve currency will continue to slide. – Source

Related Articles:

China Assails Monetary Easing, Citing `Imported Inflation,’ Bubble Risks

11/13/2010/3:04 A.M. G.M.T.-0600
by Sophie Leung

China renewed an attack on quantitative easing, citing the risk of increased prices in emerging economies, a day after the Group of 20 nations said the markets can adopt regulatory steps to cope.

China “doesn’t support” the monetary easing that causes “imported” inflation in developing countries, Commerce Minister Chen Deming told a forum today in Macau, a Chinese special autonomous region. The capital inflows increase the risk of “asset bubbles,” Jin Zhongxia, deputy director general of the international department at the People’s Bank of China, said at the same forum.

The Group of 20 offered emerging economies cover to limit currency swings and stem asset bubbles. The U.S. Federal Reserve fueled concern in emerging economies last week when it announced plans to buy $600 billion of long-term government bonds to reduce borrowing costs and spur growth in a second round of so- called quantitative easing. – More here

Abhisit calls on Asia to use yuan in trade – G20 makes no progress in curbing capital flows
11/13/2010/12:00 AM
from the bangkokpost.com

Prime Minister Abhisit Vejjajiva, fearful of the effects of the soaring baht due to massive capital inflows, has proposed the use of the Chinese yuan as a major regional trading currency.

Asia-Pacific leaders will have to discuss measures to deal with the fund inflows after the Group of 20 major economies failed to reach any tangible decisions, Mr Abhisit said yesterday.

“The G20 did not make any progress on the matter and it is difficult to get the United States and China to express their clear stances on the issue. But what we can do is try to cooperate in the region and reduce the impact from currency volatility,” Mr Abhisit said before leaving for the Asian Games in China and an Asia-Pacific Economic Cooperation (Apec) leaders’ meeting in Yokohama, Japan, this weekend.

G20 leaders drew a veil over their economic policy disputes in South Korea yesterday. They agreed to tackle tensions that have raised the spectre of a currency war and trade protectionism, but they fell short of already low expectations.

Only vague “indicative guidelines” were set for measuring imbalances between their multi-speed economies. Leaders called a timeout to let tempers cool and left details to be discussed in the first half of next year.

Mr Abhisit echoed a call made by the Asian Development Bank (ADB) to use China’s yuan as a major trading currency in the region to reduce the impact of currency volatility, especially linked to the weakening of the US dollar. He said he was the one who proposed the idea to the ADB.

ADB president Haruhiko Kuroda met Mr Abhisit this week to seek Thailand’s support when it tables the proposal at the next meeting of Asean+3 (Asean plus China, Japan and South Korea) finance ministers. – More here

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: