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

Discussion in 'China' started by Mikkis, Dec 14, 2011.

  1. Mikkis

    Mikkis Regular Member

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


    By Hao Li: Subscribe to Hao's RSS feed

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

    China, Russia to dump US dollar for bilateral trade


    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.
     
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  3. asianobserve

    asianobserve Elite Member Elite Member

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    Who like to join the Russian-Chinese parallel monetary economy?
     
  4. The Messiah

    The Messiah Bow Before Me! Elite Member

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    It is time that the dollar was dumped as the reserve currency. Yanks can print how many dollars they like to stabilize there economy without its value decreasing while other currencies dont have the same luxury.
     
    Last edited: Dec 14, 2011
  5. The Messiah

    The Messiah Bow Before Me! Elite Member

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    IMF calls for dollar alternative

    NEW YORK (CNNMoney) -- The International Monetary Fund issued a report Thursday on a possible replacement for the dollar as the world's reserve currency.

    The IMF said Special Drawing Rights, or SDRs, could help stabilize the global financial system.

    SDRs represent potential claims on the currencies of IMF members. They were created by the IMF in 1969 and can be converted into whatever currency a borrower requires at exchange rates based on a weighted basket of international currencies. The IMF typically lends countries funds denominated in SDRs

    While they are not a tangible currency, some economists argue that SDRs could be used as a less volatile alternative to the U.S. dollar.

    Dominique Strauss-Kahn, managing director of the IMF, acknowledged there are some "technical hurdles" involved with SDRs, but he believes they could help correct global imbalances and shore up the global financial system.

    "Over time, there may also be a role for the SDR to contribute to a more stable international monetary system," he said.

    The goal is to have a reserve asset for central banks that better reflects the global economy since the dollar is vulnerable to swings in the domestic economy and changes in U.S. policy.

    In addition to serving as a reserve currency, the IMF also proposed creating SDR-denominated bonds, which could reduce central banks' dependence on U.S. Treasuries. The Fund also suggested that certain assets, such as oil and gold, which are traded in U.S. dollars, could be priced using SDRs.

    Oil prices usually go up when the dollar depreciates. Supporters say using SDRs to price oil on the global market could help prevent spikes in energy prices that often occur when the dollar weakens significantly.

    IMF discusses plan to replace dollar as reserve currency - Feb. 10, 2011
     
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  6. pmaitra

    pmaitra Moderator Moderator

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    Thank you Mikkis. You have highlighted the most salient points, the same issue that bothers me about US$ as well as INR.

    I am willing to join any currency that has a Gold Standard and that is not printed out of thin air!
     
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  7. asianobserve

    asianobserve Elite Member Elite Member

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    The question is do you want to join in a new international economic setup where instead of the US dollar either the Yuan or Rubble or a super Yuan-Rubble hybrid is the currency? :pound:
     
    Last edited: Dec 14, 2011
  8. asianobserve

    asianobserve Elite Member Elite Member

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    My dear friend this is ancient story. The IMF has a new boss who does not publicly share Mr. Kahn's view on the matter (he is a darling of the French left what do you expect?). Besides, the Euro is imploding and international business is seeking shelter in the relative safety of the evil Dollar (but an evil that everybody already know).
     
  9. pmaitra

    pmaitra Moderator Moderator

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    No, unless you can guarantee be that either the Yuan or Rouble or a super Yuan-Rouble hybrid will have a Gold Standard.

    I don't want to waste my energy by jumping from one boat with a leak that is sinking to another boat with a leak.

    BTW,

    this is what Rouble looks like:
    [​IMG]

    and this is what Rubble looks like:
    [​IMG]
     
    Last edited: Dec 14, 2011
  10. The Messiah

    The Messiah Bow Before Me! Elite Member

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    I wonder if that is why Mr.Kahn apparently assaulted and molested that hotel cleaning lady and then was pardoned by the court.

    And lost his job on false charges.
     
    Last edited: Dec 14, 2011
  11. The Messiah

    The Messiah Bow Before Me! Elite Member

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    When all boats are leaking then it better to jump into the water and start swimming yourself.
     
  12. asianobserve

    asianobserve Elite Member Elite Member

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    Actually, all this moves about scrapping the Dollar especially coming out from the mouths of our dear Russian and Chinese friends is politically motivated. Russian can't still accept the fact that it is living under the system championed and represented by its old rival (no more) the USA. While China, well, should I say the obvious? It wants the rag out from the US' dominant World position.... INternational businesses on the other hand have always been comfortable with the Dollar. But a Gold standard backed Dollar would be most welcome. I just don't like a Yuan, Rubble, Rubble-Yuan backed Gold standard.
     
  13. asianobserve

    asianobserve Elite Member Elite Member

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    (deleted by mistake)
     
    Last edited: Dec 14, 2011
  14. pmaitra

    pmaitra Moderator Moderator

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    :pound::rofl::laugh::scared2::bowl:

    That was really funny.

    Well, you start swimming and go deep down and try to grab some of these:

    !!! An ancient currency once used in parts of India !!!

    [​IMG]
     
    Last edited: Dec 14, 2011
  15. asianobserve

    asianobserve Elite Member Elite Member

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    Interesting what you're getting at. :laugh:
     
  16. pmaitra

    pmaitra Moderator Moderator

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    No problem bud! Just a dry humour and no offense to you. ;)
     
  17. utubekhiladi

    utubekhiladi The Preacher Elite Member

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    china is going to screw up america, the big time :wave:
     
  18. asianobserve

    asianobserve Elite Member Elite Member

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    It just so happened they have a lot of these stuff in Grozny... :laugh:
     
  19. The Messiah

    The Messiah Bow Before Me! Elite Member

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    Just speculating :p
     
  20. pmaitra

    pmaitra Moderator Moderator

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    Aha, you're getting good at jokes. Good one! :D
     
  21. asianobserve

    asianobserve Elite Member Elite Member

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    China is already "screwing up" the US and also India, big time...
     

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