China, Russia quit dollar

Discussion in 'China' started by amoy, Nov 27, 2010.

  1. amoy

    amoy Senior Member Senior Member

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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".

    Related readings:
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    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.

    +++


    Currency settlement benefits Sino-Russia traders(Xinhua)
    Updated: 2010-11-25 06:37 Comments(4) PrintMail Large Medium Small
    BEIJING- China and Russia will expand local currency settlements for bilateral trade, announced Chinese Premier Wen Jiabao and his Russian counterpart Vladimir Putin Tuesday, one day after the yuan started trading against Russian rouble on the Chinese interbank market.

    Related readings:
    China and Russia vow to strengthen ties
    Russia: Vostok-2010 military drills successful
    China, Russia quit dollar



    The announcement was made at the 15th regular meeting between the Chinese premier and Russian prime minister, marking the first step of the local currency settlement between the two countries -- the yuan's trading on the Russian forex market will follow in December.

    As China's energy needs would continue to grow quickly and with Russia's increasing appetite for manufactured goods, skipping the US dollar would benefit the burgeoning trade between the two countries, said Zhang Junsheng, director of Information Center with China National Institute of WTO affiliated to the University of International Business and Economics.

    Zhang said direct trade between the countries began long before at China's border goods distributing centers. Local traders had largely accepted the Chinese yuan for bilateral trades because of their confidence in its stability and China's strong economy.

    It was the first time China has ever officially cooperated with a big power on local currency settlement.

    Yao Zhizhong, research fellow at the Chinese Academy of Social Sciences' World Economy and Politics Institute, said the move would immediately benefit local enterprises in the two countries. "Without exchange rate loss, they will see large reductions in trade costs, which will help China and Russia trade get back on track (to the pre-crisis level)," he said.

    Although, there are concerns about China's ambitions to make the yuan into a global currency and the dollar's position. "The dollar's position in the international monetary system is too secure to rock," Zhang said.

    According to Yao, the recent moves by China and Russia sent signals. One was that countries have begun to seek new channels to avoid domestic assets being devalued by outside risks, as the dollar-dominated international monetary settlement model exposed a number of problems during the 2008 financial crisis.

    Meanwhile, it also signaled that emerging markets and countries were working closer and expected more mutual benefits while gradually steering away from cooperating with developed economies.

    "However, the impact on the dollar is very small. How big a ripple can be made by a pebble in a large pool?" Yao said, adding that though China was the world's second largest economy, its economy was too fragile and its ambition for its currency too great.

    China started to allow the yuan to trade against the Russian rouble at 4.671 from Monday and will soon see the yuan trade against the rouble in Russia in December.

    The rouble is the seventh currency traded on China's Foreign Exchange Trade System after the introduction of the US and Hong Kong dollars, the euro, yen, British pound and Malaysian ringgit.

    Bilateral trade between the two countries is estimated to reach above 50 billion US dollars by the end of 2010.
     
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  3. anoop_mig25

    anoop_mig25 Senior Member Senior Member

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    what would be and or how exchange rate would be decided?
     
  4. p2prada

    p2prada Stars and Ambassadors Stars and Ambassadors

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    1 Chinese Yuan = 4.7 Russian Rubles.

    I Russian Ruble = 1.45 Indian Rupees.

    Anyway,
    http://www.reuters.com/article/idUSLM63964220091022
    We are conducting feasibility studies aimed at just that. But, INR is not stable as every body knows, fluctuates every week by a large margin. So, that may lead to unfair practices if we try to protect our export industry. Let's see what happens.
     
  5. p2prada

    p2prada Stars and Ambassadors Stars and Ambassadors

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    From the article,
    An eye opener for Chinese members on their economy. Perhaps Yao's views aren't as extreme as Gordon Chang's. But, it still serves the purpose to show the Chinese high growth is not completely sustainable in the long run if things run as they are now.
     
  6. LETHALFORCE

    LETHALFORCE Moderator Moderator

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    What will the Chinese and Russia gain from this?? The more dollars a nation has the more countries you can do trade with.
     
  7. badguy2000

    badguy2000 Respected Member Senior Member

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    they are undermining the credit base of US dollar
     
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  8. LETHALFORCE

    LETHALFORCE Moderator Moderator

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    if more countries were involved maybe?? but China will be shut out of further trade with the west from this move.
     
  9. badguy2000

    badguy2000 Respected Member Senior Member

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    how blind you are to the CHina's moves. CHina has been moving to that for long time.

    China in fact has signed currency swap agreement with dozens of countries.

    All CHina has done are aimed at one goal.....that is to marginalize US dollars gradually and smash the economy pillar of US hegemoney in a imperceptible way .


    BTW, compared with Soviets' muscle show, China's currency war might be more imperceptibel,but more effective and cheaper!
     
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  10. Vinod2070

    Vinod2070 मध्यस्थ Stars and Ambassadors

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    ^^ China can't threaten the US dollar. They are invested in it in a major way.
     
  11. LETHALFORCE

    LETHALFORCE Moderator Moderator

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    China is a large US debt holder and dollar holder they are only hurting themselves with this move.
     
  12. badguy2000

    badguy2000 Respected Member Senior Member

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    haha, even if 2 trillion dollars forex were to miss overnight, CHina could restore it in 5 years.
    However, if 2 trillions dollar were to poured into Yankees T-bonds market overnight, the credit of US dollars would collapse and won't be restored any more.

    so, if such cases were to happen, CHina just would buy the eocnomy hegemony from US at the cost of 2 trillion US dollars.
     
  13. LETHALFORCE

    LETHALFORCE Moderator Moderator

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    with trade wars coming China will be back in the third world,without USA trade China is nothing.
     
    Last edited: Nov 27, 2010
  14. p2prada

    p2prada Stars and Ambassadors Stars and Ambassadors

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    The Chinese are playing their game well. The Dollar is indeed weaker than before and the Fed wants to infuse another $600Billion into the economy. The Russians are very keen on losing their dollars fast. They are dealing in Euros and Pounds in a much bigger way and less inclined to do Dollar transactions. Considering Russia is a major oil exporter, they have a huge say in the matter. If they don't want dollars but are more interested in your currency its a win win for both countries. I would love to pay in Rupees for their oil. It will result in huge Forex savings for us which can be used to buy weapons and other stuff from other countries.

    This in no way erodes the Dollars position. But, if major players take Dollar out of the equation then that would mean smaller countries will follow suit with the same capacity as Russia and China. China-Russia trade with their respective currency has less to do with Chinese aspirations and more to do with Russian interests.

    The Chinese actually love their dollars. Ruble-Yuan trade would mean all their Forex can be used on Europe, Japan and US for high technology trade while the Yuan will pay for the Russian Oil and Gas. There is no way the Chinese will give up the Dollar for something as silly as hegemony and everybody knows it.

    Russia has evinced interest in trading with us in Rupees too. But our trade with Russia is very limited due to lack of a land route. Heck, the entire $30Billion PAKFA deal could have been paid in Rupees had we signed a similar deal. Perhaps we could have a similar deal with China.
     
    Last edited: Nov 27, 2010
  15. Vinod2070

    Vinod2070 मध्यस्थ Stars and Ambassadors

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    I have nothing against trade in Indian rupee or the Ruble.

    I just don't agree that China will want to lose its $2 trillions. They are increasing their investment in the currency every day.
     
  16. p2prada

    p2prada Stars and Ambassadors Stars and Ambassadors

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    It's primarily a Russian move.

    7 actually. Dollar, Pound and Euro included. HK Dollars, Ringitt, Yen and Ruble are the other 4.

    It does not work that way. Smashing US economic pillar would mean shooting your own foot with a cannon.

    A little recession sent China in a tailspin. Just be lucky that the recession did not affect China as seriously as it affected Europe. In another decade your economy and the US economy will be even more invariably linked.

    This is a Russian move. China loves Dollars and cannot move away from it. The flexibility that other countries have is not a luxury China has.

    Dumping Dollars on the US will mean more Yuan in the Chinese market. That would increase inflation by a huge margin and also result in an overnight collapse of the Chinese economy. You aren't big enough to handle a $2Trillion loss overnight or even 5 years or even 10. It will effectively kill your economy.

    All that talk about restoring $2T in 5 years is a pipe dream without American money. You are in a Buyer-seller relationship. If you kill the buyer then the seller will have no business. Common sense. There is no country on the planet today that can match US in the buying and consuming sphere and only China can feed them as of now. If the US goes then the world economy will crumble. China will be the first to go in Asia. You will end up having negative growth and India will happily cruise past.

    Don't plan on ending up like Japan. They had a small population, so they survived.
     
  17. Rage

    Rage DFI TEAM Stars and Ambassadors

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    Wow! Big news. This will start a spiral, in my opinion, of movement away from the dollar.

    I wonder how China will begin to phase out its huge dollar reserves, now that it has decided to quit the dollar, and whether it will plan on using this as strategic, economic leverage.

    This will heat up the political situation as well. And is interesting, coming a few days after the Russian acquiescence to NATO missile-stations in Europe.
     
  18. LETHALFORCE

    LETHALFORCE Moderator Moderator

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    why will USA honor their debt holdings to China?? what can china do?-nothing. Chinese are an cheap export economy and in no way a self sustaining economy. Most of the Chinese economic and growth numbers are lies put out by the govt for years. Example 2009 Chinese exports and imports went down by 25% while their economy grew 10% what a joke.

    http://www.chinadaily.com.cn/china/2009-04/10/content_7666970.htm
     
    Last edited: Nov 27, 2010
  19. The Messiah

    The Messiah Bow Before Me! Elite Member

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    This is good news....dollar is only mighty because all countries use it.
     
  20. p2prada

    p2prada Stars and Ambassadors Stars and Ambassadors

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    I doubt this makes much of a difference in the real sense. American do not involve themselves in trade policies of other countries. Russia-China trade is tiny and the Russian products cannot be matched by the Americans, so there is no scope for competition.

    US has no problems with the huge Japan-China trade with Yen, so this will not affect any third party in anyway. Ruble-Yuan trade actually frees up more Dollars for trade with the US. The US will actually be happier. Afterall the US is looking to increase exports to China. Win win for all.
     
  21. badguy2000

    badguy2000 Respected Member Senior Member

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    well, CHina now is still a third world country.how can a thrid world country" be back in the thrid world"? hahaha?

    if US dollars were to lose the position of "world currency",US could not buy industry products and raw resource with cheap dollars. at that time ,hyper-inflation would sweep USA and common yankees would find that their real salary(purchase power) would shrink to the level of the third world, just as what happened to Russia right after Soviet collapsed!
     
    Last edited: Nov 28, 2010

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