China, Russia quit dollar

[badguy2000]

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.

you are wrong compeltely!

what China wants is not US dollars,but raw resource,high-techs and high-end industry products.

In fact, China's trade mod is " buy raw resouce,high-end industry products and high techs with the exported low-end and mid-end industry products".the US dollars is just the media the the trade.

If the raw-resource exporters such as Russia can trade directly with the industry-products exporters such as China,the trade cost would decrease much.

so, decrease of dollar trade between Russia and China is a win-win deal!

 

[badguy2000]

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

yes, all are lies, as long as all is not what you are ready to accept!

 

[badguy2000]

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.

the huge demand of dollars over the world supported the position of US dollars. as we know, so many people want dollars,so dollar is worth a lot.

However, quite a part of the huge demand of dollar is from USA,but outside of USA. that is ,industry-product exporters such as China/German/ Japan and raw-resource exporters such as S-Arabia/Australia/ Russia all want USD.

So, Once industry product exporters and raw-resource exporters were to abandon dollars, the demand of dollars all over the world would shrink much and much less than the supply of dollars. the balance of dolllar's demand-supply would be subverted. the dollar would become as cheap as toilet papers.

in a word, the global trade is the material exchange between industry-prodct exporters such as German/China/Japan and raw-resource exporters such as Russia/S-Arabia/Australia/Brazil.

USA itself has few invovlement into the real material exchange,because USA now can hardly provide real industry products,nor provide raw-resource.

 

[Rage]

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.

Oh, it definitely will. $50 billion in lost dollar-demand is no small sniff.

The dollar reserve currency status allows the U.S. to run up high deficits and have its debt denominated in the U.S. dollar, which in turn enables it to undergo quantitative easing <what it's now doing> and inflate its way out of debt.

For Russia, trade with China is larger than trade with the United States. If Russia, for instance, is willing to renounce trade in dollars with its largest trading partner, it will be willing to move gradually to ruble-trade with other partners as well. What's interesting, even more, is that, in 2010, Russia actually had a trade surplus with China.

Besides, this is only the tip of the iceberg. Expect China to announce dollar-withdrawal in trade with countries in Latin America, Africa and, further on, in the Middle East too.

What is ambiguous though- is the effect on China's international currency reserves. Or more like, what China will do with them.


This certainly changes the dynamics of the Iran conflict- Iran has wanted to move away from the dollar in oil trade for years. This will help to 'enable' it.

Not least, because of its effects on the oil market. Russia is already the second biggest oil exporter and the biggest natural gas exporter in the world. China is the fastest growing consumer of oil, even if not <by far> the largest consumer.

Russia has wanted to establish a ruble-denominated oil and gas bourse in Russia for years, that will threaten U.S. predominance in the oil trades. This is the first, concrete step in that direction.

 

[badguy2000]

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.

more or less, the rouble-yuan deal is just a start and can not hurt the position of dollars much,because sino-Russia trade is only 50 billion USD or so.

only once Yuan-Yen and Yuan-Euro deals were to be done, the dominance of dollar would end.

 

[Rage]

more or less, the rouble-yuan deal is just a start and can not hurt the position of dollars much,because sino-Russia trade is only 50 billion USD or so.

only once Yuan-Yen and Yuan-Euro deals were to be done, the dominance of dollar would end.

Did you read what I wrote in my next post?

There is no guarantee that Yuan-Yen and Yuan-Euro regimes would come to pass, especially given the dominant political situation. In fact, it is far more likely that these will not come to pass, as China moves into higher-end manufacturing <relinquishes its position as low-cost unitary manufacturer of the world>, the dollar devalues and surrounding nation states, with reasons to be concerned militarily of China seek greater avenues of cooperation with the United States.

 

[badguy2000]

Did you read what I wrote in my next post?

There is no guarantee that Yuan-Yen and Yuan-Euro regimes would come to pass, especially given the dominant political situation. In fact, it is far more likely that these will not come to pass, as China moves into higher-end manufacturing <relinquishes its position as low-cost unitary manufacturer of the world>, the dollar devalues and surrounding nation states, with reasons to be concerned militarily of China seek greater avenues of cooperation with the United States.

guy, Yuan-Yen deals in fact started last year,as well as Yuan-Korean Won deals and Yuan-HKD deals.

In fact ,the biggest obstacle is not political diturbance from USA,but from CHina itself.

now,when the capital item is concerned Chinese RMB can not be exchanged freely,which suppresses the demand of RMB.

However,now RMB is serioulsly undervalued. SO,Chinese fixed assets would be purchased by foreigners at a extreme low price ,once RMB were exchanged completely freely now. That would be a bare robbery!

Thus, until China finishes correcting the exchage of RMB gradually and let RMB exchange freely, Yuan can hardly become one of main hard cashes!

 

[Rage]

guy, Yuan-Yen deals in fact has started last year,as well as Yuan-Korean Won deals and Yuan-HKD deals.

In fact ,the biggest obstacle is not political diturbance from USA,but from CHina itself.

now,when the capital item is concerned Chinese RMB can not be exchanged freely,which suppresses the demand of RMB.

However,now RMB is serioulsly undervalued. SO,Chinese fixed assets would be purchased by foreigners at a extreme low price ,once RMB were exchanged completely freely now. That would be a bare robbery!

Thus, until China finishes correcting the exchage of RMB gradually and let RMB exchange freely, Yuan can hardly become one of main hard cashes!

Guy, are you talking about this?:

The People's Bank of China has agreed to provide a total of 650 billion yuan ($95 billion) to Argentina, Belarus, Hong Kong, Indonesia, Malaysia and South Korea through so-called currency- swaps to expand the yuan's usage. China and Brazil in May began studying a proposal to move away from the dollar for trade settlement and use yuan and reais instead.

http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aRi_cZUEs6rk

That deal allowed select companies to settle their balances in the yuan, and keep their export rebates under a "trial scheme". Hardly relevant to what we're talking about, which is entire, two-way bilateral trade being settled in different reserve currencies.

Don't know what Yuan-Yen trade you're talking about.

If you think there will be no political consequences to allowing the United States to diminish the 'value' of its reserve currency, think again.

The RMB may be 'seriously undervalued', but it is what allows China to keep its competitive position. It is also what allows it to keep the dollar-value of its assets. The yuan not being a freely-tradable currency is exactly what allows the People's Bank flexibility in its monetary policy. Any 'internationalization' of the yuan is bound to have both offsetting effects on capital assets and financial markets, as well as on goods markets.

 

[badguy2000]

Guy, are you talking about this?:



http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aRi_cZUEs6rk

That deal allowed select companies to settle their balances in the yuan, and keep their export rebates under a "trial scheme". Hardly relevant to what we're talking about, which is entire, two-way bilateral trade being settled in different reserve currencies.

Don't know what Yuan-Yen trade you're talking about.

If you think there will be no political consequences to allowing the United States to diminish the 'value' of its reserve currency, think again.

The RMB may be 'seriously undervalued', but it is what allows China to keep its competitive position. It is also what allows it to keep the dollar-value of its assets. The yuan not being a freely-tradable currency is exactly what allows the People's Bank flexibility in its monetary policy. Any 'internationalization' of the yuan is bound to have both offsetting effects on capital assets and financial markets, as well as on goods markets.

currency-swaps is just the first step.
the second step is the free RMB settlement of current items.
the third step is the free RMB settlement of capital items.
when the third step is finished, RMB will become hard cash .

well, the first RMB deal between Japan and CHina was settled in March, 2010. here is the report,but I can not find the english news. it means that the second step started.

perhaps Chinese tend to do the job in a low profile, it is surprising that no english medias report it.

中国宣布实施跨境贸易人民币结算试点后，日资银行纷纷积极准备进军此类业务，并开展了一些试验性操作。据中国银行东京分行介绍，今年3月，大阪一家企业从中国进口商品时，以信用证支付了20万元人民币货款，这是日本境内第一笔真正意义上的跨境贸易人民币结算。
http://www.chinadaily.com.cn/hqcj/zgjj/2010-09-07/content_825704_2.html

 

[Rage]

currency-swaps is just the first step.
the second step is the free RMB settlement of current items.
the third step is the free RMB settlement of capital items.
when the third step is finished, RMB will become hard cash .

Yep, and you are now only at the first step.

To go from the first to the second, and from the second to the third is a gigantic undertaking.

One that will cause political friction, and reverberations on capital assets, commodity markets, manufacturing competitiveness and China's own monetary policy.

well, the first RMB deal between Japan and CHina was settled in March, 2010. here is the report,but I can not find the english news. it means that the second step started.

perhaps Chinese tend to do the job in a low profile, it is surprising that no english medias report it.

No, it hasn't. If it had, it would be big news throughout the financial world.

When you find me a source, saying that Chinese-Japanese bilateral trade is now settled within an alternative Yuan-Yen regime, then you can come back and reply to this post.

 

[Ray]

Interesting times ahead.

I am sure the West would have some trick up their sleeves to counter this.

I wonder if the West will take it lying down!

 

[badguy2000]

Interesting times ahead.

I am sure the West would have some trick up their sleeves to counter this.

I wonder if the West will take it lying down!

Unless west countries can stop the hollowing-out of their economy and revive their real material production,they can hardly stop such a tendency

 

[pankaj nema]

Of course US and Europe and japan have been printing money for decades .

They can afford to do so because they are developed countries Similarly they can support large sections of the un employed population

The Currency wars namely yuan Vs dollar are an extension or just a part of the overall West vs China

With west and Japan in one group Yuan will not be able to shake of the hegemony of the dollar

Even The embattled Euro and pound and Yen are still more preferred than the yuan

Trade deficits of the US have alone contributed to the Chinese forex reserves.

It is not as if the West cant manufacture or has forgotten about manufacturing

The west will not allow the Manufacturing component of the GDP to fall below a certain level AND will simply protect the necessary companies like GM as when necessary

Agriculture is given ample protection and subsidies in the west . why ? No country wants to depend on food for others.

Similarly the values of dollar yen pound and Euro are all closely supervised . To facilitate revival of growth and exports

If the US is flooding dollars then it is because the US export industries are still in recession

The chinese dream of "hollowing" out the western economies by making their currencies " pieces of paper" will remain just on paper .

The US China currency wars , if escalate, then Chinese exports will face additional tarrifs and dumping duties

The services sector of the economy will continue to be the dominant sector in the west both by share in GDP and in employment

Material or industrial production in the west is looked at as means to retain the technological edge in hi tech fields or in prestigious sectors like Automobile, or important sectors like energy

West looks upon China as a cheap source of textiles toys and shoes that is all

The west will never give up on its core industries or core competencies

 

[badguy2000]

Of course US and Europe and japan have been printing money for decades .

They can afford to do so because they are developed countries Similarly they can support large sections of the un employed population

The Currency wars namely yuan Vs dollar are an extension or just a part of the overall West vs China

With west and Japan in one group Yuan will not be able to shake of the hegemony of the dollar

Even The embattled Euro and pound and Yen are still more preferred than the yuan

Trade deficits of the US have alone contributed to the Chinese forex reserves.

It is not as if the West cant manufacture or has forgotten about manufacturing

The west will not allow the Manufacturing component of the GDP to fall below a certain level AND will simply protect the necessary companies like GM as when necessary

Agriculture is given ample protection and subsidies in the west . why ? No country wants to depend on food for others.

Similarly the values of dollar yen pound and Euro are all closely supervised . To facilitate revival of growth and exports

If the US is flooding dollars then it is because the US export industries are still in recession

The chinese dream of "hollowing" out the western economies by making their currencies " pieces of paper" will remain just on paper .

The US China currency wars , if escalate, then Chinese exports will face additional tarrifs and dumping duties

The services sector of the economy will continue to be the dominant sector in the west both by share in GDP and in employment

Material or industrial production in the west is looked at as means to retain the technological edge in hi tech fields or in prestigious sectors like Automobile, or important sectors like energy

West looks upon China as a cheap source of textiles toys and shoes that is all

The west will never give up on its core industries or core competencies

in fact, it has nothing to with the will of west . it has all to do with the capacity of the west!
According to the past and status quo, even west itself has no confidence that their core industries such as automobiles ,electricity and even supercomputer can win the race against "made in China".

 

[p2prada]

you are wrong compeltely!

what China wants is not US dollars,but raw resource,high-techs and high-end industry products.

In fact, China's trade mod is " buy raw resouce,high-end industry products and high techs with the exported low-end and mid-end industry products".the US dollars is just the media the the trade.

If the raw-resource exporters such as Russia can trade directly with the industry-products exporters such as China,the trade cost would decrease much.

so, decrease of dollar trade between Russia and China is a win-win deal!

LOL. You are saying what I already posted. You need Dollars as much as you need your high tech products.

 

[p2prada]

Oh, it definitely will. $50 billion in lost dollar-demand is no small sniff.

Exactly. The Dollars lost in Russia China deals will automatically go into say, India, Brazil, Japan or US. The Russians trust the Yuan and the Chinese the same with respect to Ruble.

For Russia, trade with China is larger than trade with the United States. If Russia, for instance, is willing to renounce trade in dollars with its largest trading partner, it will be willing to move gradually to ruble-trade with other partners as well. What's interesting, even more, is that, in 2010, Russia actually had a trade surplus with China.

The currency fluctuations in smaller countries is too much for Russia to suddenly start trading with them withtheir respective currencies. This will take years to accomplish. Russia has only 30% of their Forex in Dollars. The rest are in Euros and Pounds.

Besides, this is only the tip of the iceberg. Expect China to announce dollar-withdrawal in trade with countries in Latin America, Africa and, further on, in the Middle East too.

It is bound to happen, but not in the next 10 years or so. The Chinese Yuan is undervalued afterall.

What is ambiguous though- is the effect on China's international currency reserves. Or more like, what China will do with them.

China can dump it on ASEAN. Nobody will object. 70% of their FOREX is Dollars.

This certainly changes the dynamics of the Iran conflict- Iran has wanted to move away from the dollar in oil trade for years. This will help to 'enable' it.

But nobody will trade with Iran in Rials. One little invasion and whatever Rials you hold will become paper money. Russia is a different matter.

Not least, because of its effects on the oil market. Russia is already the second biggest oil exporter and the biggest natural gas exporter in the world. China is the fastest growing consumer of oil, even if not <by far> the largest consumer.

A supplier(Russia) of such stature can command changes in currency exchange without problems. China exports perishable products. Nothing copared to Russian oil.

Russia has wanted to establish a ruble-denominated oil and gas bourse in Russia for years, that will threaten U.S. predominance in the oil trades. This is the first, concrete step in that direction.

This in no way affects US trade with other countries. Trade with US will only increase.

 

[amoy]

Wen calls for SCO development bank(Xinhua)
Updated: 2010-11-26 11:04 Comments(0) PrintMail Large Medium Small
DUSHANBE - Chinese Premier Wen Jiabao made a six-point proposal for enhancing practical cooperation of the Shanghai Cooperation Organization (SCO) at a meeting held in Dushanbe Thursday.

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Addressing the ninth SCO prime ministers' meeting, Wen said that the SCO countries should rely on collective powers to better safeguard regional peace and stability and promote a comprehensive and balanced economic, social and cultural development.

This is not only in the interests of all member states, but also help make the SCO more united and appealing to others, he said.

The Chinese premier said that safeguarding regional security, stability and harmony is of vital importance in promoting the development of the SCO and deepening mutually beneficial cooperation among SCO members.

Thus, he called on the SCO nations to strengthen strategic coordination, boost mutual trust and coordinate actions and set up, step by step, a permanent and effective mechanism of safeguarding regional security and stability and to take joint actions and comprehensive measures to deal persistent, heavier and more effective blows to the "three evil forces" of extremism, separatism and terrorism as well as drug trafficking and transnational organized crimes.

First, Wen proposed that the SCO countries boost the vitality of economic and trade cooperation.

The SCO countries should stick to the principle of government guidance, encourage enterprises to expand cooperation according to market regulations and rely on science and technology in a bid to accelerate regional economic development, he said.

Secondly, Wen called for expanding energy cooperation.

"We should safeguard energy transportation security, jointly develop wind energy and solar energy and enhance the effective use of energy," he said.

Thirdly, Wen called for accelerating infrastructure construction such as highways, railways and information highways, to advance regional communication.

Fourthly, the SCO members countries should strengthen agricultural cooperation, Wen said, urging them to conduct research on establishing a SCO food security cooperation mechanism.

"China is willing to help other SCO member states set up high-tech agricultural demonstration areas," he said.

Fifthly, Wen called for deepening financial and monetary cooperation among the SCO member states, noting that they should expand business financing channels, conduct researches on establishing a SCO development bank, discuss new ways of joint financing and joint benefiting, and expand cooperation on local currency settlement.

Finally, the Chinese premier called for pushing forward capacity building and people-to-people and cultural exchanges.

The SCO countries should further improve the contingency mechanism for handling emergencies at border areas, he said.

"China is willing to train Chinese language and senior management staff for SCO member states and organize the first university students art festival for the SCO and launch communication and cooperation with SCO member states in traditional medicine," Wen said.

During the one-day meeting, the SCO prime ministers agreed to intensify the fight against the "three evil forces" to safeguard regional security and stability, enhance coordination in economic policy to promote trade investment facilitation and deepen cooperation in disaster relief, education and culture to promote sustainable development in the region.

The SCO prime ministers decided to hold their next meeting in Russia.

Founded in 2001, the SCO consists of China, Kazakhstan, Kyrgyzstan, Russia, Tajikistan and Uzbekistan.

Also present at the gathering were delegates from SCO observers India, Iran, Mongolia and Pakistan, and the economic minister of Afghanistan as a guest of the host country.

 

[Rage]

Exactly. The Dollars lost in Russia China deals will automatically go into say, India, Brazil, Japan or US. The Russians trust the Yuan and the Chinese the same with respect to Ruble.

I don't see how it would. The augmentation in dollar-demand in India-US or Brazil-US or other country-US trade would've happened regardless, regardless of the China-Russia bilateral trade/currency regime proposed. To the extent, that the new regime minimizes demand for dollars, that will impact the US currency adversely <from the policy point of view>.

The currency fluctuations in smaller countries is too much for Russia to suddenly start trading with them withtheir respective currencies. This will take years to accomplish. Russia has only 30% of their Forex in Dollars. The rest are in Euros and Pounds.

Currency fluctuations in currencies like the rial are actually greater influenced by movements in the U.S.D and U.S. economic conditions than by internal movements. And to a further extent, by sanctions. Iranian banks, for instance, have been targeted in sanctions by the UN Security Council, the U.S. Congress, and the European Union -- all in an effort to persuade Iran to curb its nuclear program. Some traders had also contrived that the government had deliberately raised the price of foreign exchange, to stem runs on the rial.

It is bound to happen, but not in the next 10 years or so. The Chinese Yuan is undervalued afterall.

The Chinese yuan being undervalued is exactly what allows the PB flexibility to pursue bilateral currency arrangements.

China can dump it on ASEAN. Nobody will object. 70% of their FOREX is Dollars.

No, you can't just 'dump' dollars. For one, China's dollar reserves are dominated by T-bills, and if the Bureau of Public Debt perceives runs on its cash balances, it will simply issue cash management bills, which are sold at irregular prices, giving the Dept. of the Treasury greater flexibility and by weekly auction just like Treasury bills, but at a discount, depressing the demand for T-bills.

But nobody will trade with Iran in Rials. One little invasion and whatever Rials you hold will become paper money. Russia is a different matter.

'One little invasion' is actually a pretty big deal, now. I don't see how likely the possibility is , given US commitments in Iraq and Afghanistan. IMO, the threat of invasion is exactly what is keeping Iran from converting its oil and petroleum trades into Ruble-based or yuan-denominated trades, but bilateral, two-way currency regimes like these may be the straw that breaks the camel's back.

A supplier(Russia) of such stature can command changes in currency exchange without problems. China exports perishable products. Nothing copared to Russian oil.

China exports a whole lot more than perishable products. It is also the world's manufacturing base for durable consumer items, you know.

This in no way affects US trade with other countries. Trade with US will only increase.

Absoloutely not. It impinges on the U.S. dollar as a reserve currency. If Russia, the world's largest supplier of gas, decides <ignoring geo-political factors> that its customers must pay it in rubles, the demand for dollars in the Europe-Russia centric, China-Russia centric, East Europe-Russia centric, and Middle East-Russia centric oil and gas markets vanishes. The ruble rises relative to the dollar, as do other currencies and the U.S. ability to quantitative ease, given the inflated value of its dollar, diminishes. Of course, it increases the competitiveness of U.S. products, and diminishes that of its counterparts, but if you're a country dominated by the oil and gas business, what do you care?

 

[anoop_mig25]

Also present at the gathering were delegates from SCO observers India, Iran, Mongolia and Pakistan, and the economic minister of Afghanistan as a guest of the host country.

off topic but what excatliy does ministers of this observing countries do at such type of meeting until/unless they are to hold one-2-one meeting with minister/official of other country ?

 

[anoop_mig25]

Absoloutely not. It impinges on the U.S. dollar as a reserve currency. If Russia, the world's largest supplier of gas, decides <ignoring geo-political factors> that its customers must pay it in rubles, the demand for dollars in the Europe-Russia centric, China-Russia centric, East Europe-Russia centric, and Middle East-Russia centric oil and gas markets vanishes. The ruble rises relative to the dollar, as do other currencies and the U.S. ability to quantitative ease, given the inflated value of its dollar, diminishes. Of course, it increases the competitiveness of U.S. products, and diminishes that of its counterparts, but if you're a country dominated by the oil and gas business, what do you care?

if russia forces other country to pay in rubble then this countries would have to buy rubble. form where they would buy it , may be form some russian central bank/ or some forging exchange. what would this bank/exchange would accept in return (either dollar or gold or some other currency other than dollar) ?