China, Russia quit dollar

[Rage]

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) ?

They would buy with their own currency <or debt, as another form of liability*>. So, if for instance, Iran and Russia agreed on a two-way currency settlement, the Russian Central Bank would agree to purchase Iranian rials for its rubles, diversifying its foreign exchange reserves and simultaneously decreasing the value of the ruble <more of which exist in the market> relative to the rial <less of which exist, because it has now been bought up> subject to a multitude of other factors such as domestic demand, production and productivity, imports and exports, relative prices of goods and services, etc. If all bilateral trade is settled in rubles, however, the demand for the ruble by firms and companies will push the value of the ruble up.

The point of a two-way currency regime is to do away with the dollar, which is the current int'l reserve currency <which means you don't have to trade dollars for another international currency> and gold, which is archaic anyway.

*Note: only if the fundamentals of your economy, currency are strong.

 

[warriorextreme]

so if dollar falls then what is china going to do with its huge forex reserve that is more than 2 trillion USD??

 

[p2prada]

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>.

You have taken an extreme view about what will happen or what may happen in the future over this move. This new regime will not minimize dollar demand by much. The Russians find the Yuan to be a better currency than compared to the Rupee or any other currency. Even if they have started trade with China without dollars does not mean they will risk taking currencies of other economies as easy as Yuan.

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.

As I said earlier, with low cost manufacturing moving out of China, the Chinese can find ways to empty the dollars into other countries with their respective currency. Yuan is not powerful enough to do that now. So, trade with smaller countries in Yuans will take some years in to achieve.

India dumped 20% of the Forex reserves back into the US in the 2 years the recession lasted. This was done by grossly inflating the Rupee. $30 to $50Billion was forced into the economy by RBI, investors lost money in real estate and some pulled back. One of the reasons why we have high inflation even today.

'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.

The threat of invasion will always be there on Iran for some time to come. They will get luckier if the NK situation is not resolved peacefully. Using Rial for trade is out of the question. India actually has a better chance even though we don't have oil and gas to trade. Iran is not Russia. Even Saudi Arabia cannot pull this off.

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?

The US is already trying to inflate their economy. Russian exports is mainly gas and oil other than defence. It is way too small to erode Dollars potential for trade. Even if these markets are gone for the dollar. The fact that China-Middle East, China-Africa, Europe-Middle East, US-Middle East, ASEAN-Middle East trades will be significantly high and Dollars will not wane in demand, rather the countries that deal in Rubles will have extra dollars to trade with. Holding extra Dollars in reserve benefits all non petroleum based economies big time including India.

The fact is US Imports much more than any other country in the world and the exporters will always exchange Dollars in order to trade with them.

If you really want to offset Dollars for any other currency, then your economy must be as big or as resilient as the US. As of now, not even the Euro has been able to compete on equal terms with dollars which makes the Ruble Yuan trade a tiny little bubble in the bath tub.

 

[badguy2000]

You have taken an extreme view about what will happen or what may happen in the future over this move. This new regime will not minimize dollar demand by much. The Russians find the Yuan to be a better currency than compared to the Rupee or any other currency. Even if they have started trade with China without dollars does not mean they will risk taking currencies of other economies as easy as Yuan.



As I said earlier, with low cost manufacturing moving out of China, the Chinese can find ways to empty the dollars into other countries with their respective currency. Yuan is not powerful enough to do that now. So, trade with smaller countries in Yuans will take some years in to achieve.

India dumped 20% of the Forex reserves back into the US in the 2 years the recession lasted. This was done by grossly inflating the Rupee. $30 to $50Billion was forced into the economy by RBI, investors lost money in real estate and some pulled back. One of the reasons why we have high inflation even today.



The threat of invasion will always be there on Iran for some time to come. They will get luckier if the NK situation is not resolved peacefully. Using Rial for trade is out of the question. India actually has a better chance even though we don't have oil and gas to trade. Iran is not Russia. Even Saudi Arabia cannot pull this off.



The US is already trying to inflate their economy. Russian exports is mainly gas and oil other than defence. It is way too small to erode Dollars potential for trade. Even if these markets are gone for the dollar. The fact that China-Middle East, China-Africa, Europe-Middle East, US-Middle East, ASEAN-Middle East trades will be significantly high and Dollars will not wane in demand, rather the countries that deal in Rubles will have extra dollars to trade with. Holding extra Dollars in reserve benefits all non petroleum based economies big time including India.

The fact is US Imports much more than any other country in the world and the exporters will always exchange Dollars in order to trade with them.

If you really want to offset Dollars for any other currency, then your economy must be as big or as resilient as the US. As of now, not even the Euro has been able to compete on equal terms with dollars which makes the Ruble Yuan trade a tiny little bubble in the bath tub.

Of international trade,there are only 4 trillion-dollar players .they are USA,EU,CHina and Japan.

Only when at least 2 of the 4 trillion-dollar players were to withdraw US dollars, might the dominance of US dollar end.

the dollar-withdraws of other minor players such as Russia, India, Brazil...etc might be something,but can not be something decisive .

 

[p2prada]

so if dollar falls then what is china going to do with its huge forex reserve that is more than 2 trillion USD??

This is where the term Royally Screwed can be used. What happens is if US Dollar comes down in value, the Yuan increases. This helps US export, but messes up Chinese export. This actually results in loss of jobs as businesses shut down. But, this also increases their nominal GDP rate, so the Chinese internet army can use that to beat their chest in forums. Recession increased the Chinese GDP by 20% which helped it race past Japan. The fact is they lost over 20 Million jobs doing it.

The US Fed Reserve Bank has been contemplating unloading $600Billion into US market. This increases inflation in the US, but also results in the creation of jobs as businesses can get loans at lower rates. This is being opposed by many countries with the exception of India. That's because an weakening of the Dollar would mean their currencies would become strong. That would affect their exports and results in job loss. Nobody likes job loss. But countries like India can manipulate the domestic market to keep the Rupee at current levels. So, we are quite safe and are more competitive at the same time in the international market.

So, affected countries like China will attempt to lose more dollars from their Forex reserves to weaken the Yuan against the Dollar. Trading with other currencies is one of the methods.

Of international trade,there are only 4 trillion-dollar players .they are USA,EU,CHina and Japan.

Only when at least 2 of the 4 trillion-dollar players were to withdraw US dollars, might the dominance of US dollar end.

the dollar-withdraws of other minor players such as Russia, India, Brazil...etc might be something,but can not be something decisive .

You don't use countries in that respect, you use currencies.
The 4 biggest traded currencies are US Dollar, Euro, Yen and Pounds.

The rest like Aus Dollars and Swiss Francs are too small. Yuan is one of the tiniest traded currencies. So even if China has one of the largest trade markets, its currency's part in it is too small to make a dent in anything that's being traded today. The Ruble-Yuan trade will affect changes only 15 to 20 years from today when even the Indian Rupee may start competing.

There is no threat to the US Dollar for the next 2 decades.

 

[Ray]

The Dollar Will Survive Russia-China Trade Deal


Daniel McDowell | Bio | 29 Nov 2010

Last week, China and Russia announced they will no longer use the dollar to conduct their bilateral trade, but instead will use their domestic currencies, the yuan and ruble, to do so. Some doomsayers have depicted this move as yet another sign of the dollar's imminent decline and claim it threatens the greenback's status as the pre-eminent reserve currency. But a closer examination suggests the deal will have more of a symbolic impact than any tangible economic or geopolitical effects.

Since 1992, self-imposed restrictions have been in place requiring that trade between China and Russia be conducted in dollars, a practice that is quite common in bilateral trade relations. When goods or services are traded internationally, parties to the transaction must agree on the currency that the transaction will be settled in. It is often easier to conduct trade in a convertible and widely available currency that acts as a yardstick against which all monies are measured. The dollar is the dominant such yardstick, used to settle approximately half of the world's trade transactions.

The move by Beijing and Moscow doesn't do much to threaten the dollar's role as the world's dominant trade invoicing and settlement currency. In 2009, China's total trade with Russia -- exports plus imports -- made up less than 2 percent of its total trade with the world. For Russia, trade with China made up about 8 percent of its total trade with the world. These numbers don't exactly turn the global currency hierarchy on its head.

Nevertheless, some have suggested that the agreement will challenge the dollar's role as the world's dominant reserve currency, which enables the U.S. to finance large budget deficits through seemingly unlimited foreign borrowing (by the sale of assets like Treasury bonds). There, too, however, the predictions of doom are unwarranted.

The fundamental role of a reserve currency is to serve as a store of value -- a reliable asset that the holder is confident will hold its value over time and that can be deployed for intervention purposes. Despite a weak U.S. economy burdened with a massive debt overhang, the dollar still remains everyone's favorite safe haven in times of trouble. This proved true during the global financial crises, when markets rushed to buy reliable dollar assets, and as recently as last week, when tensions on the Korean peninsula led to the same behavior. According to the IMF's most-recent data for 2010, the dollar still makes up 62 percent of the world's foreign exchange reserves; the closest competitor is the euro which sits at 26 percent. So the notion that China or Russia, or anyone else, will significantly divest themselves of their dollar holdings as a result of this deal is silly.

But if the deal's impact on the dollar is minimal, what's all the fuss about? The biggest reason this agreement has created a buzz has to do with the parties involved. Russia represents the previous great challenger to U.S. hegemony, while China supposedly represents the next in line. Moreover, last year as the financial crisis was winding down, both countries called for a move away global dependence on the dollar. Consequently, anytime these two countries appear in the same headline with the words "quit dollar", people pay attention.

Supporting the argument that the dealmakers, rather than the deal itself, generated the reaction to this agreement is the fact that last August, China inked an identical deal with Malaysia to little fanfare. As with Russia, China can now conduct its trade with Maylasia in yuan or ringgit, bypassing the dollar. Economically speaking, the Malaysian deal was more significant, since last year total bilateral trade between China and Malaysia topped bilateral trade between China and Russia by more than $13 billion. Yet, few noticed, because Malaysia is not a former rival to the U.S.

But if reports of the dollar's death are premature, the deal is nonetheless significant.

For one thing, it likely means that trade between China and Russia will increase in the coming years, a potentially important effect in its own right. Why? The removal of the dollar as a "third-party" currency should reduce the transaction costs for exporters and importers in both countries. In the past, the yuan was not convertible in Russia and the ruble was not convertible in China. Thus, neither Russian nor Chinese exporters could accept the other currency as payment, because it would be worthless in their own economy. That forced importers to exchange their own currency for dollars in order to pay for the transactions.

What now makes ruble- and yuan-based trade possible between the two countries is that for the first time, rubles can be exchanged for yuan inside Russia and yuan can be exchanged for rubles inside China. So, because of the agreement, importers do not have to rely on the dollar as an intermediary anymore, removing one step from their transactions.

Besides lubricating bilateral trade, this agreement represents another small step by China to make its currency fully convertible, a necessary move if the yuan is ever to be a fully internationalized currency with a market-driven exchange rate. In this light, the U.S. might actually view the move as a positive step, since Washington has been pushing hard for China to let the market determine the price -- and likely revalue -- the yuan.

In the long run, the world is moving toward a multipolar monetary system. If China's economy continues to grow and the yuan becomes an internationalized currency, it will be part of this equation -- and this deal, in combination with many others like it in the future, will have played a role in that transformation. But for now, despite the dollar's doomsayers, the impact of this agreement is largely symbolic, leaving the greenback safe atop the world's currencies.

Daniel McDowell is a Ph.D. candidate in International Relations at the University of Virginia, specializing in International Political Economy.

The Dollar will Survive

Apparently, with the Yuan becoming a quasi convertible currency, it will have to be pegged in a realistic manner. It will, thus, be disadvantageous for China which has been riding the economic crest on unrealistic terms.

It is also important to consider if other nations will like to trade in Yuan or Rouble.

 

[p2prada]

The article merely echoed what I posted which kinda proves my views on the effectiveness of the Dollar.

He is a more credible writer than me though. However, this statement:

Washington has been pushing hard for China to let the market determine the price -- and likely revalue -- the yuan.

I believe it is easier said than done. The same way the Ruble Yuan trade will not affect the Dollar, it will not affect the Yuan Dollar exchange rate either. It is not going to change with all the fudging going on in their domestic market. The writer has based his views on the assumption that China will stop following unfair trade policies.

 

[amoy]

Below translation is poor but understandable hopefully

fyi trading volume in the 1st half year btwn CN and ASEAN is roughly 200b USD after the launch of FTA

ASEAN Becomes RMB International First Stop

Category Rss Feed - http://www.articlesalive.net/rss.php?rss=117
By : Jessie Stone
Submitted 2010-11-17 07:35:47

China's close economic ties with Southeast Asian countries to improve cross-border settlement will make the yuan a trade and investment between China and Southeast Asia, an important carrier of facilitation, and continue to enlarge trade and investment in Southeast Asia will further enhance the status of the renminbi, to speed up its internationalization process. Analysts believe that, given the trade deficit with China on expanding the ASEAN region, the ASEAN countries most likely to become yuan "going out" the first leg.

FTA needs to deepen Renminbi

North Bay Economic Zone has a long tradition and experience RMB, but also have a more urgent demand for the RMB settlement. Countries such as China and Vietnam has a long border trade cooperation, cooperation in border trade, the yuan trade and capital between the two countries play an important settlement in the role, the RMB settlement of bilateral economic and trade cooperation has played an important role.

At present, China is gradually promoted in several ways, the process of internationalization of the RMB, and ASEAN, as China's fourth largest trading partner, both have extensive trade ties, as the RMB internationalization strategy an important part. Although China and the ASEAN financial cooperation between the whole still in its infancy, but the two sides have achieved remarkable results in financial cooperation, and show broad prospects and huge potential, which is RMB international development certainly provide a solid foundation, and China - ASEAN FTA will further promote the circulation of RMB in the East Asian region.

It is understood that the pilot launch cross-border trade in RMB, the yuan has greatly promoted the settlement of cross-border trade. As of September, the RMB settlement of cross-border trade business to grow significantly, the banks handle the cross-border trade were 197.1 billion yuan RMB clearing business. Since the pilot project to expand, the RMB settlement of cross-border trade volume in August and September monthly increments are much higher than 300 billion yuan.

Part in the ASEAN countries, such as the Philippines, Malaysia and other countries central banks and monetary authorities have classified as an official reserve currency, the yuan, and China in recent years and the ASEAN countries such as Malaysia, Indonesia, Singapore, sign a bilateral currency swap agreement, increasing the use of the renminbi and the international coverage of cross-border settlement of RMB financial support provided to speed up the process of internationalization of the RMB.

As of the end of 2008, China and Thailand, the Philippines, Malaysia and Indonesia and other countries signed a total of 6 copies of 635 billion bilateral currency swap agreements. Since 2009, in order to jointly resist financial crisis, Asian central banks to establish currency exchange mechanism, the People's Bank of China has with Malaysia, Indonesia, Singapore's monetary authorities have signed a total of 330 billion yuan in bilateral trade in the currency swap, in support of direct bilateral trade and direct investment.

December 2009, China and ASEAN to participate in the establishment of the total size of 120 billion Asian regional reserve pool, enhancing the mobility of the region to address the international balance of payments problems. Meanwhile, the steady increase levels of foreign market institutions, to encourage financial institutions to ASEAN, China to set up branches and carry out financial business, the establishment of China - ASEAN Investment Fund, the first fund-raising 1 billion U.S. dollars, ASEAN countries to provide 15 billion U.S. dollars in credit preferential bank loans amount to 67 billion U.S. dollars.

Meanwhile, the China - ASEAN Free Trade Area of the completion of the development process of the internationalization of RMB will no doubt play a significant role in promoting. China - ASEAN Free Trade Area is completed, our commitment to gradually open its capital projects to strengthen the renminbi flexibility, and speed up the development of offshore financial markets, the ASEAN region as an important settlement of cross-border trade RMB pilot areas, will be the process of internationalization of RMB play an important role in promoting.

China - ASEAN Free Trade Area of the building, in the promotion of trade facilitation and economic integration in the process of RMB will lead to cross-border trade, thus promoting the pace of internationalization of the RMB. Ho Sai Hong said, the RMB in the use and circulation of the surrounding area is being further expanded in the Asian region for the development of the renminbi is widely accepted as a useful exploration currencies. Therefore, the RMB as a free trade area to promote the main settlement currency, the RMB internationalization is important.

In addition, the huge bilateral trade in the ASEAN region to China on the yuan to carry out cross-border trade settlement offers great support. Closer trade links between China and ASEAN, ASEAN has become China's fourth largest trading partner. The first three quarters of this year, bilateral trade volume between China and ASEAN reached 211.31 billion U.S. dollars, up 43.7%, exceeding the growth rate over the same period 19 percent of China Import and Export.

Cross-border trade in RMB clearing business conduct, to a large extent on foreign trade enterprises can eliminate concerns about the exchange rate. Use the RMB settlement of cross-border trade will help guard against foreign exchange risks of foreign trade enterprises to effectively control the profit forecast, in particular, is conducive to expanding enterprises to take advantage of the geographic advantage and the economic and trade exchanges among the ASEAN countries, "in the promotion of exports, while realizing big business to do Strong. "

RMB settlement in the ASEAN regional trade widely on China's banking sector since the "going out" to provide a convenience. China's first cross-border trade with ASEAN countries are also beginning RMB. At present, Myanmar, Laos, Vietnam and other ASEAN countries is second only to Hong Kong, Macao RMB mobile active region. RMB in the ASEAN region with the increased demand for Chinese banks to provide RMB services has advantages, Chinese commercial banks will be able to use their RMB business has a comparative advantage to expand their business space.

 

[amoy]

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[amoy]

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[Rage]

You have taken an extreme view about what will happen or what may happen in the future over this move. This new regime will not minimize dollar demand by much. The Russians find the Yuan to be a better currency than compared to the Rupee or any other currency. Even if they have started trade with China without dollars does not mean they will risk taking currencies of other economies as easy as Yuan.

Sorry p2p, I didn't have the time to compose a thorough answer earlier. I admit, the real significance of this move is in what it 'signifies'. Yet, clearly, China is moving to diminish dollar using in its bilateral trade with several trading blocs. To the extent that it minimizes the ability of the Fed. to print more notes to the tune of $50 billion, or $60 billion the year earlier, it has minimized the US ability to quantitative ease. Is that a huge deal? It is a relatively minor portion of the dollar's current int'l reserve transacting. So yes, the dollar will survive. But, the move has set the wheels turning on a process, that will erode the value of the dollar considerably in the long, or not-so-long, run. And, because it is between two large countries, it will have a catalysing effect on the process as well.

It is worth pointing out, that the threat of dollar withdrawal comes primarily from China, not from Russia. And yes, China's trade is a huge slice of the pie.

It is not a ditching of the dollar. But, it is another crack in its foundation as a reserve currency, and a pretty glaring one, at that.

As I said earlier, with low cost manufacturing moving out of China, the Chinese can find ways to empty the dollars into other countries with their respective currency. Yuan is not powerful enough to do that now. So, trade with smaller countries in Yuans will take some years in to achieve.

Again, China cannot simply dump dollars. Because its dollar holdings are tied with U.S. debt. As soon as the US Treasury perceives a run on its balances, it will issue alternative debt instruments, that will make the value of the Federal Treasury bills China posesses relatively more 'expensive' and reduce its demand. That is one dynamic of this movement.

Another dynamic is that if the Asean-bloc perceives a gradual movement to Yuan-respective currency bilateral agreements in the future, why on earth would it purchase a dollar, whose reserve currency standing is being eroded? And why, especially, in those quantities 'dumping' would entail?

Moreover, the Chinese cannot certainly dump the dollar. As that would have pernicious effects on it as well. The Chinese currency would rise relative to the dollar, making its commodities in the US, which is still its primary purchasing partner, more expensive. Any movement will be gradual and considered, in line with domestic inflationary policies, political developments on the bilateral-agreement's scene, the domestic loans scene, the "currency two step": Treasuries-yields, the commodities market, the extent of convertibility of the yuan and PB's willingness to make it so and a host of other factors. Ironically, the willingness to diversify is a function of the extent to which the US Treasury devalues its currency, so in that respect, the US does have a modicum of influence or control over dollar withdrawals. But, for how long? Only until the Yuan does not become a competing reserve currency.

India dumped 20% of the Forex reserves back into the US in the 2 years the recession lasted. This was done by grossly inflating the Rupee. $30 to $50Billion was forced into the economy by RBI, investors lost money in real estate and some pulled back. One of the reasons why we have high inflation even today.

India's situation is completely different from China's. I cannot even stress how much so. Besides, India dumped the dollar primarily through purchases of IMF gold, issues of which are few and far between. Besides, why did India buy gold? At the top of the market. When it had no pressing need to do so? Here's an interesting analysis by BNP Paribas Fortis/Virtual Metals Group:

http://www.commodityonline.com/news/Why-India-rushed-to-buy-gold-from-IMF-23074-3-1.html

The threat of invasion will always be there on Iran for some time to come. They will get luckier if the NK situation is not resolved peacefully. Using Rial for trade is out of the question. India actually has a better chance even though we don't have oil and gas to trade. Iran is not Russia. Even Saudi Arabia cannot pull this off.

The threat of invasion will, and has hung, over Iran for a long time. Markets have adjusted to it. Markets will take a tumble when the US deploys addn'l troops in the region, amasses soldiers along the border, or makes other such gestures short, of course, of declaring a war.

Rials may not be used as a means of payment, but roubles certainly will. Or yuan, for that matter. And to that extent, the People's Bank will be willing to purchase rials in exchange for making possible a yuan-settlement, or the Russian Central Bank rials in exchange for making possible a rouble-settlement.

The US is already trying to inflate their economy. Russian exports is mainly gas and oil other than defence. It is way too small to erode Dollars potential for trade. Even if these markets are gone for the dollar. The fact that China-Middle East, China-Africa, Europe-Middle East, US-Middle East, ASEAN-Middle East trades will be significantly high and Dollars will not wane in demand, rather the countries that deal in Rubles will have extra dollars to trade with. Holding extra Dollars in reserve benefits all non petroleum based economies big time including India.

That is exactly why it impinges on their economy to quantitative ease, to whatever extent <now> and progressive, definitely destabilizing extents later.

Russia is Europe's biggest supplier of natural gas. It also has a supplier's monopoly on that market. I don't know how, for instance, you think that it is way 'too small' to erode dollars. Europe-Russia trade is now over € 200 billion annually, by the way. And oil and gas are set to gain in the medium term.

You've completely ignored in your analysis: the impact of dollar withdrawals on the value of the dollar, changes in reserve ratios on the value of and demand for the dollar, the impact of this on US debt, the likelihood of China moving towards bilateral regimes with these different trading blocs before Russia and the impact of a subsequent Russian move on oil and dollar markets, and the impact of all these on yields and interest rates, which in turn, directly affect the demand for and willingness to hold dollars.

The fact is US Imports much more than any other country in the world and the exporters will always exchange Dollars in order to trade with them.

There is no always in economics. Never has been. Never will be. The US's ability to maintain the dollar's status as a cheaply produced US product, depends solely on its status and demand as an int'l reserve currency. Which, as of this pivotal moment, has begun its steady slide.

If you really want to offset Dollars for any other currency, then your economy must be as big or as resilient as the US. As of now, not even the Euro has been able to compete on equal terms with dollars which makes the Ruble Yuan trade a tiny little bubble in the bath tub.

You'd be surprised, the Eurozone and the Euro are more than willing, and able, to compete with the dollar on equal terms. It is the threat of military force that keeps the Euro from trading with other commodities, rather than the dollar. The Iran Oil Bourse has missed at least three of its opening dates already, and its proposed trading with the euro <and the precipitous, sliding effect it will have on the dollar-trade with the oil and gas market> is the reason why the U.S. is stuck in Iraq. But, as it is becoming apparent that any such invasion has become non-imminent, other such oil bourses, such as the one in Russia have opened up. As of now, economists' understand that politics is what is keeping the euro from competing with the dollar.

 

[badguy2000]

Sorry p2p, I didn't have the time to compose a thorough answer earlier. I admit, the real significance of this move is in what it 'signifies'. Yet, clearly, China is moving to diminish dollar using in its bilateral trade with several trading blocs. To the extent that it minimizes the ability of the Fed. to print more notes to the tune of $50 billion, or $60 billion the year earlier, it has minimized the US ability to quantitative ease. Is that a huge deal? It is a relatively minor portion of the dollar's current int'l reserve transacting. So yes, the dollar will survive. But, the move has set the wheels turning on a process, that will erode the value of the dollar considerably in the long, or not-so-long, run. And, because it is between two large countries, it will have a catalysing effect on the process as well.

It is worth pointing out, that the threat of dollar withdrawal comes primarily from China, not from Russia. And yes, China's trade is a huge slice of the pie.

It is not a ditching of the dollar. But, it is another crack in its foundation as a reserve currency, and a pretty glaring one, at that.




Again, China cannot simply dump dollars. Because its dollar holdings are tied with U.S. debt. As soon as the US Treasury perceives a run on its balances, it will issue alternative debt instruments, that will make the value of the Federal Treasury bills China posesses relatively more 'expensive' and reduce its demand. That is one dynamic of this movement.

Another dynamic is that if the Asean-bloc perceives a gradual movement to Yuan-respective currency bilateral agreements in the future, why on earth would it purchase a dollar, whose reserve currency standing is being eroded? And why, especially, in those quantities 'dumping' would entail?

Moreover, the Chinese cannot certainly dump the dollar. As that would have pernicious effects on it as well. The Chinese currency would rise relative to the dollar, making its commodities in the US, which is still its primary purchasing partner, more expensive. Any movement will be gradual and considered, in line with domestic inflationary policies, political developments on the bilateral-agreement's scene, the domestic loans scene, the "currency two step": Treasuries-yields, the commodities market, the extent of convertibility of the yuan and PB's willingness to make it so and a host of other factors. Ironically, the willingness to diversify is a function of the extent to which the US Treasury devalues its currency, so in that respect, the US does have a modicum of influence or control over dollar withdrawals. But, for how long? Only until the Yuan does not become a competing reserve currency.


.

well, anyhow ,it is the most wonderful post of yours that I have seen in the forum.

In a word, what China does is not to "dump US dollar",but to "marginalize US Dollar".

Once US dollar were marginalized to be as trivial as Japan Yen, the economy pillar of USA's hegemony would collapse naturally!

 

[sorcerer]

Putin, Xi Discuss Possibility to Use Yuan in Mutual Transactions: Kremlin Spokesman

Updated 4:09 p.m. Moscow Time

BEIJING, November 9 (RIA Novosti) - Russia's President Vladimir Putin and China's President Xi Jinping have discussed the possibility of using the yuan in mutual transactions in different fields of cooperation, Kremlin spokesman Dmitry Peskov said Sunday.

"Much attention has been paid to the topic of mutual payments in diverse fields ... in yuans which will help to strengthen the yuan as the region's reserve currency," Peskov said commenting on the meeting held between Putin and Xi on the sidelines of the Asia-Pacific Economic Cooperation (APEC) summit in Beijing.

On October 13, Russian Economic Development Minister Alexei Ulyukayev announced that Russia was considering Chinese market to partially substitute access to the financial resources of the European Union and the United States.

The European Union and the United States have imposed several rounds of economic sanctions on Russia over its alleged involvement in the Ukrainian crisis, a claim Moscow has repeatedly denied. The restrictions prohibit major Russian companies from seeking financing on western capital markets.

Since the deterioration of Russia's relations with the West, Moscow has increased its economic cooperation with the BRICS, Asia-Pacific and Latin America.

Putin, Xi Discuss Possibility to Use Yuan in Mutual Transactions: Kremlin Spokesman | World | RIA Novosti

 

[Prometheus]

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

well that seems to be the best way to cut losses by China, lets assume that the US debt to china reaches 4 trillion dollars and will further reach 5 trillion dollars, what will China do THEN?. So its best to switch over from a meaningless currency, before the losses mount. I really hope India hope India does so too.... and so does the rest of the world.


Also I saw most of the comments on this topic, by the Indian users who see it in a India vs China mood, the US has been deceiving the world with creating artificial conflicts where there exist none. The US Military and Industrial complex has not only been deceiving the world as a whole, but also the American public as well. Any and all presidents who spoke against this were eliminated . I would suggest, observe Pakistan and learn from its mistakes, and then dont make the same mistakes. Watch and learn, you don't necessarily HAVE to make the same mistakes to learn something from them. See what American policy has done to Pakistan, once they got accustomed to their policies. The only country that the China vs India war will benefit, would be the US. Learn. Its a classic me VS u where none of them win, except for US foreign policy, and so long as the world is dependent on the dollar, it will always be perceived as a me vs u. Its time that the Asian and BRIC economies converge and do something that is not only good for them, but the world!. Lets assume the Russo- China policy and economies fail after this .....who will be the next target? .....it will be India , and trust me India will be singled out very easily once Russia and China are not there!.

 

[sgarg]

Chinese are no fools. There are estimates that China has amassed a gold reserve of more than 15000 tons. Chinese have also bought rights to mining in almost every part of the world. Only weak link for China is oil. If China lays hands on Russian oil, China is unstoppable.

China makes everything from needle to aircrafts. The cheap tag does not matter. The Chinese make all kinds of goods - from high quality to low quality as per price point. The main point is they have built an industrial infrastructure par excellence.

 

[sgarg]

Neither China nor Russia are dumping dollars. Dumping dollars is practically impossible.

The only thing one can do is to buy something with dollars. You can buy gold or other metals; or buy technology, or spend on luxury goods.

It is a complicated game. It is hard to balance as China's huge fx reserve shows.

The economic system present today was built by the West and is West centric. So both Russia and China are the losers in this system. So is every nation outside the Western bloc including India.