Russia Is Actually Abandoning The Dollar

[katsung47]

Russia Is Doing It – Russia Is Actually Abandoning The Dollar

By Michael Snyder, on June 10th, 2014

The Russians are actually making a move against the petrodollar. It appears that they are quite serious about their de-dollarization strategy. The largest natural gas producer on the planet, Gazprom, has signed agreements with some of their biggest customers to switch payments for natural gas from U.S. dollars to euros. And Gazprom would have never done this without the full approval of the Russian government, because the Russian government holds a majority stake in Gazprom. There hasn't been a word about this from the big mainstream news networks in the United States, but this is huge. When you are talking about Gazprom, you are talking about a company that is absolutely massive. It is one of the largest companies in the entire world and it makes up 8 percent of Russian GDP all by itself. It holds 18 percent of the natural gas reserves of the entire planet, and it is also a very large oil producer. So for Gazprom to make a move like this is extremely significant.

theeconomiccollapseblog.com/archives/russia-is-doing-it-russia-is-actually-abandoning-the-dollar

 

[prohumanity]

You are right. The $400 billion Gas deal signed between Russia and China last month is biggest example. The Russian gas price will be paid by China in Remimbi (yuan) which will be deposited in Chinese banks and used to pay for consumer goods to be bought by Russia.
Last year, similar deal was made between India and Iran when western countries blocked India from paying the price of Iranian Natural gas in dollars. (Banks were ordered not to do the transactions.) Iran still sold Gas to India and accepted payments in Rupees which they deposited in UCO bank in India so they can make payment for buying Indian goods at later date. There are plans to do Rouble-Rupee trade and rumors of a single BRICS currency.

 

[sob]

You are right. The $400 billion Gas deal signed between Russia and China last month is biggest example. The Russian gas price will be paid by China in Remimbi (yuan) which will be deposited in Chinese banks and used to pay for consumer goods to be bought by Russia.
Last year, similar deal was made between India and Iran when western countries blocked India from paying the price of Iranian Natural gas in dollars. (Banks were ordered not to do the transactions.) Iran still sold Gas to India and accepted payments in Rupees which they deposited in UCO bank in India so they can make payment for buying Indian goods at later date. There are plans to do Rouble-Rupee trade and rumors of a single BRICS currency.

these deals are more in the nature of Barter deals, rather than cash transactions. Cash is being used here only to fix a value to the goods and nothing more.

Ask the Chinese to drop the US Dollar and see them running in the other direction.

What is a US $ 400 Billion deal spanning years when the daily transaction in US dollars is Trillions.

 

[pmaitra]

@sob,

I think the OP is trying to focus on the importance of energy (oil/gas) to the value of the US Dollar. If 8% of Russia's GDP walks away from the US Dollar, it will have a small but a very significant effect on the US economy, because, the US barely manages to pay off its bills, despite having a massive GDP.

 

[sob]

@sob,

I think the OP is trying to focus on the importance of energy (oil/gas) to the value of the US Dollar. If 8% of Russia's GDP walks away from the US Dollar, it will have a small but a very significant effect on the US economy, because, the US barely manages to pay off its bills, despite having a massive GDP.

PM, it does not have an impact on the US economy, since the money change is not directed towards US goods. at the most what it will do is drive the Dollar down-- demand and supply economics. This suits the US very well because it makes it's exports more competitive.

OTOH China will not let the Dollar come down because-

1. It's exports to it's no 1 market will become expensive, and
2. It's holdings in US Stock and T- Bonds will take a hit.

The impact the US economy has on the Global economy can be gauged from the way Central Bank Governors from Mumbai to Moscow to Beijing are looking at the QE by the Feds. All of them in one voice are hoping that the QE Taper will be more gradual and if possible after at least 3-4 years.

 

[pmaitra]

PM, it does not have an impact on the US economy, since the money change is not directed towards US goods. at the most what it will do is drive the Dollar down-- demand and supply economics. This suits the US very well because it makes it's exports more competitive.

OTOH China will not let the Dollar come down because-

1. It's exports to it's no 1 market will become expensive, and
2. It's holdings in US Stock and T- Bonds will take a hit.

The impact the US economy has on the Global economy can be gauged from the way Central Bank Governors from Mumbai to Moscow to Beijing are looking at the QE by the Feds. All of them in one voice are hoping that the QE Taper will be more gradual and if possible after at least 3-4 years.

You are right in the things you are saying.

We need to see how things pan out in the near future.

 

[jouni]

In the SU times Finland had bilateral deal with SU . Oil was paid by Finnish products, mostly consumer goods and machinery, ships etc. BIG MISTAKE when SU collapsed Finnish products were not able to compete in other markets. Finland went to huge depression and it took us 10 years to be able to be competitive internationally. In the future high end and innovative products are the ones that guarantee the success of a nation. Do not repeat our mistakes.

 

[prohumanity]

Yes. Sob..China is invested in US Govt bonds to the tune of approx. 950 Billion dollars. It is stuck ..as if it takes out a large sum out of US bonds..Chinese Yuan will go up sharply and China being a export driven economy will go in recession as its product will become expensive and non-competitive.
But..China's huge problem is that it is getting 1 to 2% return on its money in US govt bonds which is lousy. In other places, Chinese money can get anywhere from 5% to 20 % return on its capital depending on risk tolerance. Just to inform you that China is NOT buying US govt. bonds now and slowly trying to get out of them. Proof: Did't you notice Chinese leaders going all over the World..buying mines, metals, oil and gas deals and many more projects outside US and Europe. Rumor has it..that Chinese leaders have hinted that they might consider investing up to 300 Billion dollars in India. They are flush with cash and searching high return investment. Same is case with Japan..almost 900 billion dollars of Japanese money is in US govt bonds right now yielding 1 -2% per annum. unacceptable rate of return. Japan also is looking safe places with higher return ..out side US and Europe.
Note it carefully...This is the beginning of the end of dollar hegemony..BUT this process of unwinding can take 15 to 20 years . Reserve currencies don't crash overnight. World currency markets have started the process by these barter deals and this trend is going to accelerate.
Sob...about US product being competitive in the future ..I don't think so. Just to give you one example..a fifth gen fighter jet if made in US or Europe ..costs about 2 times compared to if it is made in China or India. Labor costs are very high in US/Europe. Once the developing countries learn the technology...they can manufacture the thing very cheaply.
As for weapons, nations do not have to have the BEST ,high tech weapons BUT weapons GOOD ENOUGH to cause a lot of damage to the adversary...that is enough as a deterrence..its the will and risk taking that matters then. My favorite example is ..if I have credible belief that one of my leg will be gone in fighting with you..though I will be able to make you lose both legs due to my strength...I will think billion times before starting a fight with you. Just think why NATO did not attack Russia when Russia took back Cremia? Why it was so easy to invade Iraq? What if Iraq had Nukes? Just food for thought.

 

[no smoking]

PM, it does not have an impact on the US economy, since the money change is not directed towards US goods. at the most what it will do is drive the Dollar down-- demand and supply economics. This suits the US very well because it makes it's exports more competitive.

This deal is not to hit US economy but the dominance of US dollar in world energy market, which is the key part of US dollar's dominance in world financial market. In the long run, it will impact US economy, in big time!

OTOH China will not let the Dollar come down because-

1. It's exports to it's no 1 market will become expensive, and

Wrong, Chinese is letting the Dollar come down, SLOWLY! That is what they are doing in the past 8 years--Appreciating RMB 2-3% each year. They believe that they absorb the change of exchange rate by moving up the value chain. And they are right so far. Meanwhile, since they are trying to push the RMB deal with their raw resource suppliers. It means their material cost will go down.

2. It's holdings in US Stock and T- Bonds will take a hit.

Yes, but you forget another part of its holding--those assets valued in RMB will go up.

The impact the US economy has on the Global economy can be gauged from the way Central Bank Governors from Mumbai to Moscow to Beijing are looking at the QE by the Feds. All of them in one voice are hoping that the QE Taper will be more gradual and if possible after at least 3-4 years.

Of course, no one wants to see the US dollar dead before the funeral is ready.

 

[pmaitra]

Wrong, Chinese is letting the Dollar come down, SLOWLY! That is what they are doing in the past 8 years--Appreciating RMB 2-3% each year. They believe that they absorb the change of exchange rate by moving up the value chain. And they are right so far. Meanwhile, since they are trying to push the RMB deal with their raw resource suppliers. It means their material cost will go down.

Could you please elaborate on this a little bit more? Give a few examples, as I am trying to understand this part well.

 

[sob]

Could you please elaborate on this a little bit more? Give a few examples, as I am trying to understand this part well.

What he is not speaking is that if the RMB was allowed to freely float it would appreciate much more than the 2-3% range it is currently moving in.

If the Chinese allow free float of RMB their exports to the US will reduce drastically putting their economy in a tailspin.

OPEC is the big daddy of oil business and they will continue to deal in US Dollars.

RMB is never going to be the global currency like Dollar, because of one single reason--- There is no transparency in the way Chinese economy operates. No country will place their Forex reserves in a currency which is artificially controlled.

 

[jouni]

Shutting Off Gas Supplies to EU Would Be Huge Blow to Gazprom | Business | The Moscow Times

Gazprom in trouble, cant get financing even from Asian banks. The rumour about the death of a dollar is premature.

 

[no smoking]

Could you please elaborate on this a little bit more? Give a few examples, as I am trying to understand this part well.

I am not sure if I can explain it in few hundreds words since it is really big subject, but I will try my best!

One of the most important lessons Chinese learned from 1997 crisis is: currency appreciation is unavoidable after years of trade surplus, but it should be managed in your own way. In other words, your industry departments must be given time to adjust their strategy and production in order to absorb it, for example:
1. Moving some parts production line to lower cost country such as Vietnam, Cambodia, Bangladesh and India, etc.
2. Using machine to replace workers as the cost of machine is going down (especially when these machines are imported or have foreign key parts)
3. Developing new products/technology or moving into new manufacture sector. In 1990s, the majority of Chinese exportation was textile, toys, while today machine and electronic equipment are on the top of list.
4. re-training workers to cope with higher skill requirement.

At the meantime, Chinese has offered huge RMB loans to Africans and South Amercians to build up their infrastructure and manufacturing base. Certainly these loans will be paid back with their raw materials--oil, iron core, copper and even diamond.

As the result, since 2005, RMB has appreciated nearly 40% against USB, but China exportation wasn't shrinking, but growing further.

 

[pmaitra]

What he is not speaking is that if the RMB was allowed to freely float it would appreciate much more than the 2-3% range it is currently moving in.

If the Chinese allow free float of RMB their exports to the US will reduce drastically putting their economy in a tailspin.

OPEC is the big daddy of oil business and they will continue to deal in US Dollars.

RMB is never going to be the global currency like Dollar, because of one single reason--- There is no transparency in the way Chinese economy operates. No country will place their Forex reserves in a currency which is artificially controlled.

I am not sure if I can explain it in few hundreds words since it is really big subject, but I will try my best!

One of the most important lessons Chinese learned from 1997 crisis is: currency appreciation is unavoidable after years of trade surplus, but it should be managed in your own way. In other words, your industry departments must be given time to adjust their strategy and production in order to absorb it, for example:
1. Moving some parts production line to lower cost country such as Vietnam, Cambodia, Bangladesh and India, etc.
2. Using machine to replace workers as the cost of machine is going down (especially when these machines are imported or have foreign key parts)
3. Developing new products/technology or moving into new manufacture sector. In 1990s, the majority of Chinese exportation was textile, toys, while today machine and electronic equipment are on the top of list.
4. re-training workers to cope with higher skill requirement.

At the meantime, Chinese has offered huge RMB loans to Africans and South Amercians to build up their infrastructure and manufacturing base. Certainly these loans will be paid back with their raw materials--oil, iron core, copper and even diamond.

As the result, since 2005, RMB has appreciated nearly 40% against USB, but China exportation wasn't shrinking, but growing further.

Thank you, both of you, for giving your thoughts on this subject.

Anyway, here is my take home message:

A weaker currency encourages exports, but discourages imports. Now, coming to what @sob has stated, it is true that if the RMB is allowed to float free, Chinese exports to the US will dwindle. One things no note here is, that with the decline in the value of the US Dollar, even if there was no deflation of the RMB, Chinese exports will continue to get less competitive. This is the very reason why India continues to inflate the INR.

Regarding transparency, yes, there is lack of transparency with PRC. With the US, it is not much different. There is lack of trust with the US Dollar, ever since the US reneged on the Bretton Woods agreement. Economic crisis in the US have a ripple effect all over the world only because international trade is bound to the US Dollar, for most part. This allows the US to exports it inflation.

On the comment by @no smoking, about currency appreciation with a high trade surplus, I agree, and I think his remedies are correct.

How the US exports inflation, can be better understood this way, but before understanding the chart, one should understand the terms:

• TC - Trading Currency money supply, a key factor in boosting GDP.
• TCC - Trading Currency Collateral, such as Gold used to back up that currency.
• QE - Quantitative Easing (essentially, printing money out of thin air).
• Wealth per TC - The amount of the collateral, in this case, gold, one unit of TC can purchase.
• TC Country - Country that controls the TC.
• ~TC Countries - Other countries, that own TC as forex reserves.
• DfBW - Departure from an agreement, such as Bretton-Woods agreement, or any agreement that ties the value of one TC to the collateral.
• The other terms are self explanatory.

YEAR	EVENT	QE	TC	TCC	Wealth per TC	~TC Countries	TC Country	~TC Country Wealth	TC Country Wealth	Wealth Transfer
y+0		0	10000	100	0.01	6000	4000	60	40	0
y+1		0	10000	100	0.01	6000	4000	60	40	0
y+2		0	10000	100	0.01	6000	4000	60	40	0
y+3		0	10000	100	0.01	6000	4000	60	40	0
y+4		0	10000	100	0.01	6000	4000	60	40	0
y+5		0	10000	100	0.01	6000	4000	60	40	0
y+6	DfBW	10	10010	100	0.00999000999000999	6000	4010	59.9400599400599	40.0599400599401	0.059940059940061
y+7	DfBW	10	10020	100	0.00998003992015968	6000	4020	59.8802395209581	40.1197604790419	0.0598204191018539
y+8	DfBW	10	10030	100	0.00997008973080758	6000	4030	59.8205383848455	40.1794616151545	0.0597011361126221
y+9	DfBW	10	10040	100	0.0099601593625498	6000	4040	59.7609561752988	40.2390438247012	0.0595822095466545
y+10	DfBW	10	10050	100	0.00995024875621891	6000	4050	59.7014925373134	40.2985074626866	0.0594636379853739

Of course, many other variables that are in play, have been kept at a constant, to understand how inflation is exported by the US.

Look at how the value of the currency and the wealth transfer is diminishing exponentially. To keep the wealth transfer fixed, or to have a positive rate of change of wealth transfer, the amount of money printed out of thin air must increase exponentially every time there is QE.

@Sakal Gharelu Ustad, please correct me if I am wrong anywhere.

 

[pmaitra]

Shutting Off Gas Supplies to EU Would Be Huge Blow to Gazprom | Business | The Moscow Times

Gazprom in trouble, cant get financing even from Asian banks. The rumour about the death of a dollar is premature.

Diminished demand for the money, presumably US Dollar or Euro, due to not being able to be loaned to Gazprom, will only hurt the currency. There shall be the diminished demand for Dollar, along with the Euro, and increased availability of Dollar, diminished usurious profits, with every passing year, kind of like the Pound Sterling. Death of Dollar it is not, just a decline.

Gazprom is better off not loaning money from any financier that is linked to the US FED or Bank of England. The biggest beneficiary of the puerile actions of the EU and US egomaniacs will be PRC, and the RMB.

 

[CCP]

Diminished demand for the money, presumably US Dollar or Euro, due to not being able to be loaned to Gazprom, will only hurt the currency. There shall be the diminished demand for Dollar, along with the Euro, and increased availability of Dollar, diminished usurious profits, with every passing year, kind of like the Pound Sterling. Death of Dollar it is not, just a decline.

Gazprom is better off not loaning money from any financier that is linked to the US FED or Bank of England. The biggest beneficiary of the puerile actions of the EU and US egomaniacs will be PRC, and the RMB.

I agree most of your points,but I don't think Russia will give this benefit to China...

 

[pmaitra]

I agree most of your points,but I don't think Russia will give this benefit to China...

PRC is economically, and militarily sound enough to ensure a position of strength for its currency in a limited scope.

It is not entirely dependent on Russia.

Then, there is BRICS SDR.

Let us wait and see. The world is going through a shift at this moment, and the western countries are looking desperate to cling onto their dwindling influence in world affairs.

 

[prohumanity]

Europe and US both are in chronic deflationary downward spiral...Europe more so than US..PIGS (Portugal,Ireland,Greece,Spain) are doing worst in Europe and have 30 to 40% unemployment. This deflation is not ending anytime soon as consumer confidence keeps going down both in Europe and US with GDP growth slowing to almost 0%. People are feeling insecure and afraid watching what's going on in World and postponding big ticket item purchases. Geopolitical situation with further attacks on ISIS, Syria and possibly ,later on Iran..can accelerate deflationary trend. International Travel is slowing due to fear and anxiety about safety. Only food prices are going up..everything else is declining in price....wages are stagnant or declining..lots of people are working less than full time. Innovation is slowing due to lack of funding and demand for expensive stuff. Bottom line: CHRONIC DEFLATION in West will continue for at least 10 more years.

 

[Ahsan Bin Tufail]

Europe and US both are in chronic deflationary downward spiral...Europe more so than US..PIGS (Portugal,Ireland,Greece,Spain) are doing worst in Europe and have 30 to 40% unemployment. This deflation is not ending anytime soon as consumer confidence keeps going down both in Europe and US with GDP growth slowing to almost 0%. People are feeling insecure and afraid watching what's going on in World and postponding big ticket item purchases. Geopolitical situation with further attacks on ISIS, Syria and possibly ,later on Iran..can accelerate deflationary trend. International Travel is slowing due to fear and anxiety about safety. Only food prices are going up..everything else is declining in price....wages are stagnant or declining..lots of people are working less than full time. Innovation is slowing due to lack of funding and demand for expensive stuff. Bottom line: CHRONIC DEFLATION in West will continue for at least 10 more years.

It seems Europe as a whole is experiencing worst kind of recession, the impact of which could be disastrous. Such a pity to humanity that such nations of good values swirl down due to their fate and non understanding of the need to transform their financial objectives.

 

[Peter]

Europe and US both are in chronic deflationary downward spiral...Europe more so than US..PIGS (Portugal,Ireland,Greece,Spain) are doing worst in Europe and have 30 to 40% unemployment. This deflation is not ending anytime soon as consumer confidence keeps going down both in Europe and US with GDP growth slowing to almost 0%. People are feeling insecure and afraid watching what's going on in World and postponding big ticket item purchases. Geopolitical situation with further attacks on ISIS, Syria and possibly ,later on Iran..can accelerate deflationary trend. International Travel is slowing due to fear and anxiety about safety. Only food prices are going up..everything else is declining in price....wages are stagnant or declining..lots of people are working less than full time. Innovation is slowing due to lack of funding and demand for expensive stuff. Bottom line: CHRONIC DEFLATION in West will continue for at least 10 more years.

Sir where do you get your data from and why do you like spreading lies here in DFI. You have claimed that Portugal,Spain,Ireland and Greece has "30-40%" unemployment. This is a false figure. Let me tell you the true rates.

Ireland-11.7%
Portugal-14.7%
Spain-24.5%
Greece-27.2%

Greece Unemployment Rate | 1998-2014 | Data | Chart | Calendar | Forecast
Unemployment in Spain - Wikipedia, the free encyclopedia
Unemployment rate drops to lowest level in nearly five years
https://www.google.co.in/search?q=p..._sm=122&ie=UTF-8#q=portugal+unemployment+rate

Go to the above links and see the unemployment rates yourself. Also some of the above countries provide unemployment subsidies to its people. You should stop hoodwinking us DFIans by spreading your half truths and whole lies here.