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Thread: China and Russia both 'quit' the US dollar

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    Banned Melonie's Avatar
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    Default China and Russia both 'quit' the US dollar

    (snip)St. Petersburg, Russia - China and Russia have decided to renounce the US dollar and resort to using their own currencies for bilateral trade, Premier Wen Jiabao and his Russian counterpart Vladimir Putin announced late on Tuesday.

    Chinese experts said the move reflected closer relations between Beijing and Moscow and is not aimed at challenging the dollar, but to protect their domestic economies.

    "About trade settlement, we have decided to use our own currencies," Putin said at a joint news conference with Wen in St. Petersburg.

    The two countries were accustomed to using other currencies, especially the dollar, for bilateral trade. Since the financial crisis, however, high-ranking officials on both sides began to explore other possibilities.

    The yuan has now started trading against the Russian rouble in the Chinese interbank market, while the renminbi will soon be allowed to trade against the rouble in Russia, Putin said. (snip)




    this has several potentially important overtones ...

    - since US dollars will no longer be used as an intermediate trading point between China and Russia, the Wall St banks lose out on juicy currency exchange fees

    - if neither Russia nor China need to buy US dollars in order to trade goods to each other, this implies that the international exchange rate ( thus purchasing power ) of the US dollar will drop

    - If China cannot 'unload' trade surplus US dollars earned from sales of Chinese goods to America towards Chinese purchases of Russian goods, this leaves China holding an even bigger pile of US dollars that have no immediate purpose. This will probably drive China to use those US dollars to purchase 'real' commodities like oil, precious metals, agricultural products etc. in order to 'get rid of' those unwanted US dollars. This in turn will create pressure for higher US dollar denominated prices for oil, precious letals, agricultural products etc.

    - any leverage that the US ever had with China in regard to 'tweaking' the US dollar to Chinese Yuan exchange rate will be even lower. This in turn will cause the US dollar denominated price of Chinese merchandise to rise.

    - the US gov't will lose whatever seignorage earnings it was previously accruing from the printing / use of US dollars for transaction settlements between two foreign countries ...

    (snip)"A very profitable type of seignorage is from the international circulation of banknotes. While the cost of printing banknotes is minimal, the foreign entity must provide goods and services at the face value of the note to obtain it. The banknote is retained because the entity values it as a store of value because of mistrust of the local currency.(snip) from Wiki

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    Senior Member precise212's Avatar
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    Default Re: China and Russia both 'quit' the US dollar

    "This will probably drive China to use those US dollars to purchase 'real' commodities like oil, precious metals, agricultural products etc. in order to 'get rid of' those unwanted US dollars. This in turn will create pressure for higher US dollar denominated prices for oil..."

    Mel, as usual, i share your predictions-thank you for bringing this news first for dual citizen!
    Considering the fact that Russia is still one of the largest oil exporters if not the biggest, it would be interesting to see oil price development considering China's interest to unload $$ and Russian manipulation of oil prices. Also, Russia is not the top 10 trade partners with China yet, but this new signed agreement will probably change the game. What't s the next step, do you think would be for US Fed-print more money? Would be interesting if India and Brazil would implement the same measures...http://en.rian.ru/valdai_op/20101126/161505920.html

    "Some experts believe the Russia-China-United States triangle should form the cornerstone of any future security structure. Other experts think U.S. alliances should form the core of the new system, although this idea is opposed by China and other countries. A third group believes the Russian-Chinese initiative is very positive because it does not involve the dominance of a single country or a bloc of two countries. "

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    Banned Melonie's Avatar
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    Default Re: China and Russia both 'quit' the US dollar

    ^^^ well, the 'gold foil hat' crowd will probably tell you that, because of the soft Yuan " US$ currency peg, the US has successfully 'exported' monetary inflation to China's domestic economy. This has the possibility of being extremely problematic for the Chinese ... in ways that go far beyond pure economics. As a result, China is quietly but desparately trying to pour cold water on these inflationary forces ...

    (snip)"BEIJING (Dow Jones)--The Dalian Commodities Exchange will raise the required margins for soybean, soymeal, soyoil, palm oil, corn, linear low-density polyethylene and polyvinyl chloride contracts to 10%, effective Monday, the bourse said in a statement on its website Friday.

    The daily limit for price movements will be increased to 6%, it said.

    The changes follow government calls to crack down on speculative activity that has been driving price increases, especially in agricultural commodities.

    "The move can efficiently curb speculation," said Liu Qing, an analyst at Xinhu Futures Co.

    She said the measures were unusually strong, as margin requirements are usually raised only before holidays.

    "The exchange will take more risk-control measures to stabilize the market, if risks increase," the DCE said.

    On Tuesday, it had raised the required margins for soymeal and soyoil to 7%.

    The Zhengzhou Commodities Exchange--on which cotton, sugar, wheat, rice and rapeseed oil are traded--raised required margins and daily trading limits for some of its key agricultural products effective Friday.

    Trading limits for cotton, early-season rice and sugar were lifted to 7%, with margins set at 12%, it said. Hard wheat trading limits were raised to 6%, with margins set at 10%.

    Normally, minimum trading margins for products on the Dalian and Zhengzhou exchanges are set at 5% and daily trading limits range between 4% and 6%.

    The government has become increasingly concerned about inflationary pressures, however, so various ministries and departments have begun to take action"(snip)

    (snip)"Bottom line: these moves will achieve a price drop in the near term as marginal speculators are kicked out. We anticipate that the effect will last about a week, at which point price increases will resume with an even more pronounced pace and the PBoC will have no choice but to hike rates. "(snip)

    from


    So we finally wade through the bull$#!t to the bottom line ... that if China has to resort to raising interest rates in order to quell domestic price inflation ( and so avoid a reprise of Tiannimin Square ), the Yuan : US$ exchange rate will tip in favor of the Yuan. This in turn will increase prices for Chinese goods on US store shelves, and in turn could price China out re even lower cost producers whose goods are priced in Baht, Rupees, Dong etc. ... thus trading inflationary growth for recession and rising unemployment ( which also could lead back to a reprise of Tiannimin Square ).

    China's deal with Russia is arguably a strategic move to replace some of the 'unilateral' trade arrangement with the USA ( i.e. China trading manufactured goods for green pieces of paper ) with an bilateral trade instead ( i.e. China trading manufactured goods for Russian grain and oil ). And if Goldman Sachs loses a few billion on currency exchange profits and Washington loses some 'clout' re China and Russia at the G20, from their viewpoint so much the better.

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    Default Re: China and Russia both 'quit' the US dollar

    ...wondering at the effect of the preceived artificially weak Yuan
    I loved going to strip clubs; I actually made some friends there. Now things are different for the clubs and for me. As a result I am not as happy.

    Customers are not entitled to grope, disrespect, or rob strippers. This is their job, not their hobby, and they all need income. Clubs are not just some erotic show for guys to view while drinking.

    NOTE: anything I post here, outside of a direct quote, is my opinion only, which I am entitled to. Take it for what you estimate it is worth.

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    Default Re: China and Russia both 'quit' the US dollar

    ^^^ you may not have to wait very long, between the additional 1/2 trillion in US deficit spending resulting from the Obama tax compromise and new legislation floating around the US congress re Chinese tariffs ...

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    Default Re: China and Russia both 'quit' the US dollar

    And the price of both gold and oil keeps going up.

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    Default Re: China and Russia both 'quit' the US dollar

    ^^^ ultimately, it is very arguable that the 'price' of oil, gold, and other commodities are NOT going up significantly in terms of true 'value'. Instead what's really happening is that the true 'value' of the US dollar is being eroded ... which leads to higher US dollar denominated prices for oil, gold, and other commodities. This interpretation is also consistent with the recent actions by Russia and China to decouple from reliance on the US dollar to settle their international trades.

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    Default Re: China and Russia both 'quit' the US dollar

    Quote Originally Posted by Melonie View Post
    ^^^ ultimately, it is very arguable that the 'price' of oil, gold, and other commodities are NOT going up significantly in terms of true 'value'. Instead what's really happening is that the true 'value' of the US dollar is being eroded ... which leads to higher US dollar denominated prices for oil, gold, and other commodities. This interpretation is also consistent with the recent actions by Russia and China to decouple from reliance on the US dollar to settle their international trades.
    Exactly ! The "real", adjusted for inflation, price of a barrel of oil is less than half the current selling price. The "extraction and refining price" of an ounce of gold is about $600 an ounce. The premium for both is based almost entirely on the eroding worth of the dollar.

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    Default Re: China and Russia both 'quit' the US dollar

    I've heard it said that China has no other viable country to loan to. Europe is not all that great as its economic viability is questionable. Asia, Africa South America, etc all do not have big markets enough to interest them nearly as muc as does the US. Anyhow it makes some sense to me. But if the Us continues for the next 10 years on the same path it has been on in the last three years, there will be trouble there too. But, except for the stubbornness of the right and left wings of our static Congress, why would we?
    I loved going to strip clubs; I actually made some friends there. Now things are different for the clubs and for me. As a result I am not as happy.

    Customers are not entitled to grope, disrespect, or rob strippers. This is their job, not their hobby, and they all need income. Clubs are not just some erotic show for guys to view while drinking.

    NOTE: anything I post here, outside of a direct quote, is my opinion only, which I am entitled to. Take it for what you estimate it is worth.

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