Russia and China planning to dump the US dollar

The Russian and Chinese central banks have agreed a draft currency swap agreement, which will allow them to increase trade in domestic currencies and cut the dependence on the US dollar in bilateral payments.

“The draft document between the Central Bank of Russia and the People’s Bank of China on national currency swaps has been agreed by the parties,” and is at the stage of formal approval procedures, ITAR-TASS quotes the Russian regulator’s office on Thursday.

The Russian Central Bank is not giving precise details on the size of the currency swaps, nor when it will be launched. It says this will depend on demand.

According to the bank, the agreement will serve as an additional instrument for ensuring international financial stability. Also, it will offer the possibility to obtain liquidity in critical situations.

“The agreement will stimulate further development of direct trade in yuan and rubles on the domestic foreign exchange markets of Russia and China,” the Russian regulator said.

Currently, over 75 percent of payments in Russia-China trade settlements are made in US dollars, according to Rossiyskaya Gazeta newspaper.

In early July, the Central Bank’s chairwoman Elvira Nabiullina said Moscow and Beijing were close to reaching an agreement on conducting swap operations in national currencies to boost trade. The deal was later discussed during her trip to China.

Pessimism pervades as G20 leaders show sharp split

Jean H. Lee
Associated Press

SEOUL, South Korea — A strong sense of pessimism shrouded the start of an economic summit of rich and emerging economies Thursday, with President Barack Obama and fellow world leaders arriving in Seoul sharply divided over currency and trade policies.

The Group of 20 summit, held for the first time in Asia, has become the centerpiece of international efforts to revive the global economy and prevent future financial meltdowns.

Hopes had been high that the Group of 20 – encompassing rich nations such as Germany and the U.S. as well as growing giants such as China and Brazil – could be the world forum for hashing out an economic way forward from financial crisis.


But agreement appeared elusive as the summit began, divided between those such as United States that want to get China to allow its currency rise and those irate over U.S. Federal Reserve plans to pump $600 billion of new money into the sluggish American economy, effectively devaluing the dollar.

Obama told fellow leaders that the U.S. cannot remain a profligate consumer using borrowed money and needs other countries to pull their weight to fix the world economy.

"The most important thing that the United States can do for the world economy is to grow, because we continue to be the world's largest market and a huge engine for all other countries to grow," Obama said at a news conference.

Brazil's president, Luiz Inacio Lula da Silva, warned that such policies would "bankrupt" the world.

"If the rich countries are not consuming and want to grow its economy on exports, the world goes bankrupt because there would be no one to buy," he told reporters. "Everybody would like to sell."

Concerns about trade gaps, protectionism and a currency war threatened to overtake momentum for forming global solutions to the financial crisis created at last year's London summit.

So far, officials can't even agree on the agenda, much less a draft statement. Government ministers and senior G-20 officials have labored for days without success to come up with a substantive joint statement to be issued Friday, G-20 summit spokesman Kim Yoon-kyung said.

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Federal Reserve Risks Ruining Reserve Currency

The Fed ponders its biggest decision yet. Will it sacrifice the dollar?

Image: Mark Wilson/Getty

Joel Hilliker
The Trumpet

The Federal Reserve is expected to announce today whether or not to unleash a second round of quantitative easing. It may be one of the most important decisions in its history. Will the Fed sacrifice the dollar, and risk losing reserve currency status in an attempt to stimulate the economy and “painlessly” pay its debts?

The Telegraph’s Ambrose Evans-Pritchard is warning that the Fed’s quantitative easing plan “risks” a “currency war” that may accelerate “the demise of the dollar-based currency system, perhaps leading to an unstable tripod with the euro and yuan, or a hybrid gold standard.”

The problem facing the world is that the global economy is trapped in stalling speed. Most of the regular tools used by central banks have been exhausted. Interest rates are already near zero, and many governments have mostly spent what they can—and yet the global economy is sputtering.


All that is left for national economies is to try to gain export market share at the expense of their neighbors. To do this, nations are attempting to devalue their currencies to make their exports less expensive and imports more expensive. The risk, as Evans-Pritchard points out, is trade war.

Relations between China and America are especially strained. America wants to devalue the dollar and thus reverse its trade imbalance with China. China is resisting and is maintaining its dollar peg, which ensures that the yuan’s exchange rate remains fixed to the dollar. And the war is spreading. The Telegraph reports (emphasis ours throughout):

China’s Commerce Ministry fired an irate broadside against Washington on Monday. “The continued and drastic U.S. dollar depreciation recently has led countries including Japan, South Korea and Thailand to intervene in the currency market, intensifying a ‘currency war.’ In the mid-term, the U.S. dollar will continue to weaken and gaming between major currencies will escalate,” it said. …

Taiwan intervened on Monday to cap the rise of its currency, while Korea’s central bank chief said his country is eyeing capital controls as part of its “toolkit” to stem the flood of Fed-created money leaking out of the U.S. and sloshing into Asia. …

“It is becoming harder to mop up the liquidity flowing into these countries,” said Neil Mellor of the Bank of New York Mellon. “We fully expect more central banks to impose capital controls over the next couple of months. That is the world we live in,” he said. Globalisation is unravelling before our eyes.

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