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China And Russia Dump The Dollar

Woah.

From The China Daily

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.

Read the rest here.

— By Akira The Don on Thursday, November 25th, 2010

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  • Lizacrunch

    yikes….hmmm what affect will this have on the dollar?

  • Daniel

    JackRiddler says;

    No one wants to do this overnight if they can avoid it. Most “events” are markers or culminations of ongoing developments. I think this is a big signal. It goes beyond what they announced last year. The timing comes as the US crisis looks to intensify, after the G20 slap-down for US dollar policy, and with a round of economy-crushing austerity imminent in the new Congress. As to the volume of trade involved, may I remind that Russia is the number one oil producer, and China the future number one oil consumer? And oh look, they share the world’s second-longest border. Obviously there is much room for growth between them. The news splash of two giants coming to a small agreement is significant in a context where more and more of these bilateral currency arrangements are announced.

    As the US crisis manifests again, there is incentive to set up an anti-dollar, and it will be if the powers involved can understand their mutual interest and work it out politically. Here’s a scenario: BRIC and EU can establish a weighted basket of their own currencies fixed relative to each other (or floating within ranges a la Bretton Woods) while floating freely against the US dollar and commodities. A transaction system would allow for trade accounts among participating nations to be settled via this “Dollar for International Trade.” Those accumulating DITs could redeem them in any of the participating currencies. Once the oil producers agreed to also price in DITs (as they already do in euros or other currencies under bilateral agreements), it would be more solid than the dollar. To start it off, participants could convert half of their central bank and sovereign fund holdings of dollars into DITs and use these for trade amongst them. To do that, understand, they do not sell their dollar reserves, which would be like a war. Rather, it’s a bookkeeping conversion: One-half of dollar holdings are redenominated as DITs and allowed to float against the US dollar. If the Chinese holdings of 3 trillion US dollars are converted to half dollars and half DITs, they are no longer endangered, because a fall in DIT is a rise in the dollar, and vice-versa. Rather, they have 1.5 trillion DITs to go invest and spend in BRIC and EU, which is already the majority of the world’s economy.

    That was a scenario, true, and a presidents’ meeting of Russia and China is a ways away from an agreement between EU and all of BRIC. But crisis accelerates moves that otherwise take decades of planning. The elements for the above are actually all in place. What you’re going to see regardless is more and more of these bilateral and regional agreements doing away with the middleman, or in this case, the middle currency.

    As for this being bad, presumably meaning for the US: Whether “we” are headed in a downward spiral is up to us. It’s up to us to reject the politics of fear, permanent war, austerity and concentration of all wealth in the fewest and most corrupt hands. A better future is among our choices – and among other things the end of the US dollar as world currency and related to that the end of US empire are vital elements of a better future for the American people, assuming that also involves a much larger transformation.