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    December 30, 2014

    Russia, China Start Trading in Local Currencies

    By Joaquin Flores

    Joaquin Flores appeared on Press TV on December 30, and the following are his follow-up notes on this latest development in Russia-China strategic partnership.

    This is important, and signifies much. It was agreed to back in October, and will start with 25 billion US, which is about a quarter of the value of Russia-China bilateral trade annually, although this figure itself is projected to increase as much as two fold in the coming few years.
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    This deal is assured for 3 years, and can be extended by mutual agreement, and does not preclude other agreements in the interim which can increase this amount.
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    This deal provides a way of paying both interest and principle on loans between the countries, and is in line with yuan swap arrangements that China has with about 11 other countries.
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    China has affirmed that currency volatility will not be an obstacle to the increasing use of the Yuan. This will increase the value of the Yuan, as China is engaged in a process of orienting production towards their own increasing middle class consumer base. Russia, conversely, is establishing a sound policy of a weaker ruble which will encourage development of industry within Russia, which was dismantled during the Yeltsin years.
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    What this means is that both countries are moving to decrease the use of the dollar in bilateral trade and payments of loans. Materially, each country will hold at least this much amount of the other countries currency in their reserves.
    Presently Russia use of the Ruble accounts for only 7% of turnover, and in light of Reckless US policy, its wise for this to increase.
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    This will also help the Russian efforts to stabilize the Ruble, which appears to have found a good spot between 50 and 60 rubles to the dollar. This is a big improvement from the fears generated a few weeks ago when the ruble hit highs in the 70's.
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    Cooperation between Russian and Chinese banks is also on the rise in general, and China’s Import Export Bank, which is a socialized public utility in China, due to US initiated sanctions on Russia, have pledged to help Russian banks now cut off from Western capital markets.
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    But this is not just about western sanctions, but about generally reckless US monetary, trade, and fiscal policy which has made the dollar an unattractive reserve currency.
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    The US has increasingly abused the position of the dollar, and it is appropriate that countries affirm their sovereignty and build basket currencies.
    This is part of a trend we are seeing worldwide where countries, such as in Latin America, are dumping the dollar in favor of a combination of currencies. Holding reserves and paying loans in different currencies can be seen as analogous to an individual investor or firm diversifying her portfolio.
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    The dollar is losing its status as the world reserve currency slowly but surely, and today's news is another step in that direction.
    The US has acted recklessly in over printing the dollar, and using gun-boat diplomacy over the years to compel countries to hold dollars. It's only natural and sane that countries will gradually opt out of holding US dollar reserves, maintaining their sovereignty, and improving living and working conditions for the people.

    Watch Joaquin Flores on Press TV:
    ▶ Russia, China start trading in local currencies - Video Dailymotion
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