China, Russia quit dollar

[JihadJane]

"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."

'China, Russia quit dollar'

http://www.chinadaily.com.cn/china/2010-11/24/content_11599087.htm


Is this good or bad for the US or doesn't it matter?

[Francesca R]

Seemed a little odd (and something of a compliment to the USA) for Russia to be paying China for Chinese stuff with US dollars (and vice versa) in the first place.

But the reason is that both countries have capital controls which means they like telling other people (including, historically, each other) that other people can't use their currency.

The more they make rubles and yuan convertible, the better for the US (and everyone).

[stilicho]

Is this good or bad for the US or doesn't it matter?

It's indifferent:

http://en.rian.ru/business/20101125/161494529.html.

The USD remains the dominant reserve currency in Russia followed by the relatively less secure Euro and then a basket of smaller and riskier ones.

[rjh01]

But will a buyer be willing to sell something in exchange for Russian or Chinese money? The more the answer is yes then the better it is for the Russians and Chinese.

[Toke]

It could let them reduce their dollar holdings and the rent they pay on it.
I am not sure if it will happen.

[Tippit]

Seemed a little odd (and something of a compliment to the USA) for Russia to be paying China for Chinese stuff with US dollars (and vice versa) in the first place.

But the reason is that both countries have capital controls which means they like telling other people (including, historically, each other) that other people can't use their currency.

The more they make rubles and yuan convertible, the better for the US (and everyone).

The ability for the US to export its massive inflation and force the dollar on the rest of the world comes as a courtesy of US military coercion - if you want to buy oil, you need US dollars. At least, this was before the Iranian bourse. But to the extent that Russia and China needed to import oil before this, they required dollars, just like any other country that needs energy.

Think of these as tremors that preclude the catastrophic earthquake that will result in the collapse of the USD.

[WildCat]

Think of these as tremors that preclude the catastrophic earthquake that will result in the collapse of the USD.
Or not.

[stilicho]

...they required dollars...

They still do. Just not for bilateral transactions or so they say.

This story pops up annually and is mere posturing:

http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aSTmuCr.RD88

That's from JUN 2009 and courtesy of a blogger I read occasionally. The humorous part of it is that the BRIC countries have not a stable currency among them and they'll be back to dealing in USD in no time.

I don't recall any recent invasions of the BRIC countries by the US so your posturing about "coercion" is, as always, hollow rhetoric intended to inflame rather than to inform.

[Doubt]

As long as China keeps it's currency pegged to the dollar, this will be meaningless.

[stilicho]

As long as China keeps it's currency pegged to the dollar, this will be meaningless.

That's a slightly different issue. The bilateral trade they're talking about here has to be settled. They've typically used the USD for convenience since so many foreign currency transactions, globally, are settled that way.

Or, on Planet Tippit, it's not for convenience but to support exports of rampant inflation through military coercion and pixie dust mesmerism.

[Doubt]

That's a slightly different issue. The bilateral trade they're talking about here has to be settled. They've typically used the USD for convenience since so many foreign currency transactions, globally, are settled that way.

Or, on Planet Tippit, it's not for convenience but to support exports of rampant inflation through military coercion and pixie dust mesmerism.

A different issue that renders the change China and Russia making meaningless for now. If either the ruble or the Yuan were floated, then it might make a difference. For now, nothing really changes.

[stilicho]

A different issue that renders the change China and Russia making meaningless for now. If either the ruble or the Yuan were floated, then it might make a difference. For now, nothing really changes.

I can't find a lot here to comment on that because so much of Canada's foreign trade is actually with the US so there's naturally going to be a lot more settlements in USD. That's regardless of whether our currency is pegged to the USD (it's not).

I'd have to locate another pair of nations that don't peg their currency to the USD and figure how much of their trade is settled in non-USD or domestic currencies. My hypothesis is that it doesn't matter (or neither influencing nor influenced by) but I'm too lazy to do all the research.

Regardless, this story is not a new one and it appears to pop up at political events rather than at business meetings. That's why I think it's so much posturing and isn't going to necessarily be put into practice. Either that or they're trying to establish another barrier to trade by slipping in a ruble-yuan-USD bureaucracy to manage the "settlement of the settlements".

See, this is why accountants are never in much peril of losing our job security.

[Puppycow]

For perspective, the Russian rate of inflation (http://www.tradingeconomics.com/Economics/Inflation-CPI.aspx?Symbol=RUB) is currently 7.6% and rising. From 1991 until 2010, the average inflation rate in Russia was 175.36 percent reaching an historical high of 2333.30 percent in December of 1992 and a record low of 5.50 percent in July of 2010.

The Chinese rate of inflation (http://www.tradingeconomics.com/Economics/Inflation-CPI.aspx?Symbol=CNY) is 4.4% and rising. From 1994 until 2010, the average inflation rate in China was 4.25 percent reaching an historical high of 27.70 percent in October of 1994 and a record low of -2.20 percent in March of 1999.

Meanwhile, the US inflation rate (http://www.tradingeconomics.com/Economics/Inflation-CPI.aspx?Symbol=USD) is 1.2%. From 1914 until 2010, the average inflation rate in United States was 3.38 percent.

China and Russia are certainly free to trade with their own currencies, but there seems to be a pretty clear reason why they didn't in the past. Even Russia's record low inflation since 1991 is higher than the US average. China's record is not so bad, but inflation is still higher on average there than in the US.

[Francesca R]

Think of these as tremors that preclude the catastrophic earthquake that will result in the collapse of the USD.Well I agree they preclude that outcome, hence it is "better for the US" if the CNY and RUB are even slighly more convertible.

Of course you meant "prelude". But in this case two wrongs made a right. Well done :D

[The Central Scrutinizer]

Think of these as tremors that preclude the catastrophic earthquake that will result in the collapse of the USD.

When will that happen? I want to be prepared. :crazy:

[Puppycow]

Well I agree they preclude that outcome, hence it is "better for the US" if the CNY and RUB are even slighly more convertible.

Of course you meant "prelude". But in this case two wrongs made a right. Well done :D

Or "precede." Can "prelude" be a verb?

[Wolfman]

Well I agree they preclude that outcome, hence it is "better for the US" if the CNY and RUB are even slighly more convertible.

Let me second that sentiment; the RMB's lack of convertibility is a major pain in the ass for doing business here. You can get money into the country easily enough; but revenue earned in RMB is extremely difficult to convert and get back out of the country. Larger companies have turned to creative methods, such as using Chinese profits to buy products here, then ship them overseas, and sell them.

I'm all in favor of greater convertibility...albeit, I'll admit, for almost entirely selfish reasons :)

[Buckyball]

"Is this good or bad for the US or doesn't it matter?"

Yes. It allows the Chinese to maintain the value of the Yuan relative to the dollar.. When they do business with most others, they have to trade their Yuan for Dollars. Doing so drives up the value of the Dollar relative to the Yuan. So, this is smart strategy on the part of the Chinese and Russians, who are seeking to undermine the dollar. Of course, they are fighting an irresistible force. Eventually, they have to spend their money across the globe, as their economies grow. They are both hoping to do a lot of damage to US interests in the meantime.

Fortunately, they will ultimately fail in their efforts. They both underestimate the strength of the American economy.

[PogoPedant]

Or "precede." Can "prelude" be a verb?

Verbing funs language.

[ZirconBlue]

"Is this good or bad for the US or doesn't it matter?"

Yes. It allows the Chinese to maintain the value of the Yuan relative to the dollar.. When they do business with most others, they have to trade their Yuan for Dollars. Doing so drives up the value of the Dollar relative to the Yuan. So, this is smart strategy on the part of the Chinese and Russians, who are seeking to undermine the dollar. Of course, they are fighting an irresistible force. Eventually, they have to spend their money across the globe, as their economies grow. They are both hoping to do a lot of damage to US interests in the meantime.

Fortunately, they will ultimately fail in their efforts. They both underestimate the strength of the American economy.

I don't see what China would gain from a devaluation of the dollar. That would make it harder for them to sell products in the US, and make American-made products cheaper to the rest of the world.

[JihadJane]

"Is this good or bad for the US or doesn't it matter?"

Yes. It allows the Chinese to maintain the value of the Yuan relative to the dollar.. When they do business with most others, they have to trade their Yuan for Dollars. Doing so drives up the value of the Dollar relative to the Yuan. So, this is smart strategy on the part of the Chinese and Russians, who are seeking to undermine the dollar. Of course, they are fighting an irresistible force. Eventually, they have to spend their money across the globe, as their economies grow. They are both hoping to do a lot of damage to US interests in the meantime.

Fortunately, they will ultimately fail in their efforts. They both underestimate the strength of the American economy.



You are overestimating the strength of the gutted American economy and, indeed, of the global economy.

The US economy has been eaten by the parasite that made it fat for so long.

[stilicho]

The US economy has been eaten by the parasite that made it fat for so long.

Parasites don't make a body gain weight. You've been reading that deworming woo again, JihadJane.