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Page added on September 30, 2014

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Europe & China Start Direct Trading In Euros & Yuan As De-Dollarization Expands

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De-dollarization has been an ongoing theme hidden just below the surface of the mainstream media for more than a year as Russia and China slowly but surely attempt to “isolate” the US Dollar. Until very recently, direct trade agreements with China (in other words, bypassing the US Dollar exchange in bilateral trade) had been with smaller trade partners. On the heels of Western pressure, Russia and China were forced closer together and de-dollarization accelerated from Turkey to Argentina as an increasing number of countries around the world realize the importance of this chart. However, things are about to get even more dramatic. As Bloomberg reports, China will start direct trading between the yuan and the euro tomorrow as the world’s second-largest economy seeks to spur global use of its currency in a “fresh step forward in China’s yuan internationalization.” With civil unrest growing on every continent and wars (proxy or other) at tipping points, perhaps, just perhaps, the US really does want rid of the weight of the USD as a reserve currency after all (as championed here by Obama’s former right hand economist)… now that would be an intriguing ‘strategy’.

 

As Bloomberg reports, China will start direct trading between the yuan and the euro tomorrow as the world’s second-largest economy seeks to spur global use of its currency…

The euro will become the sixth major currency to be exchangeable directly for yuan in Shanghai, joining the U.S., Australian and New Zealand dollars, the British pound and the Japanese yen. The yuan ranked seventh for global payments in August and more than one-third of the world’s financial institutions have used it for transfers to China and Hong Kong, the Society for Worldwide International Financial Telecommunications said last week.

 

“It’s a fresh step forward in China’s yuan internationalization,” said Liu Dongliang, an analyst with China Merchants Bank Co. in Shenzhen.

 

The move will lower transaction costs and so make yuan and euros more attractive to conduct bilateral trade and investment, the People’s Bank of China said today in a statement on its website. HSBC Holdings Plc said separately it has received regulatory approval to be one of the first market makers when trading begins in China’s domestic market.

 

 

China’s trade with European Union nations grew 12 percent from a year earlier to $404 billion in the first eight months of 2014, according to data from the Asian nation’s customs department. That compares with just $354 billion with the U.S. during the period.

 

French and German companies lead among countries outside of greater China in the use of the yuan, according to a July report by HSBC that was based on a survey of 1,304 businesses in 11 major economies that have ties with mainland China. Some 26 percent of French corporates and 23 percent of German companies were using the currency to settle trade, the highest proportions apart from mainland China, Hong Kong and Taiwan.

 

 

“Given the appointments of renminbi clearing banks in Frankfurt and Paris, today’s announcement is largely expected,” Australia & New Zealand Banking Group Ltd.’s economists led by Liu Li-gang wrote in a research note today. The agreement marks a “significant milestone” in yuan internationalization as the euro is the only G3 currency that has not had direct conversion with the yuan, Liu said.

The chart below suggests the increasing push for de-dollarization across the ‘rest of the isolated world’ may be a smart bet…

 

The internationalization of the Yuan (or implicit de-dollarization by the rest of the world) appears to go unnoticed by the administration (and mainstream media)… which makes one wonder – is this the strategy after all? As Obama’s former chief economist noted:

what was once a privilege is now a burden, undermining job growth, pumping up budget and trade deficits and inflating financial bubbles.

 

To get the American economy on track, the government needs to drop its commitment to maintaining the dollar’s reserve-currency status.

As Deutsche Bank previously concluded:

Given this analysis it strikes us that today we are in the midst of an extremely rare historical event – the relative decline of a world superpower. US global geopolitical dominance is on the wane – driven on the one hand by the historic rise of China from its disproportionate lows and on the other to a host of internal US issues, from a crisis of American confidence in the core of the US economic model to general war weariness.

 

This is not to say that America’s position in the global system is on the brink of collapse. Far from it. The US will remain the greater of just two great powers for the foreseeable future as its “geopolitical multiplier”, boosted by its deeply embedded soft power and continuing commitment to the “free world” order, allows it to outperform its relative economic power. As America’s current Defence Secretary, Chuck Hagel, said earlier this year, “We (the USA) do not engage in the world because we are a great nation. Rather, we are a great nation because we engage in the world.”

 

Nevertheless the US is losing its place as the sole dominant geopolitical superpower and history suggests that during such shifts geopolitical tensions structurally increase. If this analysis is correct then the rise in the past five years, and most notably in the past year, of global geopolitical tensions may well prove not temporary but structural to the current world system and the world may continue to experience more frequent, longer lasting and more far reaching geopolitical stresses than it has in at least two decades.

If this is indeed the case then markets might have to price in a higher degree of geopolitical risk in the years ahead.

zerohedge



22 Comments on "Europe & China Start Direct Trading In Euros & Yuan As De-Dollarization Expands"

  1. Davy on Tue, 30th Sep 2014 7:56 am 

    We are seeing the confusion of events and the real current global situation. Zero Hedge is turning anti-American by the day approaching a tabloid. I still read them daily because I can’t even stomach but a glance at MSM business and other news. This devolvement of the dollar is a process that is normal and smart but it is not a paradigm change. Have you witnessed what is going on in Asia now and how the unsettled investor still chooses the dollar as a haven over the emerging markets and Brics? We are seeing the rise of Asia and the decline of the west. Do you really think this trend is going to last? It is the same with population and food production extrapolating trends. I doubt it. The global economy of today and the past cannot be compared. We are global today and highly interconnected. We are also at limits of growth facing diminishing returns to that predicament. We are a fracturing polarizing multipolar political world living in a fracturing but converged economic world. This economic world is now at the point of deleveraging from the old order and creating a new unstable normal but it is too late for a productive unwind. The un- wined will be destructive in an already dangerously overstretched global system. Any attempt to take this dollar reserve currency deleveraging much past a point of practical and effective is dangerous in our brittle globalism. We are talking here bi-lateral trade enhancements at best with a diminishment of the US and the dollar. A serious change in the world reserve currency is a different animal. The amount of countries using the dollar is huge. It would take a collapsed American and a stable remainder of the world to really undo this dollar situation and create something new. When America collapses so will the rest of the global system. The world will never come together and work towards a better replacement for the dollar. There is too much bad economic performance and political bad blood currently. We are stuck with what we have more or less until the global system fails then it will be a matter of how the global system failed and what reboots as to what arrangement reforms. So anti-Americans here munch on the cheese doddle tabloid news for your propaganda needs if that makes you feel better. To be fair the DC Wall Street mafia deserves this trend being incompetent and themselves ideologue propagandists of the worst kind. But folks try to tell me China is a worthy replacement to the US and I will laugh. If this situation was good news it would be China and the US working together to stabilize what is becoming a dangerous economic environment. Instead both sides are polarizing politically and fracturing economically. Let’s not even go there with poor man Europe and the Putt dictatorship.

  2. Makati1 on Tue, 30th Sep 2014 9:02 am 

    We are fast approaching the hockey stick part of the graph that records non-dollar trade. 2016?

  3. eugene on Tue, 30th Sep 2014 9:15 am 

    Dave: Need to do more studying and less talking.

  4. Davy on Tue, 30th Sep 2014 9:39 am 

    Fair enough Eugene. Yet, if it came from somebody I consider a great commenter it would mean more. Your IQ is nothing special as for what I read from you. You feel better now?

  5. foxv on Tue, 30th Sep 2014 9:39 am 

    umm fact check time
    for 2012
    World GDP $85T
    US GDP: $15.7 (18.5%)
    China GDP $7.3 (8.6%)

    And that’s “Official” chinese data. If you subtract out all the Empty cities and barren highways (or price them at the market value of 1/10th listed price) their GDP would be much lower.

    The USD is not dying anytime soon. Nobody wants that, especially china with its $3T USD reserves.

  6. JuanP on Tue, 30th Sep 2014 10:40 am 

    Foxv, According to the CIA world factbook, your information is technically accurate, but misleading. Read the CIA’s note below to understand your mistake.

    “China GDP (purchasing power parity):

    $13.39 trillion (2013 est.)
    country comparison to the world: 3
    $12.43 trillion (2012 est.)
    $11.54 trillion (2011 est.)
    note: data are in 2013 US dollars

    China GDP (official exchange rate):

    $9.33 trillion
    note: because China’s exchange rate is determine by fiat, rather than by market forces, the official exchange rate measure of GDP is not an accurate measure of China’s output; GDP at the official exchange rate substantially understates the actual level of China’s output vis-a-vis the rest of the world; in China’s situation, GDP at purchasing power parity provides the best measure for comparing output across countries (2013 est.)”

    “USA GDP (purchasing power parity):

    $16.72 trillion (2013 est.)
    country comparison to the world: 1
    $16.47 trillion (2012 est.)
    $16.02 trillion (2011 est.)
    note: data are in 2013 US dollars

    USA GDP (official exchange rate):

    $16.72 trillion (2013 est.)”

    Because of faster Chinese growth since this data was selected, on a PPP basis, both economies are about the same size at this time.

  7. Davy on Tue, 30th Sep 2014 1:07 pm 

    Juan, you figures are accurate I am sure coming from you. Yet, fox has a point. China’s system is masking a huge amount of sunk cost that will never be paid for. A huge amount of mal-investment in ghost cities, highways to nowhere, and industry overcapacity. A huge amount of unrealized bad debt. A huge crooked shadow banking system that has practiced every trick in the trade to fleece whoever can be fleeced. The actually amounts of hidden liabilities of all kinds is mindboggling. We also need to mention the huge unrealized pollution damage that needs to be addressed. To be fair the US has huge unfunded liabilities but I believe personally china is a hollow giant waiting to implode.

  8. JuanP on Tue, 30th Sep 2014 1:23 pm 

    Davy, I agree with foxv’s points, other than my addition for better understanding of the economic size relationship between the countries.
    As far as I am concerned China is in a much worse situation than the US, and I don’t expect that to change. They are too crowded and their country is eroded, polluted, and worn out.

  9. trickydick on Tue, 30th Sep 2014 5:05 pm 

    The fall of the dollar is not only planned, it is REQUIRED. The U.S. will be moving to the Amero currency, in time, as will the entire ‘Americas’, from Alaska to Argentina. This will facilitate a move to one global currency. Any rise or fall in the dollar and any move away from trading in dollars is very likely part of the overall plan.

  10. penury on Tue, 30th Sep 2014 5:09 pm 

    It is true that the U.S. GDP is the largest in the world. However, when dealing with the issue of Reserve currency perhaps one should consider: Debt to GDP, Number of military activities the country is engaged in,exports vs imports, appetite of other countries for U.S. fiat. And remember, British Empire lost Reserve currency in 1916 and you can notice how their currency is doing almost 100 years later. other than me I don’t think anyone thought that the change over to a different reserve currency would be rapid. Note that I consider 100 years to be extremely fast for these types of changes.;

  11. noobtube on Tue, 30th Sep 2014 7:29 pm 

    It is inevitable the United States dollar will be replaced (and soon). Once it is, people who never said a word about it beforehand, will act like they knew it all along.

    Let’s talk about sunk cost.

    The United States has an obsolete military that does nothing but destroy things (wealth) all over the world.

    There are graveyards for its multi-million (and billion) dollar jets (Arizona), warships (north of San Francisco), tank graveyards, and abandoned bases.

    Then, let’s talk about all the promised benefits to soldiers, payouts to mercenaries, and its spy networks.

    It is truly amazing how much the United States military/war machine wastes every single year.

    Listening to the American idiot whine about payments to take care of mothers and children, while at the same time screaming for more war spending, describes the mass murdering nature of the United States.

    China on the other hand, at least uses its wealth to build things that can conceivably be used.

    The crazy Americans only want to invade, murder, and destroy women and children in other lands, and then wonder why their politicians don’t balance the budget or cut spending.

  12. Davy on Tue, 30th Sep 2014 7:38 pm 

    Noob is a China lover. Are you Chinese Noob? Noobster is it OK that China is burning so much coal. Probably OK per noob logic cause it is indirectly the US’s fault. You know Walmart buys all that Chinese stuff. China can’t help that. Whats a Chinaman to do right Noobster.

  13. Makati1 on Tue, 30th Sep 2014 8:20 pm 

    Noobtube, ignore the deniers. They have been brainwashed to wave the Nazi flag and declare the Fatherland Forever. Too many have their self-esteem wrapped up in American exceptionalism and will never see the light.

    None of them want to look at the per capita numbers as they all point to the US as the major polluter of the world, not counting the US nuclear munitions pieces spread all over Iraq and the other countries they have declared unwarranted war on over the last 25 years. They are ‘Number One’ in all of the negatives now and none of the positives. Thanks to the internet, the rest of the world is catching on and walking away.

  14. Makati1 on Tue, 30th Sep 2014 8:28 pm 

    Tricky, you are on the right track, but I doubt that South America will be in that group. I see the US, Canada, and Mexico, but no others. Most of South America is lining up with Asia and Russia and are anti-US.

    You are also correct in that the dollar has to be weakened to the level of all other countries for the One World Government to be possible. THAT is the goal and they will have to destroy America’s economy to do that. Well on their way, I would say. If you look behind the curtain, the US is already destroyed. Only a nuclear exchange could make it worse. That too may be in the cards, as a result of their actions against nuclear armed countries.

  15. Davy on Tue, 30th Sep 2014 8:45 pm 

    Yoda and Noob skywalker. May the force be with you.

    woof woof
    ^!^

  16. Makati1 on Wed, 1st Oct 2014 3:20 am 

    Interesting that the articles with the most comments are the ones that are NOT about peak oil. They are about that religious icon, the USD. It only shows where the real religion of America’s lay.

    The country based on greed, never ending. From the first American Indian killed after 1492, to the last child killed in Iraq today, it is all about money and power.

  17. Davy on Wed, 1st Oct 2014 6:06 am 

    Yoda talks about the dark side of the force. But he fails to mention the greediest place on earth and that is Asia. Asia has obscenely rich with obscenely poor. Look at the rich walking around the financial district in Manila then go to Manila’s landfills and see the kids picking through the garbage. Tell me something is not wrong there. Look at how much China donates when there is a natural disaster somewhere in the world, near nothing. That is because the Chinese are out for wealth transfer to support their obscene population. The Chinese do not have the mentality of helping others it is all about fleecing the world of resources for Chinese gain. Sure the US has greed that is part of human nature and capitalism. Many of the US sins are greed based. What country today does not covet resources and greedily take them if they can? Yoda is showing his age and can’t help preaching the dark side of the force. Yoda return to your mountain jungle hideaway and try to reconnect to the positive side of the force.

    Woof woof
    ^!^

  18. Makati1 on Wed, 1st Oct 2014 7:45 am 

    When the bombs start falling in the US, or by the crashing of their economy/USD, only then will they wake up to reality and they won’t even realize that they have been asking for it for decades. You cannot kill with impunity anywhere and anyone you want without blow back in huge and disastrous quantities.

  19. Davy on Wed, 1st Oct 2014 7:54 am 

    We only need look at Asia for the worst genocide in the 20 century. We can talk about Mao and Pol Pot. We can also discuss the crashing China dynamo with all its shattering hall of mirrors. We can then look at the obscene populations in Philipeans and Indonesia. China and India are already a lost cause. We can ask ourselves why does China promote North Korea? Finally we can turn back to the west and all the sins and predicaments and say man things are not that bad.

  20. JuanP on Wed, 1st Oct 2014 8:36 am 

    I hadn’t heard of the Amero since around 2007, when there was some talk about it.
    As far as I know the North American Monetary Union was dead on arrival. I don’t see the Amero ever taking off, not even in North America, for get about South America.
    http://en.m.wikipedia.org/wiki/North_American_monetary_union

  21. JuanP on Wed, 1st Oct 2014 9:01 am 

    Mak “Most of South America is lining up with Asia and Russia and are anti-US.”
    I have been thinking about this lately. There has been a clear change in South America in the twenty years since I left.
    I left a continent that had had mostly CIA backed right wing military dictatorships for almost twenty years, but those days are long gone. Those dictatorships, like all dictatorships left or right, were brutal and turned the people against the USA.
    I believe the USA made a mistake in promoting them. It is true that the vast majority of the people in Latin America dislike the American government, but I don’t think they will ever openly confront it or defy it.
    On the other hand, we will never ally militarily with Russia or China against the USA. However, some countries are trying to become more independent from the USA.
    What has had me wondering lately about this USA-Latin America relationship was the sudden death of Brazilian presidential candidate Eduardo Campos, probably assasinated by the CIA in yet another dubious airplane incident.
    I don’t know if anyone on this forum has given this any thought. His sudden death was extremely convenient to American interests in Brazil, because he was replaced by Marina Silva, a significantly more popular pro USA candidate with a chance to win against the incumbent President Rousseff.
    I believe the American government wants to remove Brazilian President Dilma Rousseff, because she is anti American. She was detained for years and tortured by the CIA backed dictatorship just like Uruguay’s current president.

  22. Davy on Wed, 1st Oct 2014 9:26 am 

    Juan, thanks for clarifying the South American political reality. Sounds nail head tight to me. I can’t comment on the CIA but I would not put it past them.

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