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Page added on October 18, 2014
Russians and Chinese Are Ditching the Dollar and Europeans Are Using Renminbi in Their Reserves
At present, US dollar accounts for roughly 61% of the world’s foreign exchange reserves.
It’s still a safe bet for most, not because the currency is actually strong, but because so many others are already so reliant on it.
Between those with reserves in and pegs to the US dollar, many countries have given their allegiance, and now have a vested interest in the health of the currency.
Due to this common interest, a sort of unofficial, involuntary alliance has been formed between them all.
Together, they’re all playing along, pretending that everything is fine. If the dollar collapses, they’re all screwed, so they’ve got to get each other’s backs.
From the throne of the world’s reserve currency, the Federal Reserve, with the power to print the US dollar, feels dangerously omnipotent.
They can get away with just about anything. For now.
The central bankers get to print dollars and spend them at current prices, before the stuff hits the wider market and diminishes its overall value.
And for the time being they don’t really face any consequences. The whole world just absorbs it. Other countries really have no other choice.
But
they’re getting tired of putting up with this abuse, and the unrest is growing. New alliances are being made, this time to dethrone the dollar.
Just this week yet another currency swap agreement was made between the Chinese and Russian central banks. This time for 150 billion renminbi.
Trade volume between China and Russia will reach $100 billion (600 billion renminbi) next year, and is expected to reach $200 billion in 2020. This latest currency swap agreement will greatly reduce the need for dollars in their transactions.
Currently, 75% of trade between the two countries is settled in dollars. When they signed the agreement for the bilateral currency swap, Russian deputy Prime Ministers said this will “encourage companies from the two countries to settle trade in local currencies and avoid the use of a third country’s currency.”
Who do you think that was aimed at?
Threatened by the growing strength of China and Russia, the US is actively working to vilify the two. Between the headlines of war, both cyber and military, the government is unsubtly trying to bring back the days of yellow peril and the red scare.
However, it can’t use the same tactics on its longstanding ally—Europe.
Even the European Central Bank has started discussions on the possibility of including the renminbi as one of its reserve currencies.
And the euro and the renminbi are already directly tradable as of this month.
On Tuesday the UK also became the first country besides China to issue a sovereign bond in renminbi.
This coincided with the issuing of 180 million renminbi of corporate bonds by China’s ICBC in South Korea. Another first. South Korea is firmly on the renminbi train as renminbi deposits in the country jumped 55-times in just one year.
It’s very clear where the trend is going. All these news items are pieces of the same puzzle. The US dollar’s throne is shaking as it’s losing its importance and status as the preeminent currency in the world. Renminbi is on the way up.
The whole existing order of a single ruling currency is currently being challenged.
A new financial era is coming.
28 Comments on "Russians and Chinese Are Ditching the Dollar and Europeans Are Using Renminbi in Their Reserves"
Makati1 on Sat, 18th Oct 2014 6:49 am
105 countries and counting, now using yuan (or renminbi) for trade. Over half of the world’s population and most of the larger countries are on board. When you start using USD as a weapon, you tell everyone to get away from them as fast as possible, just like you would avoid a bomb with the timer ticking.
Insanity is spreading, in DC, faster than the Ebola virus.
Davy on Sat, 18th Oct 2014 6:56 am
The sensationalism of the dollar ditching is just that. First the de-dollarization levels are low in relation to the whole. They tend to be bilateral not systematic. The US is too large a part of the world economy for any major trading nation to significantly decouple from. Russia is actively trying now but facing headwinds. China is engaging in bilateral deals but very careful to protect its dollar position and export flows with the US. The US flows are 5 times Russia. Tell me how that figure can change much. I personally find the slow dollar diminishment a good thing. It is lending to degrowth of the US financial system. The US overall is in decline and at this point in the game decline is good not bad. I do not see the cries of doom for the American consumer valid either because the dollars diminishment will be arbitrages globally. This arbitrage is related to the integration of the US economy and the dollar significance in trade flows and reserve levels. This arbitrage that will spread the risk through the system as is always the case. You always want to cut through the fog of sensationalism to see the true picture. The dollar ditching is natural in an evolving integrated global system of economic equalization. The fracturing and polarizing global system is built on systems that can only be managed around the edges. Major changes have consequences and unintended consequences that naturally create resistance to change. Russia is bucking the system in a deliberate policy of “de-dollarization” in an emotional attempt to break the system. China is playing this pragmatically in enlightened self-interest. The system cannot be change except around the edges because the system is not reformable. The vital factor of time is not present and needed resources are not present being at limits of growth in diminishing returns. The den of thieves in DC will fail in their attempt to isolate the Russian bear. Russia is a system critical node that they cannot be decoupled from. The whole global system is fracturing and polarizing. Change without failure can only happen through cooperation. Cooperation is no longer an option. The only option is failure. Good luck dollar dogs your bark is worse than your bite.
Makati1 on Sat, 18th Oct 2014 7:58 am
“The system cannot be change except around the edges because the system is not reformable”
BS! The system didn’t even exist when it was started. Any system can change if the will is there and it seems the will is now there to take down the USD or at least relegate it to a small part of trade and all of the loss of power that goes with that change. The USD is not ‘exceptional’ in any way except as a poor grade of toilet paper.
RELEGATE transitive verb 1 : to send into exile : banish 2 : assign: as to assign to a place of insignificance or of oblivion. Merriam-Webster
Davy on Sat, 18th Oct 2014 8:14 am
OOh, Mak, I love when the hair stands up on your neck it reveals the disturbance with your unbalanced propaganda making you appear emotional. I am more impressed when you ignore my comments sending a message of strength in your position.
ghung on Sat, 18th Oct 2014 8:31 am
Mak: “The USD is not ‘exceptional’ in any way except as a poor grade of toilet paper.”
Actually, since, unlike regular toilet paper, the dollar can be washed and re-used, it could be the superior butt wipe. A little small, but soon a hand-full will likely be cheaper than Charmin.
Boat on Sat, 18th Oct 2014 9:24 am
Davey, seems to me the US is not in any type of decline. We have allowed way to much immigration that has driven labor prices down but that has helped business bottom lines. The US is competing just fine in spite if the headwinds of cheap competition from china and the rest of the developing companies. But growth has a cost. The Chinese will learn pollution has a cost they are just beginning to pay. The US is well positioned for the future as we have paid more all along for our messes. Not enough but we are waking up and doing better.
Now would be the time to curtail immigration and allow the US consumer higher paying jobs and give business a few less tax breaks using our fossil fuel advantage to make up the difference.
Davy on Sat, 18th Oct 2014 10:19 am
Boat, that decline is relevant to a diminishment in relation to the global order in decline. The decline is related to lower economic activity and declining population growth minus immigration. Immigration can be stop if there is a will. The US is actually position very well for the descent in relation to Asia that is in carrying capacity overshoot and dependance on export economics. Like all powers the US is undeniabally in limits of growth and diminishing returns. Your view is more mainstream and mine doomer with both valid in differing starting points.
Northwest Resident on Sat, 18th Oct 2014 10:36 am
It’s all those damn Mexicans crossing the border and stealing a big slice of the good life in America — that’s why America has accumulated astronomical debt, that’s why we need QE1/2/3/4/5/etc…, gotta pay for all those freebies that the illegal immigrants are grabbing from under our very noses. Stop immigration, all of America’s problems solve, BAU forever from that point on, just keep fracking that oil and we’re golden forever.
And there you have it folks, the answer to the question, what happens when a person exposes his brain to too much FOX News.
paulo1 on Sat, 18th Oct 2014 10:44 am
As Tony Soprano used to say, “whattareyougoonadoaboutit”? Finally get that steel fence up and post a guard every 100 feet, manned 24/7? Then worry about tunnels and boats? Screw those off shored maufacturing jobs, everyone can be a border guard!! They can carry the new Iphone6. Make the employment requirements a BA in criminolgy, and the student loan industry can stay healthy!! All is good.
Paulo
Boat on Sat, 18th Oct 2014 10:50 am
Net 0 illegal immigration from Mexico since 2005.
Boat on Sat, 18th Oct 2014 10:59 am
So China brings 10’s of millions out of sustenstance living and even though the US grew slow we are declining? Makes no sense to me.
Davy on Sat, 18th Oct 2014 11:59 am
NR, in a perfect world I am all for free flow of people in a creative dynamic world. We are now in overshoot to carrying capacity everywhere. I believe overpopulation must be addressed along with immigration. There is little use in preparing our local lifeboats if we are being overrun with immigration. How we address immigration and overpopulation is critical. They are both symptomatic of a failure of the growth meme in globalism. A starting point for both is acknowledgement that there will soon not be enough food to feed the world’s population. Food productivity is incapable of rising. This is a de facto acknowledgement of an end of population growth by forced natural means. If a country accepts this then immigration must be addressed as a threat to survival. The current discussion is in the traditional BAU approach with little acceptance of carrying capacity overshoot. Immigration control like population controls will only be effective when limits of growth are acknowledge immediately not projected out to 2050. We have tough messy decisions ahead.
Davy on Sat, 18th Oct 2014 12:03 pm
Boat – So China brings 10’s of millions out of sustenstance living and even though the US grew slow we are declining? Makes no sense to me.
Boat, decline for me cannot be measured in the traditional sense it must be looked at from a new normal perspective in a holistic manner. When growth is not healthy then it is decline. That makes sense to me but I am not normal.
ghung on Sat, 18th Oct 2014 12:55 pm
Defining growth/decline in terms of GDP misses the mark, IMO. Looking at the bigger picture: declining infrastructure; debt levels, especially public debt; declining middle class, income gaps and stagnant wages; political incompetence, divisiveness and impotence; healthcare; more; all tell a different picture than GDP; one that the PTB prefers we don’t look at too closely. Anyone who posits that the US isn’t in decline relative to the post-WW2 era, has a very affective set of blinders on. It’s a strange sort of cowardice and denial that interferes with situational awareness.
Not sure how one can reconcile our central bank pumping $trillions into the economy, while barely budging GDP, and insisting we’re “growing” in any sense that matters.
Northwest Resident on Sat, 18th Oct 2014 12:55 pm
Davy — I hear you, and I agree. I’ve never been a fan of illegal immigration actually. But when people blame those illegal immigrants for problems that they aren’t responsible for, and when MSM holds illegal immigrants up as the whipping boy for all our problems, I get annoyed. Now it is the illegal immigrants. Next it will be the gays. After that will be the blacks. Pretty soon we’ll be back to blaming everything on the Jews, then the Irish after that. Holding ethnic groups up as the “responsible party” for whatever ails society has always been a cheap and dirty trick wielded by TPTB to deflect blame from their own leadership failures. That’s what I don’t like. But yeah, especially these days, let’s plug those borders as best we can. Anyway, the number of illegal immigrants from Mexico has slowed to a trickle these days — the allure of living and working in America these days has definitely lost its luster.
Davy on Sat, 18th Oct 2014 1:15 pm
Good point NR and another reason why the blame game is our end. It will prevent effective mitigation strategies. It may only be crisis that breaks the log jam. A crisis we live through with time and resources left. That sounds very optimistic if not actual fantasy.
bobinget on Sat, 18th Oct 2014 1:54 pm
Petroleum contracts dwarf other commodities trading.
Can individual nations, in a competitive market place
revalue a fungible commodity (like oil) on their own?
China, Iran and Russia are going round the dollar for reasons that do not apply in other markets.
First of all, since oil need to be shipped. Geographic
location is vital. Neighbors, China, Iran and Russia can sell each other goods other then petroleum.
Someday (soon) we will see automated tankers..
Until then, distance matters.
” Of those 86 mbps (2009) the world needs to “satisfy its thirst for oil,” 42 percent of it is produced and 35 percent is exported by the member countries of OPEC (Organization of Petroleum Exporting Countries), a coalition of 13 nations. With virtually all Middle Eastern oil moved on VLCCs, Saudi Arabian production is critical as it represents the largest OPEC producer and the only one with significant spare capacity. Saudi Arabia is the only OPEC producer that can raise production on short notice.
Greg Lewis, a tanker analyst with Credit Suisse explained in his February Tanker Outlook investor research report, “Production cuts by OPEC have a sobering impact on tanker rates. Lower OPEC production means less cargo for tankers. For example, the Arabian Gulf/Far East trade route round trip voyage is roughly 45 days…….. more:
excerpt: http://www2.osg.com/index.cfm?pageid=74&itemid=10
IOW’s most crude is distant from users.
Advantage: North America.
Because most oil was burned in North America and Europe two markets exist. NYMEX and BRENT.
Now that Asia will be using the bulk of the world’s oil
new exchanges opened in Iran, China and Russia.
Perk Earl on Sat, 18th Oct 2014 2:56 pm
“Together, they’re all playing along, pretending that everything is fine. If the dollar collapses, they’re all screwed, so they’ve got to get each other’s backs.”
The dollar collapsing is a straw man’s argument, because that’s the extreme, not what could happen between the lines so to speak. In other words, the USD keeps getting whittled away at to lower percentages as the reserve currency. At this point we don’t know how far it can be replaced by other currencies, including China’s but we will find out because of the trend.
I think one thing we can say for sure is there is a concerted effort by other countries to reduce US international power by reducing the USD’s role.
Makati1 on Sat, 18th Oct 2014 8:33 pm
ghung, have you ever tried using a US dollar for a butt wipe? Unless it is a very old and softened bill, you may just cut your butt with it. It does NOT absorb liquids well. Smears instead of wipes? But go ahead and collect them. They do make good fire starters. ^_^
Boat on Sat, 18th Oct 2014 9:27 pm
Most low income people live in housing that has insulation and ever increasing efficient windows, doors and heat/air. Good for the planet, good for the poor. More healthy food is available. Just what exactly has declined compared to depression era, WWII era rationing. The 60’s and 70 brought VietNam and a lot of racial tensions and lack of woman’s rights. Was that the golden years?
We imported oil so when oil tanked the Russian’s crashed and the US grew but our rivers and air became much more polluted. I don’t see some era that was so great, they all had their challenges.
Norm on Sun, 19th Oct 2014 2:52 am
How about if USD becomes worthless. Then the pot-smoking white trash on disability checks, will suddenly no longer be able to buy plastic crap at Wal-Mart and they will land in tent city.
Why is that a problem?
JuanP on Sun, 19th Oct 2014 8:48 am
Boat “Most low income people live in housing that has insulation and ever increasing efficient windows, doors and heat/air.”
I wonder in what country you live, Boat. I have never seen low income people living in places that have insulation and energy efficient windows and doors.
I know you can not live in the American continents. But the world you live in is much better than mine. In theplaces I’ve lived only the rich can afford those luxuries. Low income people are hungry, lack medical insurance, and don’t have enough money to make next month’s rent. Insulation? LOL. Do you know any low income people, Boat, or are you just talking out of your a**.
JuanP on Sun, 19th Oct 2014 8:55 am
I think it is obvious that TPTB have chosen confrontation over cooperation as the strategic approach to collapse. We should not be surprised. I foresee wars, plagues, violence, and famine spreading like wildfire over the coming years in every single corner of the world.
I doubt anyone will be spared significant suffering. As someone much wiser than me once said, life is suffering. We might as well become masochists and learn to enjoy it.
Boat on Sun, 19th Oct 2014 9:56 am
Juan you just need to read a little about the US. There are many programs for insulation, windows, heat pumps, CHP, solar, wind, hydro and the list goes on and on including fossil fuels. Right after the crash an extra 200 billion or so went to advance the tech and provide insulation/etc for millions of poor home owners.
Let me give you a resource. Energy.gov
They have hundreds of programs with updates they will e-mail to you. Then you can to talk out your A…
Preston Sturges on Sun, 19th Oct 2014 1:51 pm
Heck it would almost be worth having the dollar collapse to watch the subsequent rioting by millions of laid off Chinese factory workers.
Makati1 on Sun, 19th Oct 2014 8:41 pm
Preston, how about the millions of ‘laid off’ Americans … with guns and drug habits? I doubt that will happen in China. It can pay in gold. The US cannot.
Makati1 on Sun, 19th Oct 2014 8:47 pm
Preston, there are about 100 million homes in the US. MOST of them are not anywhere near energy efficient or even able to be made energy efficient. You would have to throw out all of the big screen TVs. Then the big fridges, electric heating. Tear out the central air and window units, and pump insulation into the hollow walls between each joist at a cost of many thousands per home. Then there are the many old homes with solid brick walls that would need lined inside with insulation. And refinishing all of those places.
No, what you say is true, but You would need Trillions, not Billions.
Makati1 on Sun, 19th Oct 2014 8:47 pm
Oops! Sorry Preston, I meant Boat. Need another cup of coffee. Too early!