What happens when the largest economies in the world stop using the dollar as an intermediary currency and start trading with a basket of currencies or with each other directly? Get ready; it appears to be approaching fast according to Bloomberg. If you thought September 2008 was a rough ride, you have not seen anything yet. Hey, has anybody called Obama on the links and asked him if he knows what The Federal Reserve Mafia is doing about this?
China and Russia plan to start trading in each other’s currencies as the world’s second-biggest energy consumer and the largest energy supplier seek to diminish the dollar’s role in global trade.
China may start trading its currency against the ruble within weeks, three bankers with knowledge of the matter told Bloomberg, and sent out a document last week allowing lenders to apply for ruble trading licenses, one of them said. Russia’s Micex Stock Exchange is making preparations to trade the ruble against the yuan in an initiative that has the backing of the country’s central bank, Ruben Aganbegyan, the head of the bourse, told reporters at a conference in Moscow today.
“Given the risk to the dollar and U.S. assets from their fiscal position they want to reduce their dependence on the dollar as an invoicing currency,” Bhanu Baweja, global head of emerging markets fixed income, currency and credit research at UBS AG, said in a phone interview from London. “It makes sense for two large economies to exclude a third, overly dominant economy from their trading equation.”
In the wake of the global financial crisis, which forced the U.S. economy into recession, both China and Russia have called for the dollar’s role in the financial system to be diluted. Volatility in major currencies is putting the global recovery at risk Zhang Ping, the head of China’s National Development and Reform Commission, said last month. President Dmitry Medvedev last year suggested Russia, holder of the world’s third-largest foreign-currency reserves, reduce its holdings of dollar.
“Gradually the dollar is being eliminated from the foreign-trade settlement flows,” said Dariusz Kowalczyk, a Hong-Kong based senior economist at Credit Agricole CIB. “People are beginning to trade Asian currencies without intermediation via the dollar.”
Bloomberg also has a video of how the Chinese Yuan is starting to trend move with other currencies as opposed to the dollar.
Sept. 9 (Bloomberg) — Robert Sinche, chief strategist at Lily Pond Capital Management LLC, talks about China’s policy on the yuan. Sinche, speaking with Carol Massar on Bloomberg Television’s “In the Loop With Betty Liu,” also discusses the potential that the Bank of Japan may attempt to devalue the yen and the outlook for the U.S. dollar. (Source: Bloomberg)