The implications of this for the USA is only understood by a tiny minority of financial professionals and students of economics and central bankers. The US dollar is the “reserve currency” of the world. This is why the USA has been able to somewhat survive the massive national debt and deficit spending. All oil trades for example are made in US dollars. That means countries have to buy US dollars first, so they can then buy the oil. If not for this foriegn buying of dollars, which soaks up hundreds of billions of dollars, there could be 20%, 30% or higher inflation today. This news portends that the USD is losing its reserve currency status.
Submitted by Tyler Durden on 08/09/2014
The last 3 months have seen Russia’s “de-dollarization” plans accelerate. First Gazprom clients shift to Euros and Renminbi, then the UK signs currency swap agreements with China, then NATO ally Turkey cuts ties and mulls de-dollarization, Switzerland jumps in the currency swap agreements, and BRICS create their own non-US-based funding vehicle, and then finally this week, Russia’s oligarchs have shifted cash holdings to Hong Kong. But this week, as RT reports, Russian and Chinese central banks have agreed a draft currency swap agreement, which will allow them to increase trade in domestic currencies and cut the dependence on the US dollar in bilateral payments. ““The agreement will stimulate further development of direct trade in yuan and rubles on the domestic foreign exchange markets of Russia and China,” the Russian regulator said.
In early July, the Central Bank’s chairwoman Elvira Nabiullina said Moscow and Beijing were close to reaching an agreement on conducting swap operations in national currencies to boost trade. The deal was later discussed during her trip to China.
President Vladimir Putin, during his visit to Shanghai in May, said cooperation between Russian and Chinese banks was growing, and the two sides were set to continue developing the financial infrastructure.
“Work is underway to increase the amount of mutual payments in national currencies, and we intend to consider new financial instruments,” Putin said after talks with President Xi Jinping.
It appears the deal is done…
The Russian and Chinese central banks have agreed a draft currency swap agreement, which will allow them to increase trade in domestic currencies and cut the dependence on the US dollar in bilateral payments.