China Signs Non-Dollar Settlement Deal With Russia's Largest Bank

[Ares]

Slowly - but surely - the USD's hegemony is being chipped away whether by foreign policy faux pas, crossed red-lines, or economic fragility. However, on Day 1 of Vladimir Putin's trip to China it is clear that the two nations are as close as ever. VTB - among Russia's largest banks - has signed a deal with Bank of China to pay each other in domestic currencies, bypassing the need for US Dollars for "investment banking, inter-bank lending, trade finance and capital-markets transactions." Kirill Dmitriyev the head of Russia’s Direct Investment Fund notes, "together it’ll be possible to discuss investment in various projects much more efficiently and clearly," as Russia's pivot to Asia continues to gather steam.



As RT reports, Day 1 for Putin is going well...

VTB, Russia’s second biggest lender, has signed a deal with Bank of China, which includes an agreement to pay each other in domestic currencies.



“Under the agreement, the banks plan to develop their partnership in a number of areas, including cooperation on ruble and renminbi settlements, investment banking, inter-bank lending, trade finance and capital-markets transactions,” says the official VTB statement.



The deal underlines VTB Group’s growing interest in Asian markets and will help grow trade between Russia and China that are already close trading partners, said VTB Bank Management Board Vasily Titov.

But it's not just the banking relationships...

In the first day of a two-day trip to China Russia’s President Vladimir Putin said the two countries will be increasing their bilateral trade to reach a new level.



“Our countries have done a huge job to reach a new historic landmark…. China has firmly settled in a position of our key trade partner,” Putin said.



Putin also said that trade turnover between Russia and China grew almost 2 percent during 2013 to reach about $90 billion.



“If we sustain this pace the level of bilateral trade of $100 billion will be reached by 2015 and we’ll confidently move on,” Putin said.



Increasing investment cooperation is crucial, Putin added.



...



“Together it’ll be possible to discuss investment in various projects much more efficiently and clearly,” as Interfax quotes Kirill Dmitriyev the head of Russia’s Direct Investment Fund.

Nothing lasts forever... remember...

http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2012/01/20120103_JPM_reserve_0.png

http://www.zerohedge.com/news/2014-05-20/china-signs-non-dollar-settlement-deal-russias-largest-bank

[Sparky]

Yet no reaction in the USD Index. I guess the currency traders haven't read this article yet.

I do like the chart of reserve currency status presented here. The USD could easily reign for another 10-20 years and still look consistent within this chart.

The Fourth Turning (written in 1997) predicted that the next generational crisis period would begin around 2005 and reach its climax in the 2020's. I'd say that's the earliest that the USD could lose its reserve currency status. The steps we are seeing now, such as the development reported in this thread, are only the seeds of change. They'll take time to grow.

Notice that the first word in this article is "slowly". Slowly but surely.

[madfranks]

I do like the chart of reserve currency status presented here.

Actually I had the opposite reaction to that chart, I think it's misleading. Gold was the global reserve currency between 1400 and the 1940's. It may have been the Spaniard's gold coin, France's gold coin, or Britian's gold coin, but they were all gold. I think the chart better shows the spans of dominant world empires, than it does reserve currencies.

[Sparky]

Actually I had the opposite reaction to that chart, I think it's misleading. Gold was the global reserve currency between 1400 and the 1940's. It may have been the Spaniard's gold coin, France's gold coin, or Britian's gold coin, but they were all gold. I think the chart better shows the spans of dominant world empires, than it does reserve currencies.

Good distinction. But until proven otherwise, the length of a "sovereign fiat" as a reserve currency must be presumed to be concurrent to the period of empire dominance. The problem with trying to estimate the fiat USD's demise is that their really is no obvious alternative that the world will readily turn to. Even if China has its sights set on a gold-backed Yuan in this role, it will take time for the world to become comfortable with this. China has not exactly established itself as a trustworthy and benevolent world agent.

[Sparky]

P.S. It doesn't mean much to have a gold-backed currency unless you are willing to give up your gold for paper (or digits). China would have to prove to the world that they will be willing to hand out their accumulated gold upon demand when presented with Yuan.

[madfranks]

P.S. It doesn't mean much to have a gold-backed currency unless you are willing to give up your gold for paper (or digits). China would have to prove to the world that they will be willing to hand out their accumulated gold upon demand when presented with Yuan.

Grashams law works in international trade as well. If China introduces a gold yuan to compete with the fiat dollar, why would anyone spend the gold when they could keep the gold and spend the fiat?

[Libertarian_Guard]

China need not get caught-up in the same trap as the US. They could admit to past problems with such a 'window' and stay committed to remaining the world's largest net purchaser of gold, while basing the value of the new currency on a 'basket of commodities' possibly including other countries fiat that commit to being net purchaser's of gold as well.

[Libertarian_Guard]

The gold standard, even if it were nominally adopted now, would never work because people are not willing to play by the rules of the game. The rules of the game that the gold standard requires [say] that if you have an unfavorable balance of trade, you contract your currency. That's what no government can do--they'd rather go off the gold standard. In fact, I'm con- vinced that if we restored the gold standard now, within six months the first country would be off it and, within three years. it would completely disappear.

The gold standard was based on what was essentially an irrational superstition. As long as people believed there was no salvation but the gold standard, the thing could work. That illusion or superstition has been lost. We now can never successfully run a gold standard. I wish we could. Its largely as a result of this that I have been thinking of alternatives.

F.A. Hayek


Because as you well know, the old standard will not work and you can never go back.

[singular_me]

I just cant see how some are regarding china as the next powerhouse, the yuan has been inflated with the west going into abyssal debts and overconsumed... while the whole world is into collectivist mode, china is the paramount of it.

I'd rather trade anything I can instead of having yuans in my wallet.



May 17, 2014
Trapped in debt orgies of their own, China and Japan must import inflation and export deflation to the world. It is "INFLATE or DIE" to keep their debt piles from imploding. This is the order of the day throughout the world. Europe particularly is affected by the deflation as capital flows from China and Japan and lands on the continent. The fun will really start when the flows REVERSE (back to China and Japan), as they ultimately WILL.... China has decided to try and walk back from the edge of a Minsky moment and engineer a soft landing while Japan careens headlong into it. The task for China is enormous as HALF ($15 Trillion, or $15 million million) of the world's credit creation mentioned previously emanates from the Chinese economy.

Huge carry trades are in place to capture the appreciation of the YUAN and have enjoyed a one way bet for years. This is most likely OVER! The fireworks as these unwind should be full of excitement and BIG LOSSES as the GLOBAL specs get burned to a crisp. Some of those trades are operating at 50 or 100 to 1 leverage.

http://www.marketoracle.co.uk/Article45640.html

[singular_me]

I concur... moreover, I serious doubt that china has enough gold to back all its fiat yuans in circulation which are backed by the most artificial unprecedented boom in world history. the velocity of money will strike us all. IMHO

ooh, I forgot the first world crash 650 ago when pms were money and that decimated 40% of europe



The gold standard was based on what was essentially an irrational superstition. As long as people believed there was no salvation but the gold standard, the thing could work. That illusion or superstition has been lost. We now can never successfully run a gold standard. I wish we could. Its largely as a result of this that I have been thinking of alternatives.

F.A. Hayek


Because as you well know, the old standard will not work and you can never go back.

[StreetsOfGold]

China would have to prove to the world that they will be willing to hand out their accumulated gold upon demand when presented with Yuan.


They do NOW. You can go into any bank in china with yuan and walk out with gold.

[mick silver]

this is nothing a world war can't fix

[Sparky]

P.S. It doesn't mean much to have a gold-backed currency unless you are willing to give up your gold for paper (or digits). China would have to prove to the world that they will be willing to hand out their accumulated gold upon demand when presented with Yuan.


They do NOW. You can go into any bank in china with yuan and walk out with gold.

Not at a fixed rate, right? Gold-backed currency implies that the exchange rate doesn't change. So I could turn my 10,000 Yuan in for 1.2 ounces of gold today, or two years from now. Like back in the day, you could exchange your $20 fiat note for a $20 double eagle coin, which always contained 30 grams of gold.

[steyr_m]

I'm with mick silver -- war is coming, and the worst thing is that the sheeple will buy into it