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Page added on May 13, 2014
Russia Holds “De-Dollarization Meeting”: China, Iran Willing To Drop USD From Bilateral Trade
That Russia has been pushing for trade arrangements that minimize the participation (and influence) of the US dollar ever since the onset of the Ukraine crisis (and before) is no secret: this has been covered extensively on these pages before (see Gazprom Prepares “Symbolic” Bond Issue In Chinese Yuan; Petrodollar Alert: Putin Prepares To Announce “Holy Grail” Gas Deal With China; Russia And China About To Sign “Holy Grail” Gas Deal; 40 Central Banks Are Betting This Will Be The Next Reserve Currency; From the Petrodollar to the Gas-o-yuan and so on).
But until now much of this was in the realm of hearsay and general wishful thinking. After all, surely it is “ridiculous” that a country can seriously contemplate to exist outside the ideological and religious confines of the Petrodollar… because if one can do it, all can do it, and next thing you know the US has hyperinflation, social collapse, civil war and all those other features prominently featured in other socialist banana republics like Venezuela which alas do not have a global reserve currency to kick around.
Or so the Keynesian economists, aka tenured priests of said Petrodollar religion, would demand that the world believe.
However, as much as it may trouble the statists to read, Russia is actively pushing on with plans to put the US dollar in the rearview mirror and replace it with a dollar-free system. Or, as it is called in Russia, a “de-dollarized” world.
Voice of Russia reports citing Russian press sources that the country’s Ministry of Finance is ready to greenlight a plan to radically increase the role of the Russian ruble in export operations while reducing the share of dollar-denominated transactions. Governmental sources believe that the Russian banking sector is “ready to handle the increased number of ruble-denominated transactions”.
According to the Prime news agency, on April 24th the government organized a special meeting dedicated to finding a solution for getting rid of the US dollar in Russian export operations. Top level experts from the energy sector, banks and governmental agencies were summoned and a number of measures were proposed as a response for American sanctions against Russia.
Well, if the west wanted Russia’s response to ever escalating sanctions against the country, it is about to get it.
The “de-dollarization meeting” was chaired by First Deputy Prime Minister of the Russian Federation Igor Shuvalov, proving that Moscow is very serious in its intention to stop using the dollar. A subsequent meeting was chaired by Deputy Finance Minister Alexey Moiseev who later told the Rossia 24 channel that “the amount of ruble-denominated contracts will be increased”, adding that none of the polled experts and bank representatives found any problems with the government’s plan to increase the share of ruble payments.
For the benefit of our Russian-speaking readers, the interview with Moiseev is below and the transcript can be found here:
Further, if you thought that only Obama can reign supreme by executive order alone, you were wrong – the Russians can do it just as effectively. Enter the “currency switch executive order“:
It is interesting that in his interview, Moiseev mentioned a legal mechanism that can be described as “currency switch executive order”, telling that the government has the legal power to force Russian companies to trade a percentage of certain goods in rubles. Referring to the case when this level may be set to 100%, the Russian official said that “it’s an extreme option and it is hard for me to tell right now how the government will use these powers”.
Well, as long as the options exists.
But more importantly, none of what Russia is contemplating would have any practical chance of implementation if it weren’t for other nations who would engage in USD-free bilateral trade relations. Such countries, however, do exist and it should come as a surprise to nobody that the two which have already stepped up are none other than China and Iran.
Of course, the success of Moscow’s campaign to switch its trading to rubles or other regional currencies will depend on the willingness of its trading partners to get rid of the dollar. Sources cited by Politonline.ru mentioned two countries who would be willing to support Russia: Iran and China. Given that Vladimir Putin will visit Beijing on May 20, it can be speculated that the gas and oil contracts that are going to be signed between Russia and China will be denominated in rubles and yuan, not dollars.
In other words, in one week’s time look for not only the announcement of the Russia-China “holy grail” gas agreement described previously here, but its financial terms, which now appears virtually certain will be settled exclusively in RUB and CNY. Not USD.
And as we have explained repeatedly in the past, the further the west antagonizes Russia, and the more economic sanctions it lobs at it, the more Russia will be forced away from a USD-denominated trading system and into one which faces China and India. Which is why next week’s announcement, as groundbreaking as it most certainly will be, is just the beginning.
10 Comments on "Russia Holds “De-Dollarization Meeting”: China, Iran Willing To Drop USD From Bilateral Trade"
Boat on Tue, 13th May 2014 9:29 pm
Great, who cares what dollars they trade in. In the end it comes to trust of systems. Will you get paid and is there rule of law when there are contentions.
GregT on Tue, 13th May 2014 10:29 pm
Boat,
If you live in the States, you should be very concerned about the ramifications of the demise of the USD as the world’s reserve currency.
Meld on Tue, 13th May 2014 11:57 pm
Uh Oh, if you’re an American or indeed your country is aligned with them in any way you better start smooching your ass and bidding it farewell, you’re about to go “Third world”
Norm on Wed, 14th May 2014 3:49 am
Ya if the dollar becomes recognized for what it really is (roll of toilet paper) and they figure out our drug-addicted hippopotamus citizens don’t really do any work (just sit around on welfare & food stamps and votin republican) then no more free goodies from China to fill our Wal-Mart’s. Uh oh party is over.
Davy, Hermann, MO on Wed, 14th May 2014 5:42 am
Greg said – If you live in the States, you should be very concerned about the ramifications of the demise of the USD as the world’s reserve currency.
Greg, yes and no. Look, the US is being diminished by the nature of the developing global system into an complex interconnected system of nations trading and exchanging. It is now a multi polar world of nations politically with an economic stratification by manufacturing comparative advantage, location (distribution), and resources. This situation will see more movement away from the dollar as the dominant reserve currency but it will not be taken out of the system just like you cannot take the Euro out of trade and exchange. The US is a critical node in this global system or IOW too big to fail. What China, Russia, and Iran are talking about is a pimple on the ass of world trade and finance and in reality political hype. China is the key player in this hype because the other two have much smaller economies. Everything is not about resources you also have to have a diversified economy. China relies on a large trade deficit with the US to maintain its export driven economy. Its economy is built out to take in resources and spit out exports. Sure there has been much internal investment but primarily in housing and excess capacity in multiple industries. There is no way China can do without exports and not stumble. They must trade with the US. The US on the other hand would do well for the general public to move away from this economic distorting system that has left the economy somewhat hollowed out but in any case there is no time nor systematic abilities for the US to change. This China/US relationship has mainly benefited the global 1%ers and multinationals. Sure the main street guys get cheap Walmart shit but do they need this. I say a resounding “NO”. I will also debate the change in buying power and prices. These cannot change much without bringing the whole system down. Greg, oil prices if they are not in dollars will not go up much for the US. They can’t because we are already in the limits of the goldilocks range. Not only that the US is a major oil producer and refiner. The US has significant gas and coal too boot. Not to mention significant manufacturing and food exports. All this hype about bringing the US to its knees is really should be aimed at bringing global BAU, the 1%er’s, and multinationals to their knees. In reality they are the beneficiaries of this unholy system of wealth transfer and market corruption. Basically the system is to the point where it cannot change without the system breaking to a much lower level of economic activity from disequilibrium. A move on the dollar is like a move on a market segment in the stock market. Why do you think TPTB did not move very hard on banking anywhere globally? The reason is the unintended consequence would have been a failed banking system. The system is un-reformable. Sure the banking sector is corrupt and parasitic but that is beside the point because it is systematically vital. By extension the dollar is also systematically vital and cannot be replace to a major degree. We will see inroads on the dollars significance but not elimination. The global system cannot afford price and trade instability in the global systems largest economy. IMA the global systems largest consumer. You think China has problems now watch what happens with a trade war with the US. This again gets back to the global system heading for a break. It is brittle and un-reformable. The movement is towards parasitic wealth transfer, corruption, market manipulation, and economic misallocation. Did any of you click on the link yesterday concerning the over production of cars by Energy skeptic? We are so far out of equilibrium now that a break must happen and probably soon. So, all the petro dollar hype is nothing but hype. If the dollar collapses so with the global system.
GregT on Wed, 14th May 2014 7:57 am
Davy,
In Canada, our business executives, industry leaders, and politicians are all very concerned as well, for good reason. They have been building ties with the East for the better part of a decade. I myself, am also concerned about the fallout.
Makati1 on Wed, 14th May 2014 8:44 am
The countdown is in progress. 8 … 7 … 6 …
Boat on Wed, 14th May 2014 6:30 pm
Davy,
The collapse my come from consequences like war by an unruly player or players shutting down paths to energy or at a much later date the fallout from the lack of response of climate change etc.
You said…The system is un-reformable. Sure the banking sector is corrupt and parasitic but that is beside the point because it is systematically vital.
As global trade expanded over time quite the opposite has happened. The globe has become more intertwined than ever. As countries are forced to settle trade difficulties and differences slowly but surely the rule of law has expanded.
If the dollar loses some of it’s market share it will be because the new one to take it’s place will be thought of as more stable. Maybe a currency that has a more fair and balanced rule of law system. The place you stick it during troubling periods. At this time I have yet to see that country even though the US has mismanaged to the point many countries would probably like to a replacement.
GregT on Wed, 14th May 2014 7:08 pm
Boat,
Even the USD banksters understand the implications of losing trade in US dollars. Why do you think Saddam and Ghadafi were assassinated? Let me guess, because they were evil dictators, right?
Wrong, they both wanted to trade oil for gold, or Euros? There are so many US dollars floating around the planet, that if they were to come home to roost it would create a hyper inflationary scenario.
Russia, China, and Iran are not about to trade in different currencies because those currencies are more stable, they are doing it because they are fed up with US dollar hegemony.
They are fighting a financial war against the US, a war that the US has nothing to gain, and everything to lose.
GregT on Wed, 14th May 2014 7:12 pm
Oh, and one more thing. The rule of law has most definitely not expanded. Corruption has never been so rampant.