China, Russia Sign CNY150 Billion Local-Currency Swap As Plunging Oil Prices Sting Putin

Tyler Durden's picture

While it is beyond a doubt that the primary catalyst for Europe's triple-dip recession has been the nearly two quarters and counting of escalating Russian sanctions that were supposed to solely harm Putin (because who could have possibly foreseen that plunging German exports to Russia would have a far greater impact on the export-driven German economy), the truth is that the Kremlin itself is starting to hurt, if not so much as a result of the European trade embargo but mostly due to crashing oil prices, which have been driven lower almost exclusively by Saudi Arabia as part of its most recent secret bargain with the US, a bargain which as we read today is likely to tear OPEC apart.

One place where Russia has been hit the hardest as a result of tumbling oil prices, is the crashing currency, with the Ruble hitting new record lows against the USD on a daily basis. In fact, as Bloomberg reports, Russia has been forced to spend a whopping $6 billion in just the past 10 days to slow down the tumble of the RUB:

The ruble extended its longest losing streak in more than a year as $6 billion of Russian currency interventions failed to stem the depreciation amid tumbling oil prices.

 

The ruble weakened 0.5 percent versus the dollar-euro basket to 45.2911 by 1:50 p.m. in Moscow, taking its seven-day decline to 2.2 percent, the longest stretch of losses since the nine days ended Aug. 1, 2013. Oil, which along with natural gas contributes almost half of Russia’s revenue, fell 2.4 percent to $88.08 per barrel in London, the lowest since December 2010.

 

Russia’s central bank intervened in the past 10 days to stabilize the ruble, central bank Governor Elvira Nabiullina told lawmakers in Moscow today. The action, which comes as President Vladimir Putin orders a withdrawal of Russian forces from Ukraine’s border, has so far failed to halt the ruble’s decline amid a domestic foreign currency shortage stemming from sanctions. The cost of swapping rubles into dollars widened to a record.

 

The main driver for the ruble right now is the oil price,” Dmitry Polevoy, the chief economist for Russia at ING Groep NV, said in e-an e-mailed note. Crude’s decline “totally eclipses” the “reassuring news” that Russia announced it was pulling back forces from Ukraine’s borders, he said.

Needless to say, Saudi Arabia is hardly getting a Christmas card from Putin this year, although one wonders, just what channels will the former KGB spy use to retaliate against the Saudi princes. Because retaliate he will.

In the meantime, however, Putin has other problems as well, the main of which is a direct consequence of the tumbling currency, namely soaring inflation, and the all too possible reality of upcoming price controls. From the WSJ:

Russia’s government is considering freezing prices for some “socially important” goods as inflation nears a four-year high, the government newspaper Rossiyskaya Gazeta reported on Thursday.

 

Russia had been aiming to bring inflation to a post-Soviet low of 5% this year, but the annexation of Ukraine’s region of Crimea ruined the plan. The annexation and the subsequent sanctions imposed by Western countries have put pressure on the ruble, making imports more expensive. The Kremlin’s decision to ban food imports from states that have sanctioned Russia has further spurred already burgeoning inflation.

 

Russia’s Industry and Trade Minister Denis Manturov said in an interview with Rossiyskaya Gazeta that the government may artificially stabilize prices for some 40 vital goods if a price jumps by more than 30%. He did not say what these goods were or when the price freeze may happen.

If Venezuela or Argentina is any indication, price controls always end badly. And the local population knows this, which completes the triple whammy of Russia's sharp economic impact, namely the accelerating conversion of ruble denominated savings into dollars, sapping Russian commercial banks' dollar holdings, and yet another drain on Russia's central bank reserves:

More Russians are keeping their cash in dollars and euros as the ruble falls to records amid central bank efforts to maintain control over the pace of the decline.

 

The number of people with foreign-currency holdings rose in September from August, Bank of Russia said in its inflation report published Oct. 10. OAO Sberbank, Russia’s biggest lender, had its first drop in retail deposits since May last month, while the premium to swap rubles for dollars climbed to a record at the end of last week, data compiled by Bloomberg show.

 

Investors are betting the most in six years that central bank Governor Elvira Nabiullina will have to raise interest rates after about $6 billion of interventions failed to prevent the ruble from reaching all-time lows every day last week. While the economy risks sinking into a recession amid U.S. and European Union sanctions over the crisis in Ukraine, policy makers must underpin confidence in the ruble.

 

“Once the mindset of a crisis sets in, it becomes a self-fulfilling prophecy,” Neil Shearing, an economist at Capital Economics Ltd. in London, said by phone on Oct. 10. “Residents start to anticipate further weakness in the ruble and shift out of rubles and into hard currency and that precipitates further weakness.”

To be sure, the traditional read through of this news is quite negative for the economy of yet another country which is reliant on the petrodollar. On the other hand, another take is that the collusion between the US, Europe and now Saudi Arabia will merely force Russia to accelerate its bilateral ties with China, in everything from trade to capital flows. Indeed, that is precisely what is happening. As RIA reported over the weekend, China is ready to export agricultural products and oil and gas equipment to Russia, China’s Vice Premier Wang Yang stated Saturday. Products, for which Russia could pay in either Rubles or Renminbi, thereby accelerating the de-dollarization of bilateral commercial relations.

"China is willing to export to Russia such competitive products as agricultural goods, oil and gas equipment, and is ready to import Russian engineering products," Wang Yang said during the 18th session of the Russian-Chinese Commission for the Preparation of Regular Meetings of the Heads of Governments.

 

He noted that trade turnover between Russia and China is increasing every year. Compared to the same period of 2013, it has already grown by 6.7 percent. This trend will help to accomplish the task to increase trade turnover to $100 billion by 2015. The Russian-Chinese Commission for the Preparation of Regular Meetings of the Heads of Governments is currently taking place in Sochi. The annual Russian-Chinese Economic Forum is held within its frameworks.

 

The participants of this year's forum have noted a positive trend in the development of joint investment, economic, industrial projects, and strengthening of partnerships between the two countries.

Bloomberg added that Russia, China sign accords on energy, banking, technology, during a ceremony overseen by Russian Prime Minister Dmitry Medvedev, Chinese Premier Li Keqiang in Moscow. Pacts include accords on east gas pipeline route, double-tax treaty, satellite navigation, high-speed rail cooperation, Rosneft-CNPC cooperation, local-currency swaps, and so on. China Exim Bank also signs accords w/ VTB, Vnesheconombank, Russian Agricultural Bank.

And the cherry on top came moments ago when, as if to assure all involved parties that there will be enough capital support on both sides, the PBOC released a surprising announcement that the central banks of China and Russia signed a 3-year, 150 billion yuan bilateral local-currency swap deal today, according to a statement posted on PBOC website. Deal can be expanded if both parties agree, statement says. Deal aims to make bilateral trade and direct investment more    convenient and promote economic development in 2 nations.

To be sure, some such as Bloomberg, are skeptical that the unprecedented pivot by Russia toward China as it shuns the west, will merely harm the Kremlin. Others, however, wonder: who will be left standing: Europe, with its chronic deficit of energy and reliance on Russia, a country overflowing with natural resources, or Russia, whose economy is currently underoing a dramatic and painful shift, as it scrambles to dissolve all linkages to the Petrodollar and face the Gas-O-Yuan? Perhaps it is worth refreshing this subject in a few months, after Europe's economic situation is made far more clear after what is sure to be a long, cold winter.

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razorthin's picture

This axis of evil will be a bit more of a challenge to Amerika than Germany-Japan, no?

GetZeeGold's picture

 

 

In retrospect....it was probably a bad idea to off General Patton.

Zhuge Liang's picture

Patton would have sided with putin, against the money changers.

LawsofPhysics's picture

Yes, many don't understand that or the fat that Putin really does not give a shit what the price of Russia's oil is in dollars.

emersonreturn's picture

perhaps russia ought to encourage citizens to transfer from roubles to gold?

Amerikan Patriot's picture

Oh he cares, Bob, he cares plenty.  And so do you, you silly goose! 

Volkodav's picture

dup

he had got to know the Germans, listen and begin id the real enemy

 

tarabel's picture

 

 

As the occupation progressed, he becames certain that the Allies should be recruiting German help to finish off Russia straightaway and have done with it. Rather than wait to settle accounts with them long after America had demobilized its war effort. 

tarabel's picture

 

 

Scene from the Allied Victory Parade in Berlin.

"My dear General Patton, do you see that tank? It carries a gun which fires a shell seven miles."

"Is that so, my dear Marshal Zhukov, if one of my men opened fire on you before closing to within seven hundred yards I would have him court-martialled for cowardice."

 

"The Russians are simply savages. We could beat hell out of them." GSP,jr. 1945

 

Patton came from a monied, aristocratic Virginia family.

 

Renewable Life's picture

More propaganda from the House of Saud, the Russians have plenty of Nat Gas to sell at extremely elevated prices to Europe in Euro and China wants all the Russian oil available in CHY, what don't these fucking delusional dollar whores understand about this??

If anyone is in trouble or could collapse with USD oil prices dropping, it's the the fucking Saudi's!!

Keyser's picture

I love it when Russia and China thumb their noses at the US and say, I fart in your general direction... 

 

NoWayJose's picture

I wouldn't bet against a troika with Germany joining Russia and China, leaving the rest of the planet to simmer in self-inflicted debt...

BlindMonkey's picture

That would mean Germany would leave the EU and likely, NATO. Now the funny thing to me would be to watch the Polish government say "oh, fuck. What have we done." When this is happening.

Volkodav's picture

Poles are always on the wrong side of everything

Renewable Life's picture

Ohh I don't think Germany is ready for that script again, but they sure as hell are done taking orders from the Americans and British! So Nato unraveling is a very real possibility IMO though!

BorisTheBlade's picture

Germany-Japan axis didn't include Soviet Union, ot WW2 could've ended very differently. Forget that, MIC has a hard time defeating Tehran-Pyongyang axis, much less Beijing-Moscow. Although, I do not expect that last axis to last much longer partially because of the protracted border between the two, Chinese wouldn't forget Sun Tzu in that respect:

Befriend a distant state while attacking a neighbor

 

It is known that nations that border each other become enemies while nations separated by distance and obstacles make better allies.

new game's picture

ok, we keep slapping a russkie in the face, do you or i think he might just punch us in the face? maybe germany will wake the fuck up and say fuck off merica, and oh by the way we want our gold you lying cheating rehypothicating basterds...

Victor999's picture

So that is why the US and Canada are at war!....O wait....they aren't?

emersonreturn's picture

boris, i upvoted you because your point is true, certainly in the long run, but presently i think both russia and china have agreed the end of the petrodollar is in both their interests.  after that they will each return to past grievances.  certainly china will never forget Mao was set up by stalin in korea and that it slowed his taking tibet.  i think iran, china, and russia are going to be focused on the petrodollar.  i am surprised somewhat that putin has withdrawn troops from the border with ukraine, but i suppose that may be a cosmetic move rather than a white flag.

palmdetroit's picture

 Germany has been behind the last 3 big ones and this coming one as well.

post turtle saver's picture

should have posted the value of the agreement in yen, it would have been even more impressive that way lol... stupid RTyler is stupid

Kirk2NCC1701's picture

Spock: Ah, so your 'clever' solution is to use one elastic fiat currency over another as a Reference marker?  Interesting.

A more robust solution would be to Index them to an Absolute Reference Frame, i.e. to Absolute Money (GOLD), and then Settle in CNY or RUB.

dalitis's picture

Well, America did not defeat both parts of that axis. They defeated the Japanese for sure. It was Russia that beat Hitler and his several minion allies in Europe, lest not forget that. 

Keyser's picture

I always get strange looks from folks when I point this out to them... The US role in Europe was in the final push to take out Hitler, while the US dominiated the Pacific theater...  Many do not know that China lost 20 million and Russia lost 30 million people in that war, while the US lost 400,000 souls... 

tarabel's picture

 

 

1) Massive shipments of lend-lease motor vehicles that motorized the Soviet armies. Radios that allowed them to talk to each other. Food to feed them. Critical mixing agents that allowed Russian oil refineries to produce high octane aviation gas. Overall estimate is 10% of Soviet war economy came from lend lease and, in certain cases such as motor vehicles, around 50%.

2) Allied air campaign against Germany knocks off an estimated 9% of German industrial capacity according to USSBS after the war. 

3) On June 1, 1944 (eve of Normandy invasion) German land forces in Russia-- 2.8m. German land forces deployed on other fronts 2.4m. 

Without Allied support, Germany would have made short work of Stalin. Without Russians holding Germans in East, Allied invasion impossible. Joint effort to crush a very powerful enemy which could probably have held either side off indefinitely in a one-front war.

But Germany was liberated from its cruel, oppressive dictatorship as a result of the war while Russia was not. So, in a macro sense, Russia was the big loser overall. Land devastated, massive casualties, and a triumphant dictator left sitting on his evil throne. Everyone else got to go home and start rebuilding a better world- not so for Russia and Russian-conquered areas.  

angel_of_joy's picture

Is that BS passed as "history" nowaday in schools ? Pathetic... 10% difference (at best) for the biggest war effort ever...

Ebanga Planti's picture

Everyone of these guys are practically thesame in some respect. They will all abuse power when its in their hands. THAT IS A LIFE LONG REALITY IN THIS WORLD. THE WORLD WILL ALWAYS BE LIKE THIS! YOU JUST TO UNDERSTAND IT AT ANY ONE POINT IN TIME AND LIVE WITH IT THE WAY IT IS

Silver Shield's picture

The Rise of the Anti Hegemon http://youtu.be/aKZWSWP3UKU
The 3 Coming False Flags http://youtu.be/_UbAgq3u6lQ

dontgoforit's picture

Neighbors just got back Friday from two weeks in Germany - said that on the surface things looked to be pretty good.  My brother and his wife got back last Sunday from two weeks in France - said the same thing - it all seems pretty normal.  I know the numbers don't lie, but sometimes those throwing out the numbers certainly do - like BLS unemployment figures, for instance.

NoWayJose's picture

You see the same thing in many places in the US as well - restaurants have lots of cars on the parking lot and hotels are nearly full. What is expanding is the debt that is fueling these 'good areas' and the 'size' of the depressed areas.

GetZeeGold's picture

 

 

On the surface eveything seems normal, but come to my city and I'll take you to the local mall.....which is half empty. Then I'll take you the next town....and then the next and so on.

eddiebe's picture

Totally! The common people are tapped out and living hand to mouth. 

BlindMonkey's picture

I had about 4 work colleagues come into Atlanta for a training. They had to move hotels because there wasn't 1 hotel in Buckhead with availability all 3 nights. I would guess there are about 5000 rooms within 1/2 mile of where we were at. I look at this and the vacancies in the commercial space ALL around and feel my mind being torn apart by the cognitive dissonance.

It is like trying to draw a circle and always missing the starting point so you are left with a spiral and not a circle.

Franktastic's picture

Was at the mall yesterday in north California, lots of people eating and walking, but very few carrying any bags of china goods. How long can the WH float a shit before it sinks?

 

 

 

junction's picture

Thomas Eric Duncan just got into Dallas a month ago from Liberia.  Dead now.

NoWayJose's picture

This is short term pain... The long term key is still Syria and the natty gas pipelines.

LULZBank's picture

Repost from before, incase you missed it.

--------------------------------------

 

Putin won’t do shit.

When Putin came into power the first time, I used to tell me friends that he will be going far and will be causing some serious sleepless nights for the West. Ofcourse they laughed me off as Russia was totally beaten down at that time. 

 

I have been following Putin since his early days, what he was doing and saying. I think he has reached his limit and he is not the World Leader that a lot of us expected him to be.

 

He might be a great leader for Russia and will look after his own and Russian interests but will not do jack shit on the international arena in matters that does not concern Russia directly.

 

When Libya got plundered, all he did was some angry press conference because killing Gadhafi was not “mandated” at the UN meeting.

 

He took the MH17 accusations on the chin and didn’t go further than some “impressive and intelligent” presentations, rather than spilling the beans.

 

He accepted the ceasefire in Ukraine whereas you would have expected him to chase them all the way to the presidential palace in Kiev and right up Porky’s ass, to send a message, though he did take Crimea, Russian interest.

 

Read history of Russia and China. They have never projected their power abroad, not talking about Fleets and military but the Will. They never had the will. Mongols/Tatars, in their heydays, bitchslapped both China and Russia. There is a reason the Tatars and Cossacks have a special place in Russia i.e. they get shit done.

 

Russians can sing some songs of bravery and punch some duffel bags and barrels to show the Russian strength, while drunk on Vodka, but come real situation, not so much. I mean its not Putin’s fault that you indulged in his sporty pictures and thought he is going to be the savior everyone is waiting for. He overdoes the macho image, because he actually isn’t.

 

To project power on the world scale, you either have to be a fearless Warrior type or a shameless Psychopath.

 

He is neither, maybe just to minimal extent. He wants to be “partners” with the West not a contender, as he keeps saying and eat over rated fish eggs and overpriced bubbly in his palace like all wannabe Russians and indulge in some boy’s club kind of sports from time to time.

 

US will get the gas pipeline corridor through Syria, Assad will stay in Damascus and Russians at the port of Tartus. He has probably agreed to the arrangement. He will not budge until NATO is in his bedroom. Its just  a Russian psychic, as shown in history, and then Russians will fight bravely on their home turf.

 

(US and ISIS getting into Damascus will be a game changer though, and a warning for Israel)

 

Russians didn’t even conquer the Central Asian states. They were given to them by Teddy and the drunken fat Slob with a Georgian incharge.

 

I mean he has all this gas to sell, his bread and butter, and all this time he has had no alternative payment and pricing method and structure?! Apart from getting some of his ministers to give out intelligent and detailed presentations, he again won’t do jack shit on that.

 

The Chess player couldn’t foresee it? Like he couldn’t foresee Gadhafi being taken to the woodshed? And he still cannot foresee that Empire will keep striking back and will not backoff?

 

I don’t even think he has a valuation model for his gas and a pricing structure. Its just, dig a hole in the ground and put the pipes and sell gas for enough money to cover the costs and some oligarch profits. He cannot even recover his money from Ukraine for the unpaid gas?!

 

What is a barrel of oil or cm3 of gas worth? Hard earned 50 bucks or printed 50 bucks?

 

There will be no PetroRuble or PetroYuan or PetroGold even.

 

PetroRuble – Russia can only trade to the extent pf what the other country can sell to Russia, and the other country might still be dependent on USD for the inputs of its produce and exposed to USD manipulation.

 

If you find it hard to understand the concept, then think of it this way. There is extremely high demand for water and short supply in Sahara. You must be able to charge astronomical prices for bottled water there then? (Some MBA would possible think it’s a great idea and Nestle should expand into Sahara… lol)

 

Petro Yuan – Pegged to the USD and can be printed.

 

Petro Gold – Will you really buy oil or gas with your physical Gold?

 

USD will stay as long as there is oil trading, albeit in seriously devalued form. That is the sad reality. Uncle Sam is not producing oil for sale, so no skin off their nose, and they’ve got big guns and the will to use! When the world will abandon oil, they will abandon USD, it will be a gradual process.

 

And guess where does the famed gas pipeline from Russia to China enters Chinese territory? Right through the Xinjiang "homeland" of Uyghur people who are ethnic Muslims. Surprise Surprise! They might want independence.

 

Coming soon, another episode like Ukraine, but in Chinese this time?

 

Those people who followed Baghdad Bob, do you know how they felt afterwards when Baghdad fell? You might find out if you keep rootin for Putin like that.

 

Sorry folks, he is not the bare-chested Knight on a Siberian horse coming to the rescue. Constitutional dilemmas of US citizens and oppressed people in the East are not his problems. He just wants to sell gas to his "partners" and get some respect on the negotiating table.

GetZeeGold's picture

 

 

Looks like someone is looking to stir up some crap.....you've been working on this for a while haven't you?

COSMOS's picture

He needs to go back and see his off shore psychiatrist

johny2's picture

only time is a judge of an opinions you make above. the germans and french must have thought those pesky slavs are actually really just a drunken cowards, as they advanced toward and into russia in past attempts. they learned hard way it is best to stay at home minding own business, instead of invading russia.

LULZBank's picture

Some you guys are not reading me correctly.

What you say is correct, and thats what I said. Russians will fight brafely to defend Russia and Putin may be a great leader for Russia, just not a World leader, as many want to believe.

Ghordius's picture

in short, a national leader... of Russia. yet many of those "guys" crave exactly for that, a national leader for their nation, though then again some have lost their sense of nation, and crave just leadership. and purpose. like the guys joining the Fight Club in the book and movie, or the guys hijacking planes to Havanna, Cuba, in the 70's

Titus's picture

LULZbank, why do people like you always try to attack character?

If you've been following Russia for so long, you should know it has to dance between the west and east, as it's done for centuries.

Putin is a chess player. Chess players don't push their king to the middle of the board. If I were him, I'd be waiting, making sure NATO doesn't push forward any more right now, and focus on the South Stream Pipeline and supporting Syria.

Delay the enemies plans while strengthening your own infrastructure and position.

 

 

Ayreos's picture

Excuse me, what is a "world" leader? 

You don't make convincing points because the premise is not convincing. The fact Putin is working at least partly for his country instead for his cronie friends is big enough. The rest, as history has proven time and time again, will be determined by geopolitical chance. Obviously, Putin won't go out of his way to conquer Europe or other nonsense of the sort, nor he will attempt to conquer the world through petrodollar, Hollywood and usury politics. And no one is expecting him to. Going out of the borders of your country to tell others what is right and how they should behave is not being a "world leader", it's being an invader and an imperialist.

Amerikan Patriot's picture

Putin's a good leader for those who want to reconstitute the former SU.  He plays the long game, wherein the SU collapses, the remnant (Russia) bleeds its best and brightest through emigration, and then Russia tries to gather together a few of the old republics (part of Georgia, part of Ukraine, maybe Estonia or Kazakhstan) for one last hurrah.

It's quite a heady plan.

bbq on whitehouse lawn's picture

Am i to believe that Russia has no control over its currency? Rediculous.

Amerikan Patriot's picture

"Rediculous" [sic]?  Not as ridiculous as your grasp on grammar, Bob.

The Soviet Union has as much control of its currency as, say, Venezuela or Argentina - which is to say not much.  It's going to be fun to watch the ruble go down the toilet.

basho's picture

BS is BS no matter how many times its reposted. give us a break.