China Prepares To Bailout Russia

Tyler Durden's picture

Earlier this evening China's State Administration of Foreign Exchange's (SAFE) Wang Yungui noted "the impact of the Russian Ruble depreciation was unclear yet, and, as Bloomberg reported, "SAFE is closely watching Ruble's depreciation and encouraging companies to hedge Ruble risks." His comments also echoed the ongoing FX reform agenda aimed at increasing Yuan flexibility which The South China Morning Post then hinted in a story entitled "Russia may seek China help to deal with crisis," which which noted that Russia could fall back on its 150 billion yuan ($24 billion) currency swap agreement with China if the ruble continues to plunge, that was signed in October. Furthermore, two bankers close to the PBOC reportedly said the swap-line was meant to reduce the role of the US dollar if China and Russia need to help each other overcome a liquidity squeeze.

 

As Bloomberg reported, earlier in the evening, China's Wang Yungui noted

  • *CHINA IS CLOSELY WATCHING RUBLE'S DEPRECIATION: SAFE'S WANG
  • *CHINA ENCOURAGES COS. TO HEDGE RUBLE RISKS, SAFE'S WANG SAYS
  • *REAL IMPACT OF RUBLE DEPRECIATION UNCLEAR YET, SAFE'S WANG SAYS

Adding that China plans sweeping reforms to promote FX flexibility.

And then The South China Morning Post hints,

Russia could fall back on its 150 billion yuan (HK$189.8 billion) currency swap agreement with China if the rouble continues to plunge.

 

If the swap deal is activated for this purpose, it would mark the first time China is called upon to use its currency to bail out another currency in crisis. The deal was signed by the two central banks in October, when Premier Li Keqiang visited Russia.

 

"Russia badly needs liquidity support and the swap line could be an ideal tool," said Bank of Communications chief economist Lian Ping.

 

The swap allows the central banks to directly buy yuan and rouble in the two currencies, rather than via the US dollar.

 

Two bankers close to the People's Bank of China said it was meant to reduce the role of the US dollar if China and Russia need to help each other overcome a liquidity squeeze.

 

China has currency swap deals with more than 20 monetary authorities around the world. Swaps are generally used to settle trade.

 

"The yuan-rouble swap deal was not just a financial matter," said Wang Feng, chairman of Shanghai-based private equity group Yinshu Capital. "It has political implications as it is a sign of mutual trust."

 

The rouble has lost more than 50 per cent against the US dollar this year, pushing Russia to the brink of a currency crisis, though measures announced by the central bank helped it recover some ground yesterday.

 

Li Lifan, a researcher at the Shanghai Academy of Social Sciences, said the swap would not be enough for Russia even if it is used in its entirety. "The PBOC might agree to extend something like 15 billion yuan initially as a way of showing China's commitment to Russia."

*  *  *

As we discussed in October when the swap deal was signed,

...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; or Russia, a country overflowing with natural resources, 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?

*  *  *

Is 'isolated' Russia about to be bailed out by the world's largest economy China?

 

Perhaps, they already started...

 

But then again - with the BRICS currencies all turmoiling... (ZAR -22% not shown)

 

Perhaps it is not such a surprise as members take advantage of The BRICS Bank's $100 Billion reserve...

The punchline, however, is that using bilateral swaps, the BRICS are effectively disintermediating themselves from a Fed and other "developed world" central-bank dominated world and will provide their own funding.

We are pleased to announce the signing of the Treaty for the establishment of the BRICS Contingent Reserve Arrangement (CRA) with an initial size of US$ 100 billion. This arrangement will have a positive precautionary effect, help countries forestall short-term liquidity pressures, promote further BRICS cooperation, strengthen the global financial safety net and complement existing international arrangements.... The Agreement is a framework for the provision of liquidity through currency swaps in response to actual or potential short-term balance of payments pressures. 

Incidentally, the role of the dollar in such a world is, well, nil.

For those who have forgotten who the BRICS are, aside from a droll acronym by a former Goldman banker, here is a reminder of the countries that make up 3 billion in population.

 

Chart: Bloomberg

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CrazyCooter's picture

With a rebel Yell'n, she cried moar moar moar ...

Sometimes the way my mind works is annoying, so you all have to suffer with me ...

Regards,

Cooter

disabledvet's picture

Don't forget canada...America's largest trading partner.

Redneck Hippy's picture

And who will bail out China?

SilverIsMoney's picture

Their gigantic pile of Gold...

CrazyCooter's picture

How many sets of investors lost all their money building the railroads across the US in the 1800s?

There in lies a very, very important lesson.

Many went very broke, but the ones who timed it properly banked it.

Will there be a HUGE wipe out? You bet. Keep your powder dry, stay flexible, and when you are feeling frisky put down some chips.

But be sure to realize that if you do what everyone else does, you will lose your ass.

Regards,

Cooter

cornflakesdisease's picture

It doesn't help to do what congressmen and senators did back in the day; buy the land in front of the railroads and then make sure it gets steered over your land.  Wasn't it like $2.1 million to build the transcontinental rr with 1/2 it being bribes?

Yen Cross's picture

 China has been a net seller of UST for several months . The PBoC is the largest(foreign) holder of Short Term debt with Japan way behind.

 If China unlaoded the financial markets would roil. China knows that internal consumption and a stronger Yuan is the way to go.

 One way or another China wants to get rid of UST. The day of the $USD is coming to a close. It's a good thing.

 Absolute power corrupts.

VATICANT's picture

Corrupts absolutely - as America bombs countless nations while waving flags of "moral compass"

Augustus's picture

China is more likely to weaken Yuan.

Makes Chinese exports more attractive and assure that whatever is consumed is not imported.

ebear's picture

"China has been a net seller of UST for several months ."

Flight to so-called safety = sell into strength.

cornflakesdisease's picture

Got news for you.  What makes you think the FED wouldn't just buy all that paper for pennies on the dollar?  Then what does China have?  You also fail to realize that China is owned by Dollar Inc from with in.  These are globalists.  They are not beholden to China or England or America.  They want an entirely NWO (which is all ready here).  They just haven't put the top stone on it.

bid the soldiers shoot's picture

YC

China has been a net seller of UST for several months 

And the dollars hasn't been this strong for a dozen years.

The timing couldn't be better for China to cash out.

And if the strong USD was the brainchild of Stanley Fischer (who wears the pants at the Fed) he will soon find out that it's much easier to turn around a dinghy like Israel's economy than a Jumbo tanker like America's.


SilverIsMoney's picture

Oh and PS - Obviously Russia isn't selling their gold especially if the Chinese are there to save them with their paper... that was a moronic article to even put up here as it was.

The Russians didn't buy a shit ton of gold in 2014 only to sell it at the end of the year.

VATICANT's picture

Agreed. Common sense says they continue stacking; as shall we..

Amerikan Patriot's picture

Exactly how much is a 'shit ton', Bob?

Did you pick up this term from your experience with pig farming?

Anusocracy's picture

"Did you pick up this term from your experience with pig farming?"

Probably from reading all your posts.

SilverIsMoney's picture

Alright you douchebag troll here ya go...

"Russia’s central bank bought about 150 metric tons of the metal this year, announced Governor Elvira Nabiullina yesterday. The pronouncement immediately created buying in the market, prompting gold to rise to a two week high at $1,200 an ounce."

http://www.zerohedge.com/news/2014-11-19/gold-rises-after-unusual-russia...

Just to review...

A shit ton is now defined as 150metric tons

And the shit winds are a coming...

Amerikan Patriot's picture

Will you move to Russia to help Vlad on the pig farm?

VATICANT's picture

You're going to wish you had a pig farm when you're soon starving to death in America, fucktard

McMolotov's picture

Amerikan Patriot likes to call everyone "Bob." I think I've figured out who Bob is.

When I was in high school, there were these twins from the trailer park named Bobby and Robby. No joke, those were the actual names on their birth certificates. And yes, we all assumed their parents used meth. Anyway, Bobby grew up to be a normal man, and Robby... well, Robby became Roberta. Went through the whole reassignment thing, though everyone doubted it was high-end work.

After the deed was done, all Roberta could think about was Bobby and the fact that he still had an intact dick. Roberta is now consumed with jealousy and "sees" Bobby everywhere he/she looks. That bastard is still packing, and it just isn't fair! When Roberta looks down, there's nothing but a Ken Doll bump and a line that was drawn on with a Sharpie.

All the signs are there. Amerikan Patriot calls everyone "Bob" because Amerikan Patriot is Roberta. Moral of the story: Try to have a little sympathy for Amerikan Patriot. It can't be easy being dickless.

MEAN BUSINESS's picture

10/10 from all the judges?!? Congrats McMolotov!

(IOW +1)! LMAO!

fel.temp.reparatio's picture

Torvill & Dean just rang... they'd like to donate their 10s also (OK ice dancing is scored out of 6, I know... but ehh).

IridiumRebel's picture

I bet you fags are in the same room with one hand on the mouse and the other on each other's cocks. SIM and Bob,,,,,or is it Kneel and Bob?

cornflakesdisease's picture

You don't answer the question by spitting out vulgarities. 

fel.temp.reparatio's picture

Have you run out of CNN articles to copy 'n paste, Bob?

Augustus's picture

SIM,

 

You just presented exhibit one on why not to do business with the Putin government.

He was been planning the Ukraine invasion a year ago.

Knowing that the ruble would turn to worthless after that started, he just did some front running based upon inside info.  Notice that those gold ounces were not used to back the currency.  They were done to scam ruble holders.

noben's picture

I realize that all or most of us can do the 5th grade math, but at $39M per ton, that's about $5.8 Billion for 150 tons. A 'mere' $5.8 Giga?

Sounds like it's a lot harder to buy all that gold discretely than to pay for it.

If we take the math fun a step further and use it to back a currency at 20%, it backs close to $35 Giga bucks. Still not that much.

Which tells me that when the Levee breaks, that Gold needs to be priced a LOT higher for the numbers to make sense and the gold-backed system to work.

bid the soldiers shoot's picture

How long do it take for the Fed's printers to jack that out?

edotabin's picture

"And the shit winds are a coming..."

Mr. Lahey, is that you?

sprintjump's picture

A 'shit ton' is moar than a 'fuck load', douchebag.

Augustus's picture

SIM,

Do your hold some in each hand to calculate the exchange rate?

IridiumRebel's picture

Actually we weigh it against your incredibly tiny penis that is a perfect ounce. Go get the tweezers. We have another shipment from APMEX to verify against your ounce of a penis......

FUCKFACE

OldPhart's picture

Do your own damned homework next time.

 

 

Shit Ton Definition

 

Metric Shit Ton Definition

 

 

 

Uber Vandal's picture

A "shit ton" is more than a "crap ton" and less than a "fuck ton"

Hope that clarifies that for you.

bid the soldiers shoot's picture

And sell it for a shit ton of USD that Yellen just printed and are still warm.

Don't burn your fingers, Amerikan Peerot

Seasmoke's picture

Cuba relations is very interesting in its timing.

Jim in MN's picture

Taiwan 'relations' will be even more interesting.

bid the soldiers shoot's picture

 

Did the CIA plan the Hong Kong protests to be a prelude to the elections in Taiwan?  

The results say they did.

DaveyJones's picture

Been waiting for this announcement.

Still believe it's alll about the energy umbilical between the two.

Although they'll try

Don't think there's much the west can do

to these two working together 

red1chief's picture

China is the one entity that could counter the Vampire Squid's political/financial attack on Russia, and the citizens of the world should hope they do.  This Wall St. hegenomy over the world is not good for anyone, as the American middle class has learned over the past several years.

DaveyJones's picture

I think when this site was just starting someone said  something like

I can't wait for the communist dictators to save my capitalist democracy

Skateboarder's picture

One problem: the American middle class did not learn.

godiva chocolate's picture

Americans didn't learn didley-squat.... which is a lot less than a shitton or a metric shitton.

cornflakesdisease's picture

China is part of the squid.  They're in on the game and the take.  Been that way since 1971.  Thank Kissinger and Nixon.

alexcojones's picture

"May you live in interesting times."

Meant as a Chinese curse, I had heard,  but sure is entertaining