Moscow And Beijing Join Forces To Bypass US Dollar In Global Markets, Shift To Gold Trade

Tyler Durden's picture

The Russian central bank opened its first overseas office in Beijing on March 14, marking a step forward in forging a Beijing-Moscow alliance to bypass the US dollar in the global monetary system, and to phase-in a gold-backed standard of trade.

According to the South China Morning Post the new office was part of agreements made between the two neighbours "to seek stronger economic ties" since the West brought in sanctions against Russia over the Ukraine crisis and the oil-price slump hit the Russian economy.

According to Dmitry Skobelkin, the deputy governor of the Central Bank of Russia, the opening of a Beijing representative office by the Central Bank of Russia was a “very timely” move to aid specific cooperation, including bond issuance, anti-money laundering and anti-terrorism measures between China and Russia.

The new central bank office was opened at a time when Russia is preparing to issue its first federal loan bonds denominated in Chinese yuan. Officials from China’s central bank and financial regulatory commissions attended the ceremony at the Russian embassy in Beijing, which was set up in October 1959 in the heyday of Sino-Soviet relations. Financial regulators from the two countries agreed last May to issue home currency-denominated bonds in each other’s markets, a move that was widely viewed as intended to eventually test the global reserve status of the US dollar.

Speaking on future ties with Russia, Chinese Premier Li Keqiang said in mid-March that Sino-Russian trade ties were affected by falling oil prices, but he added that he saw great potential in cooperation. Vladimir Shapovalov, a senior official at the Russian central bank, said the two central banks were drafting a memorandum of understanding to solve technical issues around China’s gold imports from Russia, and that details would be released soon.

If Russia - the world's fourth largest gold producer after China, Japan and the US - is indeed set to become a major supplier of gold to China, the probability of a scenario hinted by many over the years, namely that Beijing is preparing to eventually unroll a gold-backed currency, increases by orders of magnitude.

* * *

Meanwhile, as the Russian central bank was getting closer to China, China was responding in kind with the establishment of a clearing bank in Moscow for handling transactions in Chinese yuan. The Industrial and Commercial Bank of China (ICBC) officially started operating as a Chinese renminbi clearing bank in Russia on Wednesday this past Wednesday. 

"The financial regulatory authorities of China and Russia have signed a series of major agreements, which marks a new level of financial cooperation," Dmitry Skobelkin, the abovementioned deputy head of the Russian Central Bank, said.

"The launching of renminbi clearing services in Russia will further expand local settlement business and promote financial cooperation between the two countries," he added according to.

Irina Rogova, a Russian financial analyst told the Russian magazine Expert that the clearing center could become a large financial hub for countries in the Eurasian Economic Union.

* * *

Bypassing the US dollar appears to be paying off: according to the Chinese State Administration of Taxation, trade turnover between China and Russia increased by 34% in January, in annual terms. Bilateral trade in January 2017 amounted to $6.55 billion. China’s exports to Russia grew 29.5% reaching $3.41 billion, while imports from Russia increased by 39.3%, to $3.14 billion. Just as many suspected, with Russian sanctions forcing Moscow to find other trading partners, chief among which China, this is precisely what has happened.

The creation of the clearing center enables the two countries to further increase bilateral trade and investment while decreasing their dependence on the US dollar. It will create a pool of yuan liquidity in Russia that enables transactions for trade and financial operations to run smoothly.

In expanding the use of national currencies for transactions, it could also potentially reduce the volatility of yuan and ruble exchange rates. The clearing center is one of a range of measures the People's Bank of China and the Russian Central Bank have been looking at to deepen their co-operation, Sputnik reported.

One of the most significant measures under consideration is the previously reported push for joint organization of trade in gold. In recent years, China and Russia have been the world's most active buyers of the precious metal. On a visit to China last year, the deputy head of the Russian Central Bank Sergey Shvetsov said that the two countries want to facilitate more transactions in gold between the two countries.

"We discussed the question of trade in gold. BRICS countries are large economies with large reserves of gold and an impressive volume of production and consumption of this precious metal. In China, the gold trade is conducted in Shanghai, in Russia it is in Moscow. Our idea is to create a link between the two cities in order to increase trade between the two markets," First Deputy Governor of the Russian Central Bank Sergey Shvetsov told Russia's TASS news agency.

In other words, China and Russia are shifting away from dollar-based trade, to commerce which will eventually be backstopped by gold, or what is gradually emerging as an Eastern gold standard, one shared between Russia and China, and which may day backstop their respective currencies.

Meanwhile, the price of gold continues to reflect none of these potentially tectonic strategic shifts, just as China - which has been the biggest accumulator of gold in recent years - likes it.

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Xena fobe's picture

They already made their move to hedge with both sides. 

Dickweed Wang's picture

They already made their move to hedge with both sides.

 

Yeah, absolutely . . . they did the same damn thing in WWI and WWII where they financed both sides of the war.  History doesn't repeat but it sure rhymes.

Seasmoke's picture

Seasmoke Bid $1,250USD. Ask $12,000USD. 

 

 

Better hurry. I'm getting ready to move the ask to $20,000USD. 

Nobodys Home's picture

If you're a market mover, once you do that, I'll be able to buy a nice house on the lake:)

cornflakesdisease's picture

The dollar will collapse as soon as we run out of zeros.

WTFUD's picture

How many zeros in a zero sum game?

Nobodys Home's picture

5. 0+0+0+0+0=5!
It's not rocket science. It's common core! and 4 would be just as good if you show your work.

northern vigor's picture

Japan is not in the top four gold producing nations. 

 

WTFUD's picture

Not even top 10. Australia is no.2 i believe.

Omega_Man's picture

fuck the US dollar..it is the anti-christ

WTFUD's picture

I'm making 7k large a day selling reconditioned rickshaw's. Anyone think there's a market for me in the US?

short screwed's picture

I was thinking about writing a cookbook called "Cooking with acorns". It could be a best seller.

Nobodys Home's picture

American indians ate a lot of acorns. Personally, I'd like an oil expeller to make cooking oil from them if the SHTF.

Nobodys Home's picture

There is. They better be pretty fancy for that much coin though. I'd think a good price point would be around $4,500.

sinbad2's picture

Not really, you couldn't find anyone fit and thin enough to pull one in the US.

just the tip's picture

yeah, but in english they would be lickshaws, right?

Vuke's picture

Not the end but, perhaps, the beginning of the end.

Chris88's picture

Yeah, like China and Russia could ever develop anything close to a gold-backed or gold exchange standard.  Remember, just like the US they need to keep printing money to fund their massive governments as well.  Never going to happen.

MuffDiver69's picture

Reminds me of TPP going down and folks saying a new economic block will emerge...yeah...fucking right. No country wants to get ripped by China and free trade has a whole different meaning to the chinks..

Nobodys Home's picture

Flee Tlade!!! Vely Nice Thank you prease!

sinbad2's picture

No country likes getting ripped off by any country, that's why the world will stab the US in the eye, first chance they get.

Volkodav's picture

Russian Federation massive?  facts disagree

Russia do not spend money do not have normally

Chris88's picture

Like I said to the other genius, what does receipts vs. expenditures have to do with the size and scope of the government?  What does it have to do with them inflating away debt (which they still have, and will always have, regardless of deficits or surpluses on a per annum basis given the gimmicks pulled in government accounting)?

sinbad2's picture

China and Russia run a surplus, ask your grandparents what it's like to spend less than you earn, and save the difference for a rainy day.

Chris88's picture

It doesn't make a difference if they steal more than they spend, the size of the government is massive and still requires monetization of government debt.  Maybe you should look at China's debt levels when counting everything they guaranteed, like all the localities and state-owned enterprises which increases the actual debt levels by over 4x.  That's not even counting that their state-owned banks are undercapitalized by at least 300%.  Ask your grandparents about understanding something not listed on Wikipedia.

sinbad2's picture

The Russian Government deficit for 2016 was $21 billion, but China has a much bigger deficit $432 billion. However, China could pay off its deficit tomorrow, by simply selling the more than $1 trillion in US treasury bonds it owns.

Chris88's picture

Except when they pay off 20% of the stated (not the real debt as I explained above, so about 5% of the real debt) the TSY market would tank enough they wouldn't likely go through with the remainder of the sale.  Do I really need to tell adults that income - expenses being positive has no bearing on the need for capital?  I guess so, because peoples' approach to this is laughably simple and wrong.

Xena fobe's picture

Trade surplus but not budget surplus.

MuffDiver69's picture

Should go well....One country survives on ripping off other nations and exports, while the other is dying and has no individual purchasing power..good stuff...

ds's picture

Good try to churn the gold market. You really think that global traders in currencies will be impressed and flee the US$. Plsease dive deeper than what the herd of analysts and economists spout on the 'reserve currency'. It could in fact be a blessing for the US economy when it no longer has to pay the price for sustaining the US$ as a reserve currency. The days in which the US$ was an exorbitant privelege are waning into days of an exorbitant burden. Essentially, economies with surplus in their current acounts need to take risks by parking their excess funds elsewhere. (How many credible economies to park...China and Russsia ?). The other alternative is to pursue massive malinivestments in their internal economies (the lusts of their vested interests).

Don't smoke on BRICS. The combined GNP of BRIS is not equal to C (China). This cliche belongs to the museum. China in its tough reforms to control a Pnozi economy from further spinning out of control will still keep export zombies alive to accumulate reserves for gold investments ? They are not as asinine as concoted. Dive deep into what PBOC's fears are now and they are not entertaining any notion of dumping $ for gold. 

Please come up with something less shallow to bait !

sekhars's picture

you are misinformed.   BRICSs real economy is 52 percent of world GDP and is an average growth rate of 5-6 percent barring some turmoil in Russia and Brazil in past few years. With this growth rate and and forthcoming IMF reform where BRICS will get veto power of 15 percent vote in IMF quota dollar will be dropped in favor of SDR. World can't accept QE by US while dollar remains a reserve currency. US debt is eroding that confidence which you are talking about. It is mathmatical cerainty just how long we can hang on to dollar is a very big question may be next economical crisis woud do it as alternative to dollar trade is already ready- BRICS bank, AIIB and Chinese Inter Payment System(CIPS) these will replace - World Bank, IMF and SWIFT. 

Xena fobe's picture

He said BRIS, excluding China.

Davidduke2000's picture

The funny part is Canada sold all its gold and last I heard they had less than me, I think it was 62 OZ left.

Bear's picture

62 oz .... Good start DD

Reaper's picture

Indoctrinated Exceptionals trust in Yellin.   Putin trusts in gold.

rejected's picture

"If Russia - the world's fourth largest gold producer after China, Japan and the US..."

Last I heard in 2016 and 2015  Russia was Third behind China and Austrailia.

http://www.focus-economics.com/blog/gold-the-most-precious-of-metals-part-3

http://www.usagold.com/reference/globalgoldproduction.html

sinbad2's picture

They mine lots of paper gold in the US.

European American's picture

"Meanwhile, the price of gold continues to reflect none of these potentially tectonic strategic shifts"

How can it, it's MANIPULATED...TOTALLY. The Rothchilds have more money than the Chinese and the Russians put together. They can do whatever they want, anytime, when ever.

East Indian's picture

The Rothchilds have more money than the Chinese and the Russians put together.

 

No. They can wave more money into existence than the Chinese and the Russians put together.

sinbad2's picture

Rothschild Smothschild, it's the US that is the villain, it's the COMEX exchange the Fed and the big American banks that are manipulating gold prices.

They sell it down, with freshly printed money, whilst buying the real thing at bargain basement prices. JP Morgan is sitting on a mountain of metal, whilst it sells gold and silver futures at a loss.

Because the US sold most of its gold, and doesn't have the mines to replenish the stockpile, the US is moving to a silver backed currency, because Latin America has huge reserves, and it would be easy to steal.

East Indian's picture

When Newton set Great Britain on the gold standard, he fixed the price of gold a bit higher than the market. As a result, gold flooded the kingdom, and silver was all exported. This, combined with the India loot of the late 18th Century, firmly placed GB on the classical gold standard. 

Chinese are now exploiting the paper gold scam to buy physical at lower prices (than that would be, if there were no paper scam); they are saving pennies this way. If they do not mind paying a little more with their papers, and set the RMB fix about 3 - 5% above the prevailing market prices, all the gold will flood into China in no time.

Gold is the best store of value; it flows to that country which works a lot and saves a lot. 

Posa's picture

So how's the Gold Standard working out for Britain?

Yen Cross's picture

 Supply<> Demand --- Bitchez

Posa's picture

The Silk Road is key for employment and investment. Integrating the transportation infrastructre of the whole Eurasian Landmass will launch China-Russia,  as 21st Century global superpowers, with India, Iran and eventually Japan, Indonesia and th rest of SE Asia as coalition partners. Europe will have to decide whether to fall off into oblivion under US led destruction of the Middle East and Ukraine; or join the Silk Road Coalition.

Meanwhile, the Silk Road should really leap ahead using super-mag-lev gravity aided, trans-continental subway systems which will be the ultimate in reliable, ultra-high-speed freight and passenger transport for centuries to come.

Hubbs's picture

Definitely would be cool to take a train trip along the new Silk Road. If I am ever able to retire and still healthy enough, of course. Oh, and one other thing, if I can afford it.

Posa's picture

The Silk Road is key for employment and investment. Integrating the transportation infrastructre of the whole Eurasian Landmass will launch China-Russia,  as 21st Century global superpowers, with India, Iran and eventually Japan, Indonesia and th rest of SE Asia as coalition partners. Europe will have to decide whether to fall off into oblivion under US led destruction of the Middle East and Ukraine; or join the Silk Road Coalition.

Meanwhile, the Silk Road should really leap ahead using super-mag-lev gravity aided, trans-continental subway systems which will be the ultimate in reliable, ultra-high-speed freight and passenger transport for centuries to come.

antidisestablishmentarianismishness's picture

Another lame excuse for degenerate goldbugs to get a microscopic boner lasting a couple minutes before flaccidity sets in once again.