China Moves To Further Marginalize Dollar: Offers CNY-Denominated BRIC Loans
Today we observed how as the US is considering releasing crude from its Political, pardon Strategic Petroleum Reserve, China was doing just the opposite. Now, in a further step confirming that China is acting as a much more rational capitalist power, and is rapidly encroaching on the "reserve" status of the sacrosanct USD, the FT writes that China intends to extend renminbi loans to other BRIC nations in "another step toward the internationalisation of its currency." To those following the stealthy Chinese incursion into currency markets as a dollar alternative, this is not news: already we know that China and Japan have bypassed the dollar entirely and now engage in direct bilateral trade using JPY and CNY (even as most other nations in Asia have developed bilateral agreements to transact in a non dollar basis). This is merely the latest incremental step which will see China become the dominant player in the currency arena, and further puts to doubt the fate of the US Dollar as the default currency. Of course, the market will not acknowledge any of this until the developing (i.e., non-insolvent world) is transacting entirely with US intermediation. And at that point, the US will be merely another Zimbabwe case study, where it can print all the money it wants to fund its deficit, and the only ones who care will be wheelbarrow manufacturers.
From the FT:
The China Development Bank will sign a memorandum of understanding in New Delhi with its Brazilian, Russian, Indian and South African counterparts on March 29, say people familiar with their talks. Under the agreement CDB, which lends mainly in dollars overseas, will make renminbi loans available, while the other Brics nations’ development banks will also extend loans denominated in their respective currencies.
The initiative aims to boost trade between the five nations and promote use of the renminbi, rather than US dollar, for international trade and cross-border lending. Under 13 per cent of China’s Asia trade is transacted in renminbi, according to Helen Qiao, chief Asia economist for Morgan Stanley. HSBC estimates that the currency’s share of regional trade could swell to up to 50 per cent by 2015.
BNDES, Brazil’s development bank with a loan book about four times the size of that of the World Bank, and South Africa’s finance ministry said they expected a master agreement to be signed in New Delhi that would include the lending pledge, with details to be ironed out during a summit. “We will discuss the creation of structures and mechanisms for lending in local currencies in order to maximise economic and financial transactions between the countries that are members of the accord,” BNDES said.
CDB declined to comment. Other signatories will include Russia’s Vnesheconombank, Export-Import Bank of India and the Development Bank of Southern Africa.
Next up, China announces that it was only kidding about its gold holdings, which suddenly are reported to have doubled or tripled, and the trap will be officially srpung.