The USD Trap Is Closing: Dollar Exclusion Zone Crosses The Pacific As Brazil Signs China Currency Swap

Tyler Durden's picture


When the US Dollar is ultimately dethroned as the world's reserve currency (and finally gets rid of all those ridiculous three letter post-Keynesian economic "theories") nobody will have seen it coming. Well, nobody except for the following headlines: ""World's Second (China) And Third Largest (Japan) Economies To Bypass Dollar, Engage In Direct Currency Trade", "China, Russia Drop Dollar In Bilateral Trade", "China And Iran To Bypass Dollar, Plan Oil Barter System", "India and Japan sign new $15bn currency swap agreement", "Iran, Russia Replace Dollar With Rial, Ruble in Trade, Fars Says", "India Joins Asian Dollar Exclusion Zone, Will Transact With Iran In Rupees." And while the expansion of the "dollar exclusion zone" was actually quite glaring to anyone who dared to look, one thing was obvious: it was confined to Asia. No more courtesy of the following FT headline: "Brazil and China agree currency swap." More: "Brazil has provided a vote of confidence in China’s efforts to promote the renminbi as a reserve currency by becoming the biggest economy yet to agree a swap deal with Beijing. Brazil and China announced the R$60bn (US$29bn) local currency swap after a bilateral meeting between Wen Jiabao, the Chinese premier, and Dilma Rousseff, Brazil’s president, on the sidelines of the Rio+20 environmental summit in Rio de Janeiro."

“It is a measure that reinforces the economies of both countries,” Guido Mantega, Brazil’s finance minister, said late on Thursday night.

Well, that... and also a measure which shows that one by one every country in the world is starting to think of the post-dollar world.

China has launched an aggressive campaign of “currency swap diplomacy”, signing about 20 such agreements over the past four years with countries ranging from Argentina to Australia and the United Arab Emirates.


While these have been largely symbolic – only Hong Kong so far has had to activate its swap line after a shortage of renminbi in the territory in 2010 – they are seen as helping the long march of the internationalisation of the Chinese currency.

They are inactive only as long as they are not activated. And that, as the Federal Reserve bank of JPMorgan the United States has shown can be done with just the flip of a switch.

What happens next is usually best summarized by the following chart which has long been one of our favorites.

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Fri, 06/22/2012 - 08:26 | 2550314 doomandbloom
doomandbloom's picture

Basket of Currencies,  S'il vous plait

Fri, 06/22/2012 - 08:31 | 2550334 old naughty
old naughty's picture

The US still have time...Its bar is not as long as Spain, France, and UK yet.

Ignore Portugal and Netherlands, too small, the US does not "need" them.

Fri, 06/22/2012 - 08:46 | 2550390 falak pema
falak pema's picture

I'm sure Christine Lagarde has an angle on this; a leg in both camps, she is open to finding herself doing the great splits as the grand canyon yawns below.

I'd hate to be in the folds of her skirts looking up at the financial world towering above me like a colossus on feet of clay!

Wow, what a view...Medusa was not a joke after all!

Fri, 06/22/2012 - 09:51 | 2550686 FEDbuster
FEDbuster's picture

The United States economic collapse will not be a one day event. Many holes will appear in the dam prior to the flood, this is just one more hole. 

Fri, 06/22/2012 - 10:02 | 2550741 Clint Liquor
Clint Liquor's picture

Ponzi schemes have two charateristics: One, they go on much longer than you would think possible. Two, they collapse much quicker than you would think possible.

Fri, 06/22/2012 - 09:27 | 2550554 Baron Robber
Baron Robber's picture

falak, that visual was uncalled for.....jarred my morning

Fri, 06/22/2012 - 09:35 | 2550591 falak pema
falak pema's picture

apologise for the look in the mirror...Perseus always carried it on him, his shiny blade or shield. 

Fri, 06/22/2012 - 09:30 | 2550569 Karl von Bahnhof
Karl von Bahnhof's picture

Ahh... see words like "Lagarde" "legs" and "open" doesnt make my day...

Fri, 06/22/2012 - 09:15 | 2550485 Stock Tips Inve...
Stock Tips Investment's picture

At the end of the day, a currency becomes global reserve depending on the leadership that can show its economy. If an economy is strong in time, currency enjoyed that privilege. There will always be countries that want to get out of that scheme. But only succeed if the country's economy more importantly, lose international confidence.

Fri, 06/22/2012 - 09:39 | 2550605 Temporalist
Temporalist's picture

At the begging of the day they should put people who say "at the end of the day" into stockades and beaten mercilessly with wet Spiderman towels until the end of the day.

Fri, 06/22/2012 - 08:33 | 2550343 Silver Shield
Silver Shield's picture

The Rise of the Anti Hegemon

Fri, 06/22/2012 - 09:14 | 2550479 SilverTree
SilverTree's picture


This comment resonates with me.

Fri, 06/22/2012 - 09:48 | 2550665 JPM Hater001
JPM Hater001's picture

I endorse the watching...Long time subscriber to the channel.

Fri, 06/22/2012 - 14:45 | 2551979 pupton
pupton's picture

Hey Silver Shield, are you Chris Duane?

Fri, 06/22/2012 - 08:50 | 2550407 Peter Pan
Peter Pan's picture

Sooner or later we will realise that what we are dealing with is NOT a basket of currencies but a BASKET CASE of currencies.

All this talk of China entering the reserve currency fold is just another wrong turn on the road to resolving the world's economic problems.

The US dollar has done enough damage, do we really need the Chinese Yuan to extend that damage?


Fri, 06/22/2012 - 09:27 | 2550553 Dr. Richard Head
Dr. Richard Head's picture

Since the US Government has been so kind in exporting trillions of dollars in inflation to China, me thinks they are considering showing their thanks. 

Will Toledo, Ohio Be The First Major American City To Be Owned By China?

Fri, 06/22/2012 - 08:54 | 2550423 tiger
tiger's picture

Allow the banksters the control of any money and........ voilà!

Fri, 06/22/2012 - 11:09 | 2551103 rotagen
rotagen's picture

It's OK we got Hope and Change, or is it dope and laundry change?

Fri, 06/22/2012 - 08:26 | 2550315 achmachat
achmachat's picture

anyone knows if the SWIFT system still is officially a USD backed system?

Fri, 06/22/2012 - 08:29 | 2550326 resurger
resurger's picture

Are they creating a new Asian "SWIFT" system to circumvent USD? If yes when will they implement it?

IF anyone has an idea, kindly share .. thnx

Fri, 06/22/2012 - 08:46 | 2550392 Broomer
Broomer's picture

I spent a couple of minutes searching and I only found this:

It only says Iran has something already in place, without giving details.

Fri, 06/22/2012 - 09:44 | 2550631 Temporalist
Temporalist's picture


Fri, 06/22/2012 - 13:25 | 2551714 cranky-old-geezer
cranky-old-geezer's picture



Yes, financial oligarchs at the worldwide level are letting America's leaders' insane hubris push them right into forcing another SWIFT style system to be developed among asian nations rebelling against America's insane oil embargo of Iran.

Yes, America's insane leaders are forcing the rest of the world to develop a SWIFT alternative that will result in the end of the US dollar as world reserve currency.

America's leaders are so caught up in their insane arrogance they can't see what's happening or refuse to accept what's happening.

USD's ultimate collapse won't come from printing.  It will come from rejection as a trading currency by the asian bloc of nations.

You won't see this development on any financial chart.  USD will appear strong on financial charts right up to the day it is officially dropped by the entire asian bloc of nations and other subscribing nations like Brazil.



Fri, 06/22/2012 - 08:26 | 2550318 Fips_OnTheSpot
Fips_OnTheSpot's picture


Fri, 06/22/2012 - 08:26 | 2550319 resurger
resurger's picture


Fri, 06/22/2012 - 08:27 | 2550321 mrktwtch2
mrktwtch2's picture

yeah right the yaun which isnt even freely traded is going to become the reserve currency?? i guess we will see flying pigs as well..who comes up with this stuff?? folks the world need the usa the usa does not need the rest of the world..

Fri, 06/22/2012 - 08:34 | 2550347 Snidley Whipsnae
Snidley Whipsnae's picture

mrktwtch2... Are you long pom poms and flags? lol

Fri, 06/22/2012 - 08:48 | 2550401 tocointhephrase
tocointhephrase's picture


Fri, 06/22/2012 - 08:35 | 2550350 Burr's 2nd Shot
Burr's 2nd Shot's picture

I believe that you should get a super cool avatar so that everyone can tell you are trolling.  Otherwise, folks might think you actually believe such drivel.

Fri, 06/22/2012 - 08:36 | 2550351 sumo
sumo's picture

"the world need the usa the usa does not need the rest of the world.."

Of course. The US is self-sufficient in oil, and has a self-sufficient manufacturing sector. Its finance sector is the eight wonder of the western world. Empires last forever, just ask the Brits. In the immortal words of Timmy The Great, "no risk".


Fri, 06/22/2012 - 08:40 | 2550371 AnAnonymous
AnAnonymous's picture

An extorter needs the extorted more than the extorted needs the extorter.

On the necessity for the extorter to keep the extortion job up.

Fri, 06/22/2012 - 09:18 | 2550500 Mitzibitzi
Mitzibitzi's picture

Hey! You made a valid point there. Better watch that, you know; Big Brother is apt to be keeping tabs on you and is sure not to like it if you get too pally with the Western Capitalist Scum you're paid to berate.

Fri, 06/22/2012 - 09:19 | 2550508 zapdude
zapdude's picture

You beat me to it by < 60 seconds!

Fri, 06/22/2012 - 12:48 | 2551590 AnAnonymous
AnAnonymous's picture

Big Brother is apt to be keeping tabs on you and is sure not to like it if you get too pally with the Western Capitalist Scum you're paid to berate.


Made me laugh. US citizens are fond of exagerating their self importance.

Not the case for everyone though.

There is no big brother as you imply. People in power do not waste their time on non threats. They prefer to allocate their time on tackling existential threats (which nobody on this site is) and enjoying life.

Quite a hard fact to admit for US citizens who throat the idea they favour freedom of speech.

Fri, 06/22/2012 - 09:19 | 2550504 zapdude
zapdude's picture

Shocking.  Your comment actually makes sense for once, and you didn't even use your usual "US Citizenism" or "blobbing up" retarded non-words.  I can almost give you a +1 for improvement.  Almost.

Fri, 06/22/2012 - 12:45 | 2551566 AnAnonymous
AnAnonymous's picture

As if was hanging to your appreciation.

US citizenism is moving, with or without you. All that I need is US citizenism to express itself.

And you cant prevent that so...

Fri, 06/22/2012 - 12:57 | 2551625 akak
akak's picture

The only thing "moving" in regards to you is your bowels, as you continue to dump your foul digested-dog shit all over this forum, much as you do on your Chinese roadsides.

Sat, 06/23/2012 - 08:03 | 2553370 Redhotfill
Redhotfill's picture

Yes!  We need time machine to go back in to to just before the Fed was created and that would be the case.

Fri, 06/22/2012 - 08:35 | 2550352 resurger
resurger's picture

Complacency is a true bitch

Fri, 06/22/2012 - 14:30 | 2551834 earleflorida
earleflorida's picture

"9-11" ???

Default back to the Gold Standard,... "The Liquidation of Government Debt"

Fri, 06/22/2012 - 08:37 | 2550357 Global Hunter
Global Hunter's picture

doesn't have to mean yuan is the collatoral behind their banking system, can be anything they like to settle financial transactions gold, copper, iron ore etc.

Sat, 06/23/2012 - 08:06 | 2553372 Redhotfill
Redhotfill's picture

Settlements in 9mm, 5.56 Nato or 308 Nato   that would work,  and be universally accepted.

Fri, 06/22/2012 - 08:39 | 2550363 Broomer
Broomer's picture

Yes, it isn't freely traded.

But the future is about using gold for reserves, and currency as, you know, currency, for trade.

Fri, 06/22/2012 - 08:45 | 2550387 oleander garch
oleander garch's picture

What makes you think this is the Olympics?  The vast geography of Asia offers many delightful spots for timocratic enjoyment with far more advanced police states dedicated to the careful protection of the fabulously wealthy.  From up high, the world is tiny.

Fri, 06/22/2012 - 08:49 | 2550398 dwdollar
dwdollar's picture

Haha... and the USD exchange rates aren't manipulated?

Fri, 06/22/2012 - 08:51 | 2550415 hnaparst
hnaparst's picture

Actually, you're correct.  A currency that is not freely convertible is not eligible to be a reserve currency.  One would also need a functioning legal system and a long history of prudent central banking.  The Chinese are showing progress on this last point, but they need more history.  The legal system and convertibility are show stoppers right now.

Fri, 06/22/2012 - 09:17 | 2550494 Spastica Rex
Spastica Rex's picture

The US military is the show stopper right now.

Fri, 06/22/2012 - 13:32 | 2551731 cranky-old-geezer
cranky-old-geezer's picture



Until someone plays the thermonuclear card and America folds.

Fri, 06/22/2012 - 14:15 | 2551848 AustriAnnie
AustriAnnie's picture

As long as the world will accept dollars for oil.

Takes a lot of oil to keep that military machine going....

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