The global de-dollarization drive is truly underway, with the so-called pariah states looking to ditch the American dollar in favor of other currencies.
Moscow and Beijing might be considered strange bedfellows in some quarters; yet, the two have been increasingly cozying up to each other as the trade war drags on.
Trade between the two nations has increased dramatically over the past couple of years, with the euro, rather than the traditional dollar, featuring prominently.
Bilateral trade between Russia and China grew an impressive 27.1 percent from 2017 to 2018 to hit $107 billion, the first time it exceeded the $100-billion mark. The balance of trade at the moment seems to be in favor of Russia, with exports to China growing at a blistering 42.7 percent clip to hit $59.1 billion while imports from the country expanded 12 percent to $48 billion.
But that’s just part of the narrative.
During the first quarter of the current year, the euro represented 37.6 percent in Russian exports to China compared to just 0.7 percent a year earlier. Not surprisingly, the dollar’s market share plunged dramatically to 45.7 percent vs. 87.8 percent a year ago.
Switching to the euro
They say numbers don’t lie, and the latest batch confirm a suspected trend where countries with an anti-American bias are moving away from the dollar--including replacing the greenback with gold in their foreign reserves.
According to Putin, Xi, Maduro, Rouhani and a host of other world leaders, America has been using the dollar’s ubiquity in international trade as a political weapon against its rivals.
The United States has repeatedly levered claims of currency manipulation against many of its trade partners and threatened to take retaliatory measures if it suspects a country of weakening its currency in a bid to gain a competitive advantage and goose exports.
Russia has never tried to hide its disdain for the greenback, with Putin declaring that time was ripe to review the dollar’s role during last month’s St. Petersburg Economic Forum. Switching to the euro, the world’s second most dominant currency, is therefore increasingly being viewed as an acceptable stalemate that serves nations like Russia well--with the ultimate goal being to use their own currencies.
Russia is far from being the only country that’s ditching the dollar for the euro. None other than the EU itself has been championing the regional currency, with European Commission Jean-Claude Juncker going as far as lamenting that EU nations were still paying for major exports such as oil and gas using the dollar.
Desperate for a trade deal?
President Trump has repeatedly claimed that China is desperate to make a deal with the U.S. because tariffs by his government were taking a heavy toll on its economy.
Beijing might simply be shaking its head.
While the two-way tariffs between the U.S. and China have led to less trade between the two countries (both imports and exports), Russia has lately been taking up plenty of the slack and minimizing the blow for China.
Moscow has set a target to increase two-way trade between the nations to $200 billion by 2024, or nearly double the current level. Related: Bezos’ Next Big Project Could Be Worth $100 Billion Per Year
They two countries have also taken the de-dollarization drive a notch higher with Moscow accelerating a currency swap agreement signed between its central bank and the People’s Bank of China (PBOC) in 2014. In 2017, the two countries extended an agreement to use each other’s currencies in a bid to boost cross-border trade. So far, this seems to be working very well.
Currently, over 170 Russian banks including Bank of China, Industrial and Commercial Bank of China, Agricultural Bank of China, China Construction Bank and exchange-traded companies engage in trading the Chinese yuan on the Moscow Stock Exchange. The Bank of Russia has also added the yuan to its basket of reserve currencies.
Moscow and Beijing have so far proven themselves quite adept at overcoming inimical trade policies by the U.S. Don’t be surprised if other dissident nations come onboard and further accelerate the process of ditching the greenback.
By Alex Kimani for conil.me
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