# China & Japan to move away from the dollar in bilateral trade.



## BillS (May 30, 2011)

http://www.nytimes.com/2011/12/27/business/global/china-and-japan-in-currency-agreement.html

BEIJING - China and Japan have agreed to start direct trading of their currencies, officials announced during a visit here on Monday by Japan's prime minister, Yoshihiko Noda.

Japan will also apply to buy Chinese bonds next year, allowing it to accumulate more renminbi in its foreign-exchange reserves. The moves were among several that emerged from Mr. Noda's meetings with President Hu Jintao, which focused on how the two nations could work together to maintain peace on the Korean peninsula.

*China is the world's second-largest economy while Japan is the third largest, and the currency agreement is part of a move away from using dollars*. Chinese officials have said recently they would like to broaden the global use of the renminbi, also known as the yuan, and want to see more countries move away from relying on dollars as the worldwide currency.

*They hold the world's largest foreign-currency reserves - China has about $3.2 trillion, while Japan holds $1.3 trillion - and any moves to reconstitute the makeup of those holdings could change the global currency map*.

"Chinese officials have made it clear that they believe the international economy is too heavily dominated by the dollar," said Charles A. Kupchan, a professor of international affairs at Georgetown University and a senior fellow at the Council on Foreign Relations. "They believe, as part of China's rise, that the international system should move to a more balanced structure."

Because the renminbi is not fully convertible, however, it will not compete soon as a global reserve currency, he said. Still, the agreement "could be a baby step in that direction," Professor Kupchan said. Experts in global trade said China and Japan had both practical and political motives for the pact. Neither side has announced a timetable, agreeing only that officials will discuss possible measures.

Given the proximity of China and Japan, along with the likelihood that the two countries will serve as each other's biggest trading partners over the next century, it makes sense for them to trade directly without using dollars, said Jeffrey H. Bergstrand, a professor of finance at Mendoza College of Business at the University of Notre Dame.

And the more China loosens its grip on the renminbi, helping to correct what by some measures is a currency undervalued by almost 40 percent against the dollar and 45 percent against the yen, the greater its purchasing power will become, allowing it to import more. This is especially important for Japan, which has been reeling as the dollar has weakened, making American consumers unable to spend as much on Japanese electronics and cars as they used to.

From a practical standpoint, both China and Japan want to reduce the transaction costs of direct bilateral trade and the risks of volatility in exchange rates, said Professor Kupchan.

"With markets looking askance at both the euro and the U.S. dollar, investors in both China and Japan would find it attractive to trade directly," Professor Kupchan said. On a more political level, he said, the pact also represents an important step in improving bilateral ties between Beijing and Tokyo.

As for the long-term ramifications for the United States, analysts said it was difficult to predict before the pact took effect.

In the shorter term, the agreement is likely to lead to continued weakening of the dollar against the renminbi, Professor Bergstrand said. That should help the United States trade deficit with China, he said, increasing American imports while weakening imports from China. On the other hand, he said, the Sino-Japanese currency agreement is likely to diminish the dominance of the dollar in global trade.

"The Chinese yuan will increasingly play an important role in Asia," he said. "It does mean that the U.S. dollar will be less important as a currency for transactions in Pacific rim trade."

Professor Bergstrand compared the role of the dollar on the world stage now to the waning of the British pound 100 years ago as the most prominent currency for international transactions.

For more than a decade, critics have said the government has kept the value of its currency artificially low, giving Chinese exporters an unfair advantage over American counterparts by making Chinese goods cheaper overseas. Washington has pushed for a revaluation. Beginning in June 2010, facing increased inflation, China began to let its currency float gradually up.

Professor Kupchan of Georgetown said the currency pact is more symbolic than significant right now for the United States. "This pact hardly unseats the dollar as the world's dominant currency," he said. "But it is a clear sign that China is headed in the direction of internationalizing the renminbi."


----------



## SlobberToofTigger (Dec 27, 2011)

China and Russia did the same thing last year. We should see more of this moving forward as it makes no sense to trade in one currency globally.

China-Russia currency agreement further threatens U.S. dollar - International Business Times


----------



## BillS (May 30, 2011)

I think it's another nail in the coffin for the dollar. The biggest one is still coming. That's when OPEC stops accepting dollars as payment for oil.


----------



## partdeux (Aug 3, 2011)

BillS said:


> I think it's another nail in the coffin for the dollar. The biggest one is still coming. That's when OPEC stops accepting dollars as payment for oil.


There are some conspiracy theorists that suggested Gaddafi was proposing exactly that.


----------



## BillS (May 30, 2011)

partdeux said:


> There are some conspiracy theorists that suggested Gaddafi was proposing exactly that.


Saddam Hussein was selling oil to the EU at below-market prices in euros at a time when there was supposedly an embargo against Iraq. I've heard that his selling oil for euros was the real reason for the invasion.


----------



## HuskerBill (Nov 28, 2010)

SlobberToofTigger said:


> China and Russia did the same thing last year. We should see more of this moving forward as it makes no sense to trade in one currency globally.
> 
> China-Russia currency agreement further threatens U.S. dollar - International Business Times


I don't agree with the comment that it makes sense to trade in one currency globally, but more importantly, what can citizens do to protect themselves or take advantage of the situation?

HuskerBill
South Texas


----------



## SlobberToofTigger (Dec 27, 2011)

HuskerBill said:


> I don't agree with the comment that it makes sense to trade in one currency globally, but more importantly, what can citizens do to protect themselves or take advantage of the situation?
> 
> HuskerBill
> South Texas


HB,
I think you meant "no sense" since you quoted me and so I would love to argue the point so we can figure out which stance is the one we should collectively hold. In my initial post I did not justify my stance so here goes and then we can beat it up a bit... Grin.

Why it makes no sense for the world to trade in jut one currency.:
1. We no longer need a single benchmark currency that allows consistent pricing. Using computers any commodity priced in any currency can be converted to any other currency instantly.
2. The issues caused by currency fluctuation of the common trade currency can be mitigated. For example if I have 1 million gallons of oil and they are priced in dollars, but my currency is Yen, and the US devalues their currency again I have just lost money when I sell my oil and convert back to Yen. 
3. By decoupling world trade from a single currency the political activities of that one country do not have as great affect on the world economy.


----------



## Viking (Mar 16, 2009)

I talked about the push to dump the US$ as an international trade currency when I first joined this site and since then the debt to GDP ratio has exceeded 100%, that may be a low figure because I've heard some economic writers say we may be closer to the Greek debt which is about 160%. Our total US$ problem, from the things I've read (even looking at the Debt Clock) is around $1 quadrillion + or 1 followed by fifteen zeros. If all assets in this country were sold to clear the debt I suspect if it cleared 10% it would be a wonder. The world bankers that set up the "Federal Reserve Bank" (private) have pretty much fulfilled their desire to ruin the USA. Do a search on "Weimar Republic 1923" and see what happened when Germany had hyperinflation due to printing money with total abandonment as the USA has been doing. The Fed has never been audited in it's over 90 years of operation, the people running it are and always have been, crooks.


----------



## Viking (Mar 16, 2009)

I might also mention that I have been ridiculed for mentioning that China has been working with many resource rich countries throughout the world in eliminating the US$ as a reserve currency and switching to the Yuan. However it's happening and I wouldn't doubt that we'll see a whole lot more. The FED absolutely needs to be gotten rid of or we will become a third world country. Thomas Jefferson warned of the danger of this type of central banking system, too bad no one listened.


----------



## partdeux (Aug 3, 2011)

Viking,

Few corrections. US official debt is 15T. The total US NPV debt is somewhere around 100T. Not an insignificant figure, but nowhere near the 1QT you quoted. The only time I've heard that value, has to do with the current outstanding credit default swap obligations...

WRT Yuan being the world currency of choice, it ain't going to happen. China's currency is only responsible for a small percentage of the world's transactions.

This is going to be interesting.


----------



## RevWC (Mar 28, 2011)

Another nail in the coffin....


----------



## Viking (Mar 16, 2009)

partdeux said:


> Viking,
> 
> Few corrections. US official debt is 15T. The total US NPV debt is somewhere around 100T. Not an insignificant figure, but nowhere near the 1QT you quoted. The only time I've heard that value, has to do with the current outstanding credit default swap obligations...
> 
> ...


You are wrong on that debt figure, what I said is the debt($15.244 trillion) to Gross Domestic Product($15.123 trillion) both figures are growing but debt more than GDP. The other debt (unlimited printing of money in the form of Currency and Credit Derivatives) is presently $776.638 trillion and growing. Many figures come from the Department of Labor and are heavily rated downward in large part due to not including food and energy costs. When all is said and done and all the unfunded mandates are added into the mix and fiat dollars are printed to infinity, the reality is it is debt, which if at any point the economy sneezes anywhere (due to globalism) we all get the flu of hyperinflation. Other than the above, as I said, I've been laughed at but as time goes on I've been proven right. Above all, be prepared, even IF China and other nations shut us off economically please, please don't get caught with your pants down. That's what this site is all about, it's not some thing you look through rose colored glasses having the bias like 95% of the general population has in believing that just like in the past things got bad but they always get better. There are many powerful people in this world that want the population to be reduced by 80%, I even heard Prince Charles once say that in order for wildlife to survive the population needs to be reduced by two thirds. If you don't take measures now then when the SHTF it will be too late and those who did prepare probably won't want to be burdened by those who have nothing help when they show up at their door.


----------



## partdeux (Aug 3, 2011)

CDS are not a product of the govt debt or spending, they are a financial instrument of wall street. Because they are unregulated, nobody knows for sure how big the elephant is, and in a perfect world, would have no impact on the financial system. In theory it's the equivalent of one group of people betting red on roulette wheel, and one group betting black. One of those two groups voluntarily are going to lose money. Where the system failed, both the people betting red and the people betting black have gone back to the house for insurance to cover their loss, and the house (JPM, Citi, ASG, etc) can't cover all the bets.

The US govt has short term debt of 15T, and long term debt on the order of 100T, and we are currently spending 1.5T more every year then revenue collected.

China is not big enough to have any real impact in the world economics. Consider the US economy is a tank, China's global currency is nothing more then a Yugo in the road. I don't recall the exact number, but in terms of global money flow, Dollar and Euro account for 90% of the global flow. IMO, that's why the US treasury and fed are working so hard to keep the Euro floating. Plus, there's a lot of recognition that China's growth has been artifically inflated to show China being a true global player. Unfortunately, they are a huge house of cards without a substantial base.

I would highly recommend watching chrismartenson.com crash course. It becomes very apparent how we reached our societal exponential limits. If you're going limit which episodes to watch, 17a,b,c are probably the most important of the entire series.


----------



## partdeux (Aug 3, 2011)

Good interview with John Williams on McAlvany's show
Interview with John Williams of Shadow Statistics Pt 1 - YouTube!


----------



## Immolatus (Feb 20, 2011)

*India joins in...*

India has decided to join in in its own small way...


----------



## pawpaw (Dec 21, 2011)

We all see the Walmart trucks coming & going from the respective stores wherever we live, but did you notice? Have you TAKEN notice?
About 6 out of ten of trucks entering/leaving don't say Walmart at all.
They are simply emblazoned with big red letters: YUAN


----------



## Viking (Mar 16, 2009)

Don't discount China's desire to dump the toxic USA trade imbalance, bonds, cash or whatever they're holding.


----------



## partdeux (Aug 3, 2011)

More detail *here*


----------



## Viking (Mar 16, 2009)

partdeux said:


> More detail *here*


Yep, authored by a man from Casey Research a resource that I frequently read from as well as others who write commentaries for www.kitco.com Sadly mainstream TV news and large newspapers seem to have no clue as to what's really going on in the world or if they do they twist things to look rosy for their favorite politician.


----------



## partdeux (Aug 3, 2011)

V,

Because everything operates so well, most people don't believe it won't operate so well. there was a discussion the whole reason ghadaffi was taken down was because he was threatening to trade oil for gold...


----------

