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 on 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 a 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 the
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.
Reprinted
with permission from Zero Hedge.
Copyright ©
2017 Zero
Hedge
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