At a joint press conference in St. Petersburg, Russian President Vladimir Putin and Chinese Premier Wen Jiabao announced their countries’ agreement Thursday to allow their currencies to trade against each other in spot inter-bank markets, thereby formally renouncing the U.S. dollar….
Despite the avowed assurance of not challenging the U.S. dollar, the trade pact between Russia and China will actually result in the undermining and marginalization of the U.S. dollar’s “petro-currency” status.
According to the International Energy Agency, China is the largest consumer of energy, and now the largest automobile market in the world, with an expected rapid increase in oil consumption. Concomitantly, Russia is the second biggest oil exporter and the biggest natural gas exporter in the world.
Add to this global energy picture the two countries’ phasing out of dollar usage for trading energy commodities, and there would indeed be a significant downgrade of the status of the U.S. dollar.
The Chinese Xinhua news agency reports that Russian trade with China was $45.1 billion this year. It won’t be in dollars anymore. Also, this:
Russia’s Prime Minister said Friday he was confident in the euro despite Europe’s swelling debt crisis and criticized the dollar’s dominance as a world reserve currency….
“We have to get away from the overwhelming dollar monopoly. It makes the world economy vulnerable,” he told a gathering of business leaders in Berlin through a translator….
Asked about the possibility of Russia one day adopting the euro as a currency, Putin did not rule out such an option. “The rapprochement of Russia and Europe is inevitable,” he said.
In his call to reduce the dollar’s dominance in the world economy, Putin noted an agreement signed this week with China to use their respective currencies, the ruble and yuan, for bilateral trade in the future.
Deutsche Bank AG’s chief executive Josef Ackermann echoed those comments, saying “I think it is completely accurate that we have to reduce the currency system’s dependence from one dominant currency such as the dollar.”