Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
AI Tech Stocks State Going into the CRASH and Capitalising on the Metaverse - 25th Jan 22
Stock Market Relief Rally, Maybe? - 25th Jan 22
Why Gold’s Latest Rally Is Nothing to Get Excited About - 25th Jan 22
Gold Slides and Rebounds in 2022 - 25th Jan 22
Gold; a stellar picture - 25th Jan 22
CATHY WOOD ARK GARBAGE ARK Funds Heading for 90% STOCK CRASH! - 22nd Jan 22
Gold Is the Belle of the Ball. Will Its Dance Turn Bearish? - 22nd Jan 22
Best Neighborhoods to Buy Real Estate in San Diego - 22nd Jan 22
Stock Market January PANIC AI Tech Stocks Buying Opp - Trend Forecast 2022 - 21st Jan 21
How to Get Rich in the MetaVerse - 20th Jan 21
Should you Buy Payment Disruptor Stocks in 2022? - 20th Jan 21
2022 the Year of Smart devices, Electric Vehicles, and AI Startups - 20th Jan 21
Oil Markets More Animated by Geopolitics, Supply, and Demand - 20th Jan 21
WARNING - AI STOCK MARKET CRASH / BEAR SWITCH TRIGGERED! - 19th Jan 22
Fake It Till You Make It: Will Silver’s Motto Work on Gold? - 19th Jan 22
Crude Oil Smashing Stocks - 19th Jan 22
US Stagflation: The Global Risk of 2022 - 19th Jan 22
Stock Market Trend Forecast Early 2022 - Tech Growth Value Stocks Rotation - 18th Jan 22
Stock Market Sentiment Speaks: Are We Setting Up For A 'Mini-Crash'? - 18th Jan 22
Mobile Sports Betting is on a rise: Here’s why - 18th Jan 22
Exponential AI Stocks Mega-trend - 17th Jan 22
THE NEXT BITCOIN - 17th Jan 22
Gold Price Predictions for 2022 - 17th Jan 22
How Do Debt Relief Services Work To Reduce The Amount You Owe? - 17th Jan 22
RIVIAN IPO Illustrates We are in the Mother of all Stock Market Bubbles - 16th Jan 22
All Market Eyes on Copper - 16th Jan 22
The US Dollar Had a Slip-Up, but Gold Turned a Blind Eye to It - 16th Jan 22
A Stock Market Top for the Ages - 16th Jan 22
FREETRADE - Stock Investing Platform, the Good, Bad and Ugly Review, Free Shares, Cancelled Orders - 15th Jan 22
WD 14tb My Book External Drive Unboxing, Testing and Benchmark Performance Amazon Buy Review - 15th Jan 22
Toyland Ferris Wheel Birthday Fun at Gulliver's Rother Valley UK Theme Park 2022 - 15th Jan 22
What You Should Know About a TailoredPay High Risk Merchant Account - 15th Jan 22
Best Metaverse Tech Stocks Investing for 2022 and Beyond - 14th Jan 22
Gold Price Lagging Inflation - 14th Jan 22
Get Your Startup Idea Up And Running With These 7 Tips - 14th Jan 22
What Happens When Your Flight Gets Cancelled in the UK? - 14th Jan 22

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

China and Russia Trade Agreement: More than Meets the Eye

Currencies / US Dollar Dec 01, 2010 - 02:54 PM GMT

By: Dr_Jeff_Lewis

Currencies

Direct trade between China and Russia may be less than $50 billion annually, but it's not the numbers that matter.  Under the new agreement, China and Russia have decided that they will use their own local currencies to settle bilateral trade.  Previously, both countries used the United States dollar as an intermediary for settling delivery payments. 


Two sides of the argument quickly settled on two issues: that the dollar would experience lower demand, or that the sum of $50 billion is largely irrelevant.  Both of those viewpoints are correct; neither China nor Russia need to hold US dollars for bilateral trade, and in the grand scheme of international trade, $50 billion is a very small sum.

Truthfully, the days of the dollar as an international medium of exchange are over, and they have been over for quite some time.  With the explosion in electronic trading and free floating exchange rates, importers and exports can, within a matter of minutes, effective neutralize any currency risk with a simple financial transaction.  Thus, settling contracts in dollars for liquidity and stability purposes is no longer a function of the US dollar.

Where the Dollar Reigns as King

There is one market where the dollar is critically important.  Following a 1970s agreement with Saudi Arabia, the US dollar was made to be the only currency in which oil could be bought and sold.  The agreement was perhaps the best victory for the dollar since the official breakdown of the gold standard in 1971, as it meant that countries and companies would have to hold dollars for the sole purpose of buying energy, and that the United States was the only country that could buy oil with printed dollars.  Countries wishing to inflate to buy oil would have to make their actions immediately known by selling off large amounts of currency in floating international markets for dollars. 

Chipping Away at the Dollar’s Value

China exports a variety of products to Russia, but Russia sends back only one: oil.  With an agreement in place to avoid the dollar, China will now settle oil contracts in Renminbi or Ruble, not dollars. 

In the days of quantitative easing and concerns over US debt, the dependence of the oil market on dollars was one of the few anchors the currency had left.  With China now agreeing to purchase directly in another currency, and having already made direct investments in energy companies at home and abroad, a wedge is clearly being driven between the oil market and the dollar.

At current prices, some $2.3 trillion of oil is consumed annually, most of which is bought and sold in dollars.  The fate of the US dollar's utility now rests in the hands of the Saudis and whether they can keep OPEC, an organization responsible for one-third of total output, to keep trading barrels for bucks.  If they can't, the long precipitous decline of the American dollar will end, and we will see instead an instantaneous decline in the importance of the dollar and its value – which is yet another reason to further invest in precious metals. 

By Dr. Jeff Lewis

    Dr. Jeffrey Lewis, in addition to running a busy medical practice, is the editor of Silver-Coin-Investor.com and Hard-Money-Newsletter-Review.com

    Copyright © 2010 Dr. Jeff Lewis- All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in