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TOPIC: Petrodollar Alert: Putin Prepares To Announce "Holy Grail" Gas Deal With China

Petrodollar Alert: Putin Prepares To Announce "Holy Grail" Gas Deal With China 21 Mar 2014 18:35 #1

  • pheony
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If it was the intent of the West to bring Russia and China together - one a natural resource (if "somewhat" corrupt) superpower and the other a fixed capital / labor output (if "somewhat" capital misallocating and credit bubbleicious) powerhouse - in the process marginalizing the dollar and encouraging Ruble and Renminbi bilateral trade, then things are surely "going according to plan."

For now there have been no major developments as a result of the shift in the geopolitical axis that has seen global US influence, away from the Group of 7 (most insolvent nations) of course, decline precipitously in the aftermath of the bungled Syrian intervention attempt and the bloodless Russian annexation of Crimea, but that will soon change. Because while the west is focused on day to day developments in Ukraine, and how to halt Russian expansion through appeasement (hardly a winning tactic as events in the 1930s demonstrated), Russia is once again thinking 3 steps ahead... and quite a few steps east.

While Europe is furiously scrambling to find alternative sources of energy should Gazprom pull the plug on natgas exports to Germany and Europe (the imminent surge in Ukraine gas prices by 40% is probably the best indication of what the outcome would be), Russia is preparing the announcement of the "Holy Grail" energy deal with none other than China, a move which would send geopolitical shockwaves around the world and bind the two nations in a commodity-backed axis. One which, as some especially on these pages, have suggested would lay the groundwork for a new joint, commodity-backed reserve currency that bypasses the dollar, something which Russia implied moments ago when its finance minister Siluanov said that Russia may regain from foreign borrowing this year. Translated: bypass western purchases of Russian debt, funded by Chinese purchases of US Treasurys, and go straight to the source......

"The worse Russia's relations are with the West, the closer Russia will want to be to China. If China supports you, no one can say you're isolated," said Vasily Kashin, a China expert at the Analysis of Strategies and Technologies (CAST) think thank.
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Petrodollar Alert: Putin Prepares To Announce "Holy Grail" Gas Deal With China 22 Mar 2014 01:29 #2

  • Orangeaid
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The renminbi has become the world's second most traded currency after the US$ in pretty short time.

China wants to avoid trading in the dollar if possible. It makes perfect sense. Australia has been selling commodities such as iron ore directly in renminbi for quote a while. Outputs of the world's most important commodity after oil are in the process of being doubled in Australia to 1 billion tones a year. Current sales prices are about $110 a tone. Much of the ore goes to China, buy also Japan and south Korea.

China is making great strides in increasing the international use of the renminbi (RMB) for trade and investment, with Hong Kong as the gateway to China for RMB‑denominated trade and capital flows. The desire is to facilitate wider use of the RMB in trade and investment in the Asian region.

Australia and China have signed a A$ - RMB direct currency trading agreement. New Zealand also has signed for its large dairy export industry.

The time of being forced to trade in the US$ is over, unless you are dealing directly with the US.

Australian Chinese trade would involve Australia hedging it's local costs (wages and operational costs) to lock them in because revenues are earned in US$. Hedging on such a large scale is very very expensive but essential to manage the risk of A$ - US$ exchange fluctuations.

On the Chinese side they have to buy US$ in order to buy the commodity from Australia. China also has to hedge to lock in the US$ input cost of the steel making commodity. Chinese steel making costs are otherwise in local currency.

Removing the need to buy and sell in a third party currency will reduce cost and make trading between Nations much easier.

Makes perfect sense that Russia will trade directly with China. The demand for its currency will grow enormously. It will gain large economic clout from this.
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Petrodollar Alert: Putin Prepares To Announce "Holy Grail" Gas Deal With China 22 Mar 2014 05:38 #3

  • Orangeaid
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Chinese Yuan becomes second-most used current after Dollar

Major Fortune 500′s have also converted and started paying suppliers in RMB if they are based in China. This is a new phenomena as everyone was previously paid in USD. The RMB is only a few years away from showing the world completely that the Dollar’s
dominance is history. The Chinese yuan has vaulted ahead of the euro and Japanese yen to become the second most widely used currency in international-trade finance, another milestone in China’s bid to open up its currency. Companies used China’s currency for 8.7% of credit agreements tied to global trade in October, up from 4.4% a year earlier, according to financial-services firm Swift, which monitors international currency flows.

That puts the yuan above the euro and yen—at 6.64% and 1.36%, respectively — although still well behind the dollar, which backs 81% of trade finance. While trade credit is but a sliver of the $5.3 trillion-a-day foreign - exchange market, the rapid adoption of the yuan underscores the rising importance of the currency. In recent years, the Chinese government has undertaken efforts to make it easier to convert in and out of yuan, with an eye toward competing with the U.S. dollar as a global reserve currency. The rising use of the yuan, also known as renminbi, in international-trade credits is a sign that Beijing’s efforts to loosen its grip on the currency are slowly paying off. “Companies are getting more of a comfort zone to trade in renminbi,” said Debra Lodge, a New York based head of renminbi business
development at HSBC Bank USA NA. “It’s just a natural progression in the opening up of China.” Statements following the government’s recent Third Plenum meeting have led many observers to think that Asia’s largest economy will see more-aggressive foreign-exchange reforms in the near future. Its central bank announced a blueprint on Monday to facilitate cross-border investments for businesses and individuals living in Shanghai’s pilot free- trade zone. However, there are significant barriers to the yuan’s wider use.

Tight government controls of money flowing in and out of China prevent foreigners from easily holding yuan assets, and concerns about transparency have also made many yuan assets unattractive to foreign investors.

“Changing China’s currency is not like turning a battleship; it’s like turning an aircraft carrier,” said John Rutledge, chief investment officer
at asset manager Safanad SA. “It’ll take decades before the renminbi is a stable, liquid currency like the dollar.”

Despite the jump in yuan use in trade finance, the currency holds a relatively small 0.84% share of overall global payments flows, Swift data show. Most of the trade finance in China occurs with Hong Kong and Singapore, meaning the yuan’s growing use is primarily a regional phenomenon for now. One explanation for why the yuan’s role in overall payments lags its role in trade finance is that Chinese companies may be using trade finance as a way to borrow money more cheaply offshore. Trade finance includes so-called “letters of credit,” which are bank-issued guarantees between two companies that a payment will be made at a future date for a specific good.

A Chinese company can get around the country’s capital controls by getting a yuan-denominated letter of credit from its Hong Kong subsidiary, for instance, and using the proceeds to get a loan in Hong Kong for a lower interest rate. China’s benchmark interest rate is 6%, while the offshore rate is 0.5%. “It’s not the easiest to get money into or out of China, so savvy Chinese businesses are using letters of credit as a way to borrow at a lower rate outside of China,” said Alfred Nader, a vice president at global payments firm Western Union Business Solutions.

If this is the case, the renminbi may not be gaining as much traction in global trade as the numbers initially suggest. Still, the gradual rise in yuan use globally is significant. This year, China became one of the top-10 most traded international currencies for the first time, according to the latest Bank for International Settlements report in September. Trading in the Chinese currency has more than tripled in three years, to $120 billion a day in 2013, the BIS said. By paying in yuan, American and other foreign companies can get more competitive pricing from their Chinese suppliers. Last year, China’s central bank said foreign importers could save 2% to 3% on their invoices if they pay in yuan. For the Chinese supplier, accepting yuan payments eliminates the fees to convert dollars to yuan, along with any risk of exchange-rate fluctuations.

source. chinamoney
Last Edit: 22 Mar 2014 05:48 by Orangeaid.
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