China-Russia dollar move may signal end to manipulation of yuan
China and Russia announced Wednesday they will no longer trade with each other using the U.S. dollar. The announcement came as top officials from China and Russia met in St. Petersburg to forge bilateral cooperation in trade and energy. The China-Russia dollar decision isn’t seen as detrimental to U.S. currency and could force the value of the yuan in line with other global currencies.
China and Russia quit using dollar for bilateral transactions
China, Russia and the dollar formally ended a long relationship Wednesday. China and Russia are former enemies that required importers from each country to use a third-party currency for bilateral transactions. The dollar was the third-party currency of choice, and last year Russia-China trade was valued at $38.8 billion. Russia-China trade is expected to reach $60 billion in 2010. As of Nov. 24, either rubles or yuan must be used for all Russia-China trade.
Behind the China-Russia dollar move
The Russian ruble is already traded on the Chinese stock exchange. The Chinese yuan is expected to start trading in Moscow in December. The International Business Times reports that the China-Russia dollar move isn’t intended as a challenge to the U.S. Rather, it is a precautionary measure aimed at mutual protection of the two countries’ economies in the aftermath of the global financial crisis. A China-Russia oil deal may be the main reason for the switch from the dollar. A new Siberian oil pipeline will soon pump 1 billion barrels of Russian oil into China every year. Russia wants its commodities exchange to trade for oil in rubles.
The international currency issue
The China-Russia dollar move isn’t expected to change the dollar’s role in international trade. According to Joe Weisenthal at Business Insider, China and Russia switching to yuan and rubles for bilateral trade is something the world has been waiting for. The U.S. in particular wants the yuan to become a real trade currency, valued on the same level in relation to other currencies, instead of being manipulated by the Chinese government.