Reuters reported yesterday that Russia and China have entered into a new trade agreement where both countries will settle future transactions using their own currencies, the rouble and yuan. Formerly, international transactions were conducted in dollars.
Additionally, the deal will allow Russian banks to set up accounts with Chinese banks and will also allow Russian companies to accept loans from Chinese financial institutions.
Russia’s Deputy Prime Minister Igor Shuvalov said “We are not going to break old contracts, most of which were denominated in dollars, but, we’re going to encourage companies from the two countries to settle more in local currencies, to avoid using a currency from a third country.”
These agreements are part of a series of recent efforts by both countries to reduce the dollar’s dominance in international trade as well as cut back on U.S. dollars held in reserves. Earlier this year, the BRICS countries (Brazil, Russia, India, China, and South Africa) announced a New Development Bank to circumvent the IMF.
China allegedly holds 32% of its 4 trillion in foreign currency reserves in U.S. dollars, but a Wikileaks cable from 2009 revealed that the country has been gradually dumping its dollars in exchange for foreign gold.
The top secret embassy cable stated, “China’s gold reserves have recently increased. Currently, the majority of its gold reserves have been located in the U.S. and European countries. The US and Europe intend to weaken gold’s function as an international reserve currency. They don’t want to see other countries turning to gold reserves instead of the US dollar or Euro, China’s increased gold reserves will thus act as a model and lead other countries towards reserving more gold.”
“Large gold reserves are also beneficial in promoting the internationalization of the RMB,” the cable continued. The bestselling book in China when that cable was sent out: Currency Wars.
Recent reports by the World Gold Council reveal that Russia has also been hoarding gold.
With the increasing sanctions put forth by the U.S. and Europe against Russia due to the heightened tensions along the border of Ukraine, the country has been more aggressive in its de-dollarization and has been quick to ally itself with those countries that have less than favorable relations with the west. Just this summer, Russia entered into new trade deals with Iran, North Korea, China, and India.