Moscow And Beijing
Join Forces To Bypass US Dollar In Global Markets, Shift To
Gold Trade by Tyler Durden |
April 3, 2017
The Russian central bank
opened its first overseas office in Beijing on March 14,
marking a step forward in forging a Beijing-Moscow alliance
to bypass the US dollar in the global monetary system, and
to phase-in a gold-backed standard of trade.
According to the South China Morning Post,
the new office was part of agreements made between the two
neighbours “to seek stronger economic ties” since the West
brought in sanctions against Russia over the Ukraine crisis
and the oil-price slump hit the Russian economy.
According to Dmitry Skobelkin, the deputy
governor of the Central Bank of Russia, the opening of a
Beijing representative office by the Central Bank of Russia
was a “very timely” move to aid specific cooperation, including
bond issuance, anti-money laundering and anti-terrorism
measures between China and Russia.
The new central bank office was opened at
a time when Russia is preparing to issue its first federal
loan bonds denominated in Chinese yuan. Officials from China’s
central bank and financial regulatory commissions attended
the ceremony at the Russian embassy in Beijing, which was
set up in October 1959 in the heyday of Sino-Soviet relations.
Financial regulators from the two countries agreed on last
May to issue home-currency-denominated bonds in each other’s
markets, a move that was widely viewed as intended to eventually
test the global reserve status of the US dollar.
Speaking on future ties with Russia, Chinese
Premier Li Keqiang said in mid-March that Sino-Russian trade
ties were affected by falling oil prices, but he added that
he saw great potential in cooperation. Vladimir Shapovalov,
a senior official at the Russian central bank, said the
two central banks were drafting a memorandum of understanding
to solve technical issues around China’s gold imports from
Russia, and that details would be released soon.
If Russia – the world’s fourth largest gold
producer after China, Japan, and the US – is indeed set
to become a major supplier of gold to China, the probability
of a scenario hinted by many over the years, namely that
Beijing is preparing to eventually unroll a gold-backed
currency, increases by orders of magnitude.
* * *
Meanwhile, as the Russian central bank was
getting closer to China, China was responding in kind with
the establishment of a clearing bank in Moscow for handling
transactions in Chinese yuan. The Industrial and Commercial
Bank of China (ICBC) officially started operating as a Chinese
renminbi clearing bank in Russia on Wednesday this past
“The financial regulatory authorities of
China and Russia have signed a series of major agreements,
which marks a new level of financial cooperation,” Dmitry
Skobelkin, the abovementioned deputy head of the Russian
Central Bank, said.
“The launching of renminbi clearing services
in Russia will further expand local settlement business
and promote financial cooperation between the two countries,”
he added according to.
Irina Rogova, a Russian financial analyst
told the Russian magazine Expert that the clearing center
could become a large financial hub for countries in the
Eurasian Economic Union.
* * *
Bypassing the US dollar appears to be paying
off: according to the Chinese State Administration of Taxation,
trade turnover between China and Russia increased by 34%
in January, in annual terms. Bilateral trade in January
2017 amounted to $6.55 billion. China’s exports to Russia
grew 29.5% reaching $3.41 billion, while imports from Russia
increased by 39.3%, to $3.14 billion. Just as many suspected,
with Russian sanctions forcing Moscow to find other trading
partners, chief among which China, this is precisely what
The creation of the clearing center enables
the two countries to further increase bilateral trade and
investment while decreasing their dependence on the US dollar.
It will create a pool of yuan liquidity in Russia that enables
transactions for trade and financial operations to run smoothly.
In expanding the use of national currencies
for transactions, it could also potentially reduce the volatility
of yuan and ruble exchange rates. The clearing center is
one of a range of measures the People’s Bank of China and
the Russian Central Bank have been looking at to deepen
their co-operation, Sputnik reported.
One of the most significant measures under
consideration is the previously reported push for a joint
organization of trade in gold. In recent years, China and
Russia have been the world’s most active buyers of the precious
metal. On a visit to China last year, the deputy head of
the Russian Central Bank Sergey Shvetsov said that the two
countries want to facilitate more transactions in gold between
the two countries.
“We discussed the question of trade in gold.
BRICS countries are large economies with large reserves
of gold and an impressive volume of production and consumption
of this precious metal. In China, the gold trade is conducted
in Shanghai, in Russia, it is in Moscow. Our idea is to
create a link between the two cities in order to increase
trade between the two markets,” First Deputy Governor of
the Russian Central Bank Sergey Shvetsov told Russia’s TASS
In other words, China and Russia are shifting
away from the dollar-based trade, to commerce which will
eventually be backstopped by gold, or what is gradually
emerging as an Eastern gold standard, one shared between
Russia and China, and which may day backstop their respective
Meanwhile, the price of gold continues to
reflect none of these potentially tectonic strategic shifts,
just as China – which has been the biggest accumulator of
gold in recent years – likes it.