Russia & China Collaborate to Work Around US Dollar

As the China-Russia relationship continues to grow, so too does their collaborative efforts to work around the US dollar and the petro-dollar.

April 17, 2017

By: Bobby Casey, GWP Managing Director

Russia and China laid another building block in their partnership on March 14, 2017 when the Russian central bank opened its first foreign location in Beijing.

On the 100 year anniversary of the US entry into World War 1, the US committed an act of aggression upon the sovereign nation of Syria. President Trump ordered a cruise missile air strike.

On nearly the one year anniversary of GWP providing an anthology of our coverage of countries working around the US dollar, Russia and China take further measures to forge their relationship.

Free Trade

President Trump has gone out of his way to make China out to be some trade hoarder, blowing the notion of a “trade deficit” well out of proportion. It’s true, we aren’t exporting to China in proportion to what we import, but I don’t think that has to do with China being unwilling to trade. I say this because China has eagerly accepted imports from Russia proportionate to their exports to Russia.

“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.” (Source: Zerohedge)

It’s not just in finance that China and Russia have been partnering up. They are looking to one another to create a new path of trade in the Arctic region. Siberia could be the new Eurasian trading post! Thanks to this ever growing relationship, the Yamal LNG (Liquid Natural Gas) Project expects to provide China with 3 million tons of LNG per year.

Russia is even set to become China’s largest oil supplier, surpassing Saudi Arabia.

“The relationship between China and Russia has, therefore, evolved into intensified cooperation in political areas in the last couple of years. Chief among those developments was the announcement on May 8, 2015 in Moscow, on the occasion of the annual parade commemorating the end of World War II, of the planned integration of the Chinese-led BRI with Russia’s Eurasian Economic Union (EEU).

“The BRI comprises the Silk Road Economic Belt and the 21st Century Maritime Silk Road, with the objective of developing a trade and infrastructure network connecting Asia with Europe and Africa along the ancient Silk Road routes. The EEU groups Armenia, Belarus, Kazakhstan, Kyrgyzstan, and Russia in an inward-focused trading network.” (Source: The Diplomat)

Theirs has been a far more inclusive and pluralistic approach to trade, which runs in stark contrast to the way in which the US and the EU have handled their trade agreements. There are further discussions and arrangements being made to grow the infrastructure between Russia and China via the Arctic region.

America leveled trade sanctions on Russia over their dealings in the Ukraine, and Russia found another way to play. The irony here is that two historically known communist countries will be schooling the United States (a purported “capitalist” nation) on the benefits of free trade and international collaboration.

Working Around the United States

So China has joined the IMF basket of reserve currencies, is the 3^rd largest holder of gold reserves after the United States and Japan, and is acquiring gold at an incredibly fast pace. Russia is the fourth largest holder of gold reserves.

It’s not totally impossible that in the coming years, China and Russia ultimately create a gold-backed reserve system of their own, finally offering a true alternative to the US dollar, if not the petro-dollar as well. Are there not enough resource rich nations who resent the United States to ultimately bring down the US dollar?

Remember the story of Stone Soup: Everyone is poor, no one has enough to make a meal… so someone puts a pot in the center of town, fills it with water, lights a fire under it, and throws in a stone. Someone else offers an onion… another some cabbage… another some potatoes… another some seasonings… and once everyone threw in their resources, a feast was made.

This isn’t a story of socialism. It’s a story of overcoming through collaboration. The economic stone soup of the world is being created, there will be a feast, and the US ain’t invited.

So here we are with a Russian central bank opening its doors in Beijing, and the following arrangement:

“Financial regulators from the two countries agreed 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.” (Source: Zerohedge)

Leading up to that, in 2014, the two nations had a currency swap of 150 billion yuan and 815 billion rubles ($24 billion at the time) to secure their trade relations.

The China-Russia relationship is getting some roots. It’s not just a few little side projects, or chance meetings in the halls of international summits. There’s mutual trade agreements, infrastructure, cultural exchanges, political alignments, and military collaboration.

The US and EU tend to work with those who are more like them, with mutual interests playing second fiddle. China and Russia put mutual interests first, and leave one another to deal with their own domestic matters. That leaves little room for protectionism, but a very open mind to building their partnership.

So when you see the economic piece unfolding, where bonds are being issued in either home country’s currency, or banks being set up, or currency swaps… that’s all part of a much LARGER relationship collage.

The US has become militarily interventionist, and economically isolationist; the former having a lot to do with the latter. The real battle will be in the market place, not the deserts or jungles of far off lands. Right now, no one really takes this seriously. But you can’t honestly think a relationship 30 years in the making between China and Russia was ever something to take lightly right?

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