Economy 28-11-2018

Moscow and Beijing pave the way to face the dollar

The volume of currency-to-currency exchanges of the ruble-yuan on the Moscow Stock Exchange during the first 10 months of 2018 was almost 2.5 times higher than in 2017, according to the general director of the exchange, Igor Marich. The announcement coincides with the decision of Russia and China to use their currencies more often among them.

As a result of that decision, an agreement was signed in 2014 stipulating that the Bank of Russia and the People's Bank of China would enhance the reciprocal purchase of their own currencies. At that time, the plan was put into practice but only in the testing phase and, to this day and according to statistics, the experiment has come out to demand. The data of the Moscow Stock Exchange reveal that during the first 10 months of 2018 the volume of exchanges from ruble to yuan and vice versa was 943,000 million rubles -about 14,000 million dollars-. For its part, the People's Bank of China notes that, during the third quarter of 2018, the purchase of rubles with yuan increased by 105.3%.

Russian Prime Minister Dmitry Medvedev and Chinese President Xi Jinping met on November 5. The meeting served, among other things, to confirm that both Russia and China are the target of unilateral actions by the United States. It is precisely this context that makes exchange between national currencies extremely crucial. First, it challenges the global hegemony of the dollar and, second, both countries take care of each other's backs of the US pressure, explains Sputnik Liu Ying, researcher and professor at the Chongyuang Institute of Financial Research of the Renmin University of China.

"Both countries are submitting to US pressure." When the situation normalized after the 2008 crisis, the Federal Reserve began to sharply raise rates, reduce liquidity and lower the price of the dollar The monetary policy of The US led to a reduction in liquidity in the world and a fall in the price of the assets [own] of protectionism and unilateralism, "he explains.

Thus, the exchange of currency to currency between China and Russia is very important; "for Russia, even to a greater extent," he adds. "That the commercial exchange between Beijing and Moscow is strengthened and that the reciprocal purchase of coins increases is a way of taking care of the negative consequences of the Reserve raising rates and reducing liquidity," stresses Liu Ying.

As of today, most transactions between Russia and China are still carried out in dollars. Although the most important thing is that they do it through the international SWIFT system; the standard throughout the world. That means that the United States can block any agreement and even deny any country access to the international market. He already did it with Iran . And now, "fearing that Western sanctions" will hit Russia in the same way, Chinese banks often block certain agreements with the country.

In this regard, the head of the delegation of the Bank of Russia in China, Vladimir Danilov, said that, "despite the reciprocal and extensive network and increased trade in national currency," a whole list of Chinese banks had well present the measures that apply to Russia from outside to limit its commercial activities. "Chinese banks often block agreements, just in case," he says. For this to not happen, it will be necessary for both countries to exit the SWIFT system and adopt their own.

In fact, such systems already exist. In Russia, the Bank of Russia's Financial Message Exchange System - SPFS, in Russian - operates, involving 400 entities, such as banks, corporations and the Russian Treasury. In 2015, China launched its own , the CIPS. During its first phase, about twenty bank clearing entities were connected to it. During the second half of 2018, the system entered its second phase, which was joined by 10 other banks, both Chinese and foreign.


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