It seems like Russia and China have finally decided to abandon the US Dollar. The US sanctions aimed at pressing Russia resulted in what it should have resulted – the Russia-China relations got closer. It sounds logical, especially if to consider the fact that China and Russia are neighbors and that Russia has abundant natural resources, which China needs to back and sustain its booming economy. At the same time, China has abundant financial reserves, which the Russian economy doesn’t mind getting in the form of foreign investments. If this is the case, the blow to the US currency and economy can be more painful than expected.
Are these 2 giants capable of shattering the US Dollar and to establish a new currency era? Market leader offers you to ponder on this question together with Masterforex-V Academy.
Russia and China VS US Dollar
The calls for gradually leaving the dollar zone have been made for years. And now it seem like the time has finally come to get down to business. In particular, several Russian sources report that Gazprom, the Russian energy heavyweight, is set to place bonds in yuans in the coming months.
This will allow the company to attract extra funds without having to use the reserve currency, simultaneously multiplying the amount of potential investors. And even though the are no official comments made by Gazprom at this point, several informed sources report that Gazprom is already considering several options in terms of placing bonds.
On top of that, Russia and China have already signed several currency swaps, which allow them to avoid the US Dollar in their bilateral trade relations. That is why, China reestablished its status of Russia's major trade partner last year while Russia moved up the chart to occupy the 9th place in the list of China's trade partners.
Last year, the trade volume between the two economies reached $89 billion. The figures are expected to increase up to $100bn in 2015.
So, Gazprom's desire to place yuan-denominated bonds is considered the next step towards freeing up the Chinese and Russian economies from the burden of the US Dollar.
According to Bank of America Merrill Lynch, the Gazprombank bond yield with expiration in 2017 has already increased by 69 basis points since the Crimean crisis while the average yield on the yuan bonds placed in Honk Kong dropped by 5 basis points.
According to vestifinance.ru, there are several key points in the new trade relations between Russia and China:
1. Russia sends natural gas to China.
2. Gazprom gets paid in yuans, which are converted into rubles.
3. Gazprom attracts investments in yuans, thereby being financed by China.
4. Russia buys Chinese products for yuans, which are converted into rubles.
5. As we can see, there are no dollars in this chain.
The Ukrainian crisis isn't over yet, the USA is threatening Russian with another package of sanctions again. If to consider this fact, it seems like Gazprom is not going to be the only company that place bonds un yuans.
Russia is cautious and has to avoid those foreing markets that can also feel the pressure in the form of US sanctions. China is Russia' biggest trade partner and the only member of the UN Security Council that hasn't threatened Russia with sanctions because of the annexation of the Crimea.
The charts below shows us the period of weaker bonds and stronger dollar index (market yellow).
The world seems to be abandoning the US Dollar gradually and the process may well be irreversible at this point…
