Moscow and Beijing Join Forces to Bypass US Dollar in Global Markets, Shift to Gold Trade
Russia’s central bank opened its first overseas office in Beijing on March 14, 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.
Russia is preparing to issue its first federal loan bonds denominated in Chinese yuan. Financial regulators from the two countries agreed to issue home-currency-denominated bonds in each other’s markets, a move that was viewed as intended to test the global reserve status of the US dollar.
If Russia is indeed set to become a major supplier of gold to China, the probability of Beijing preparing to unroll a gold-backed currency increases by orders of magnitude.
Meanwhile, China established a clearing bank in Moscow for handling transactions in Chinese yuan.
Bypassing the US dollar appears to be paying off. Trade turnover between China and Russia increased by 34% in January, in annual terms. China’s exports to Russia grew 29.5%, while imports from Russia increased by 39.3%.
The creation of a 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.
Expanding the use of national currencies for transactions could 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.
One of the most significant measures under consideration is the push for joint organization of trade in gold. In recent years, China and Russia have been the world’s most active buyers of the precious metal. They are shifting from dollar-based trade to commerce that will eventually be backed by gold, or what is emerging as an Eastern gold standard, and which may one day backstop their respective currencies.
Meanwhile, the gold price doesn’t reflect any of these potentially tectonic strategic shifts, just as China—which has been the biggest accumulator of gold in recent years—likes it.