Russia and China jointly dig the dollar's grave

Monday, April 14, 2014

Due to the U.S. sanctions, Russia opens links to China the country with huge foreign exchange reserves.

China has announced several times in recent weeks that if the Russians can not sell their gas to the west due to sanctions it could replace western buyers. Russian energy giant Gazprom jumped at the opportunity and considered the offer. The two countries have concluded that the best solution would be if the Chinese partner pays for the gas deliveries in yuan, which is freely exchangeable to rubles. By using this financial arrangement both countries could bypass the use of the petrodollar.

This step significantly undermines the prestige of the petrodollar since it tells to the world that the U.S. dollar is no longer needed in international financial transactions. Instead of the "petrodollar" very soon the world might start using the "gasyuan".

The main elements of the proposed gas deal concluded by the two countries are:

1 Russia satisfies China's natual gas needs
2 China uses Renminbi to pay for Russian natural gas shipments, which can be freely exchanged to rubles
3 Gazprom performs multi-billion Renminbi capital raising
4 Russia uses yuan to buy Chinese goods

China has been aggressively promoting the international adoption of yuan for many years. In 2013 more than 3.64 trillion yuan was traded all around the world. According to reports, 40 central banks worldwide have already started buying up yuan as a reserve currency.

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