Dollar Unpegged

Minister of Truth

Minister of Truth

Practically Perfect
http://www.chinadaily.com.cn/china/2010-11/24/content_11599087.htm

China, Russia quit dollar
By Su Qiang and Li Xiaokun (China Daily)
Updated: 2010-11-24 08:02

St. Petersburg, Russia - China and Russia have decided to renounce the US dollar and resort to using their own currencies for bilateral trade, Premier Wen Jiabao and his Russian counterpart Vladimir Putin announced late on Tuesday.

Chinese experts said the move reflected closer relations between Beijing and Moscow and is not aimed at challenging the dollar, but to protect their domestic economies.

"About trade settlement, we have decided to use our own currencies," Putin said at a joint news conference with Wen in St. Petersburg.

The two countries were accustomed to using other currencies, especially the dollar, for bilateral trade. Since the financial crisis, however, high-ranking officials on both sides began to explore other possibilities.
Click to expand...

Interesting turn of events. I remember that just the other day, someone was bitching about how China pegging the Yuan to the Dollar was an unfair trade practice (although I disagree with the significance of China's rapid GDP growth, considering all other factors signify an economy nowhere near America's league, for the time-being and near future), so I wonder what people think about this move that are of like-mind.

In general, all of you financial folks on the site, it would be interesting to read your perspectives.
 
This only means that Russia doesn't have to purchase dollars to trade with China. Basically they'll exchange directly Rubles for Yuan without the middle ground dollars.
 
What it means is that they predict hyper inflation of the dollar due and they don't want to be short-changed.

For illustrative purposes lets assume an interest rate of 5%, a US inflation rate of 22%, a China inflation rate of 2% and no compounding.

Yuan pegged to the dollar: We borrow $100 in 2010 and pay it back in 2015. The principle plus 5 years at 5% = $125.

Yuan not pegged to the dollar: We borrow $100 in 2010 and pay it back in 2015. The principle plus 5 years at 5+22-2% = $225.

During the Carter years we saw an inflation rate of 18% and he wasn't nearly the spender that The Obama is, so 22% is not at all an unreasonable figure. China has a responsible fiscal policy so should be able to keep a very low inflation rate.
 
In the short term not much but next time we have a decent market in the USA expect big inflation. If I wanted to stay ahead of the curve I would not be in any type of long term variable rate debt contracts. Translated - Dump the credit card debt and lock into a fixed mortgage.
 
Damn Yankee said:
What it means is that they predict hyper inflation of the dollar due and they don't want to be short-changed.

For illustrative purposes lets assume an interest rate of 5%, a US inflation rate of 22%, a China inflation rate of 2% and no compounding.

Yuan pegged to the dollar: We borrow $100 in 2010 and pay it back in 2015. The principle plus 5 years at 5% = $125.

Yuan not pegged to the dollar: We borrow $100 in 2010 and pay it back in 2015. The principle plus 5 years at 5+22-2% = $225.

During the Carter years we saw an inflation rate of 18% and he wasn't nearly the spender that The Obama is, so 22% is not at all an unreasonable figure. China has a responsible fiscal policy so should be able to keep a very low inflation rate.
Click to expand...

Damn Yankees got it. His answer is what I first thought when I heard the news.
 
You must log in or register to reply here.
Back
Top