In a stunning move that has left the world reeling and wondering what to do, Russia and China have announced that they will no longer be conducting trade in US dollars. The two nations will be using their own currencies for bilateral trade.
Both Vladimir Putin and Wen Jiabao have both made it clear this is a sign of greater economic co-operation between the two nations. However, everyone knows that this is a retaliation against the US for its recent ‘cheap dollar policy’.
This new line of trade between nations is a natural response to the global financial crisis. The crisis has exposed the faults of a dollar-dominated world financial system.
Many in the Chinese government and economic circle are saying that this is not a challenge to the dollar but is an attempt to avoid the risks the dollar has been causing.
We all knew something like this was coming. This last round of “quantitative easing” by the US Federal Reserve was an outright attack on China. This also affected the rest of the export driven countries of the world. The US just kept pushing China claiming they were aggressors in the world currency market, and now China has struck back and struck back hard.
Now I’m not sure what else this could lead to, I’m not an expert, but here are some things that might happen. I’m not an expert, I’m only making guesses so please hold off on the “your an idiot” comments. I’m saying outright that this is new territory for me and I’m pretty lost.
If trade with Russia and China become necessary that may mean anyone seeking to import from Russia or China will have to convert their currency into the ruble or yuan. As a result of doing this, some purchasing power will be lost through the exchange rate, especially if you just devalued your currency.
This may mean imports from China will become more expensive as the dollar is weakened. It is also important to note that Russia and China are major players in the OPEC nations. This will definitely affect oil prices for just about everyone.
The actual implications of these actions are not yet known. But what we do know is that this situation has the potential to explode and could very well be the last straw that causes the next world war.