12/28/2010versione stampabileprintinvia paginasend

Yuan and roubles for bilateral trade. Paolo Manasse: A quest for stability and autonomy from Washington. But not part of a currency war.


China and Russia have decided to conduct bilateral trade transactions in their own national currencies (yuan-renminbi and roubles), abandoning the US dollar as a universal trade currency.

Last year, trade between the two nations was estimated at around forty billion dollars. The forecast for 2010 is closer to sixty billion.

For many observers the agreement signed by Vladimir Putin and Wen Jiabao in St. Petersburg on 24 November was another chapter in the so called “currency war” that is worrying both financial and geopolitical global analysts, linked with the Obama administration's renewed interest in the Far East and the record growth performance of the new superpower, China.

PeaceReporter talked about the situation with Paolo Manasse, Bologna University professor of Macroeconomics and International Economic Policy, and lecturer in Macroeconomics at Milan's Bocconi University.

What is the reason for this decision by Russia and China?

There's an economic reason and a political one.

In economic terms, the current crisis brings with it a volatile situation in exchange rates… in reference above all to the Euro/US Dollar rate. Russia has a huge volume of trade with Europe, as does China, which also trades intensely with the USA… therefore both are exposed to the risks of this volatility. The most probable explanation is that at least in their bilateral trading the two nations' desire to protect themselves from currency exchange fluctuation by using their own respective currencies.

In political terms, the significance lies in the fact that by taking this stance China, in particular, affirms the sovereignty of its own currency, by demonstrating that it doesn’t have to rely on the dollar, therefore contrasting the US privilege of manipulating international exchange rates by printing more dollars. It can be interpreted as an act of defiance.

Is it part of the so-called “currency war?”

The currency war has been going on for years. It stems basically from the charge repeatedly levelled by the USA at China, accusing it of deliberately keeping its currency at an artificially low exchange rate in order to make its exports more competitive. In normal market dynamic, the extremely high demand for Chinese goods ought to correspond to a high demand for Yuan with which to pay for them. The natural consequence should therefore be an increase in the value of China’s currency and a fall in the value of the Dollar. Here what happens is that the Chinese Central Bank intervenes by buying dollars and selling Yuan, in order to maintain a depressed value its own currency: hence the low Yuan and the vast amount of dollars in China’s reserves.

This is basically a US problem, on account of its huge commercial deficit with China. The problem doesn’t really affect Europe.

Technically, the decision on Russian-Chinese trade is not really connected with the currency war.

On the contrary, it could even have the effect of reducing the demand for the dollar and therefore depressing its value. It remains to be seen where this happens, and depends largely on the volume of trade between China and Russia. But either way, this agreement should not be interpreted as a part of the currency war.

Is it partly a matter of both countries wanting to diversify their monetary reserves, reducing their quota of dollars?

The dollar’s monopoly as a reserve currency [i.e. the currency in which the various central banks of different nations accumulate their reserves, generally created by their trade surplus, Ed.] already came to an end with the creation of the Euro. Nowadays central banks tend to maintain a pretty balanced portfolio, diversified in order to avoid problems caused by market fluctuations. No one puts all their bets on just one currency. In the case in question, I think the aim is to avoid exchange fluctuations having too much effect on transactions, on trade in general. Plus the political aspect, of course: the affirmation of Chinese autonomy. If a Chinese businessman exports goods for which he gets paid in dollars or euros, and the currency in question slumps in value, he loses a lot of money. In the period between the moment of fixing the price and the moment of payment, he’s heavily at risk. Usually one covers this risk by using the futures market: selling tomorrow’s dollars at a price that one knows today. But the problem can be removed at its root simply by trading in one’s own currency.


Gabriele Battaglia