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Just wait till they dictate to Europe that all natural gas exchanges must be done in local currency.

http://www.zerohedge.com/news/2014-05-13/russia-holds-de-dollarization-meeting-china-iran-willing-drop-usd-bilateral-trade


Russia Holds "De-Dollarization Meeting": China, Iran Willing To Drop USD From Bilateral Trade

That Russia has been pushing for trade arrangements that minimize the participation (and influence) of the US dollar ever since the onset of the Ukraine crisis (and before) is no secret: this has been covered extensively on these pages before (see Gazprom Prepares "Symbolic" Bond Issue In Chinese Yuan; Petrodollar Alert: Putin Prepares To Announce "Holy Grail" Gas Deal With China; Russia And China About To Sign "Holy Grail" Gas Deal; 40 Central Banks Are Betting This Will Be The Next Reserve Currency; From the Petrodollar to the Gas-o-yuan and so on).

But until now much of this was in the realm of hearsay and general wishful thinking. After all, surely it is "ridiculous" that a country can seriously contemplate to exist outside the ideological and religious confines of the Petrodollar... because if one can do it, all can do it, and next thing you know the US has hyperinflation, social collapse, civil war and all those other features prominently featured in other socialist banana republics like Venezuela which alas do not have a global reserve currency to kick around....

They can always use bitcoin.

Zerohedge is Alex Jones for economics.

Russia wants Iranian exchange? Really?

Looking at the comments i'm forced to agree with Daedalus...

 daedalus wrote:
Zerohedge is Alex Jones for economics.

So are you saying that Russia is not engaged in talks with China and Iran to bypass the US dollar in bi-lateral trade? Our president just gave a speech about it a couple hours ago.

dereksatkinson wrote:

 daedalus wrote:
Zerohedge is Alex Jones for economics.

So are you saying that Russia is not engaged in talks with China and Iran to bypass the US dollar in bi-lateral trade? Our president just gave a speech about it a couple hours ago.

No, I'm saying that zerohedge is right in the same sense that Alex Jones is right when he says that 9/11 happened.

Technically, they both got that part right. The rest of what they say? Well....


Oh haaay!

 daedalus wrote:
No, I'm saying that zerohedge is right in the same sense that Alex Jones is right when he says that 9/11 happened.

Technically, they both got that part right. The rest of what they say? Well....

The implications of losing the petrodollar is pretty damn extreme and I don't know of a single financial institution that hasn't commented on those implications. It's one of the 2 reasons why we have the international reserve currency and I think it's kind of hard to argue that it wont hurt our currency if they do this. Bank of America, Goldman Sacs and Citi have all had reports on this topic in the last month.

http://voiceofrussia.com/2014_05_13/Russia-strives-to-exclude-the-dollar-from-energy-trading-5138/

Basically.. if they go through with this the only thing that will keep people using the USD for international trade is our debt markets which institutions are frantically trying to diversify out of.. Right now, there isn't an alternative to using the US bond market. That is one reason why some fairly large institutions have been selling US debt and replacing it with real estate in places like London and Miami. They are chasing yield because rates are too low. This simply can't last forever. Competition is going to emerge.

Also.. Infowars/alex jones comments on everything. They aren't always wrong, especially when they are quoting other journalists and people who actually know what they are talking about. I personally don't care for that form of entertainment.

Meh... it'll take more than those guys to break the petrodolla exchange.

We're still on of the largest consumer of oils.

One problem of course is that two of those three countries don't really want their own currency in the first place.

 whembly wrote:
Meh... it'll take more than those guys to break the petrodolla exchange.

We're still on of the largest consumer of oils.

the EU and China make up a huge % of global consumption. If Russia says it wont accept dollars, that means the EU would use Euros. How inconvenient for them... How are they every going to make that kind of adjustment?

Seriously though. the issue here is that it gives the world an alternative way of opting out with very few reasons not to. I fully expect other countries to follow suit.



Automatically Appended Next Post:

 Frazzled wrote:
One problem of course is that two of those three countries don't really want their own currency in the first place.

All three countries are also buying up a gak load of gold so there is that...

dereksatkinson wrote:

 whembly wrote:
Meh... it'll take more than those guys to break the petrodolla exchange.

We're still on of the largest consumer of oils.

the EU and China make up a huge % of global consumption. If Russia says it wont accept dollars, that means the EU would use Euros. How inconvenient for them... How are they every going to make that kind of adjustment?

Seriously though. the issue here is that it gives the world an alternative way of opting out with very few reasons not to. I fully expect other countries to follow suit.

It's just NOT that simple.

Ask yourself this...

Where are most of the world's banking institutions located?

The Caymans.

 Frazzled wrote:
The Caymans.

I should've been clearer...

It's Wall Street banks... that's where most of the worlds $$$ gets facilitated.

The infructure is there and to replace that will be hefty.

 whembly wrote:
It's just NOT that simple.

Ask yourself this...

Where are most of the world's banking institutions located?

London.. And that is the real answer.

NYC is fading due to taxation and Hong Kong, Shanghai, Dubai, Thailand are growing.. List goes on and on..

Wall Street is where companies go to get financing and it act as an intermediary. Do you honestly think any of those institutions have nationalistic pride? Like deutsche bank? lol Bank of America? Goldman Sacs?

Now.. tell me again.. what is so magical about the USA that makes it the world's reserve currency?


Automatically Appended Next Post:

 Frazzled wrote:
The Caymans.

Monaco.. Mauritius (i lived there for 6 months).. plenty of other tax havens...

Well my old dad prefers the caymans, for his cash. Trouble is he went to visit his stash, and came back with a fiancee. (She was visiting her stash as well). They've been married ten years now. But seriously why won't Americans believe the dollar is heading down the toilet. Things are getting worse, for the dollar, the pound, and the euro.

 loki old fart wrote:
Well my old dad prefers the caymans, for his cash. Trouble is he went to visit his stash, and came back with a fiancee. (She was visiting her stash as well). They've been married ten years now. But seriously why won't Americans believe the dollar is heading down the toilet. Things are getting worse, for the dollar, the pound, and the euro.

May I please have some of your and/or your dad's rich people money? If you want something in exchange I'm willing to give up any amount of dignity, but not willing to put in much effort.

 daedalus wrote:
Zerohedge is Alex Jones for economics.

To be fair, the sources that are not zerohedge tell the same story, and this has actually been in the works for a while.

China, russia, and a smattering of other countries have been working on ways to circumvent the dollar as the reserves currency for a while.

So while ZH may not be the best website all the time, in this case it is reporting on a legitimate story fairly factually, where as most mainstream sources are not reporting it, or are at least putting it on the back page when it really should be on the front.

 Chongara wrote:

 loki old fart wrote:
Well my old dad prefers the caymans, for his cash. Trouble is he went to visit his stash, and came back with a fiancee. (She was visiting her stash as well). They've been married ten years now. But seriously why won't Americans believe the dollar is heading down the toilet. Things are getting worse, for the dollar, the pound, and the euro.

May I please have some of your and/or your dad's rich people money? If you want something in exchange I'm willing to give up any amount of dignity, but not willing to put in much effort.

Only if you form a queue behind me. Because I've been trying for years.

dereksatkinson wrote:

Now.. tell me again.. what is so magical about the USA that makes it the world's reserve currency?

well back in 1971 it was gold standard backed dollars as the worlds reserve currency, then it changed to "the USA backs this with sunshine, lollipops, fairy dust, and our army"

So its basically the reserve currency because its in the states best interests for it to be so, and there wasnt much the rest of the world could do to stop it at the time, not that they particularly wanted to even if they could have.

Its actually pretty neat/scary to see how the whole world went from commodity based money, to an unbased FIAT globally, in less then a hundred years.

Historically, every single FIAT has lost value over time until it went to 0, but historically, we have never had the whole world running on FIAT, so its going to be interesting.

Either everything keeps on keeping on business as usual, or the bottom of the largest pyramid scheme ever falls out.

Once large players like China and russia withdraw, I suspect more will follow.

dereksatkinson wrote:


Now.. tell me again.. what is so magical about the USA that makes it the world's reserve currency?

We're stable.

It's as simple as that.

Now... if foreign countries stops buying our treasury bonds.... whoa moma, the reckoning would be around the corner.

Cover your eyes and squeeze the trigger. Initiate "Gold Standards" again

The world is in a rock and a hard place. The modern global economy is growing too rapidly for gold to reliably back it.

Imagine the damage a desperate US with the military and technology to go with being a world power could wreak. You think Russia annexing Crimea was bad, there's a gackload of untapped resources both north and south of the border....

I rather deal with the local North Those local South of us are Loco

There's this idea floating around out there that if people stop nominating the USD to underwrite their contracts then it will be disaster and ruin for the US. It's an idea that most people really haven't thought through. See, the important thing to understand is that the US doesn't really get involved in those deals, it makes no money out of it, gains no jobs. All it means, for instance, is that when Russia makes a deal to supply gas to Moldova, instead of nominating payment in Russian rubles or Moldocan leu, it nominates the trade to be made in US dollars. This is because the US dollar is a very stable currency, and so the price the contract is listed in now is likely to be pretty close to what it costs when payment falls due (the ruble or leu could spike or plunge in that time, producing risk which is undesirable), and because the market for US dollars is vast (Russia might not like getting paid in leu and then having to slowly place them on the market over the course of a few months, whereas if they're paid in USD they can drop them all on the market at once and know there will be a buyer).

When the time comes to make payment, the Moldovans buy USD in their currency, give that to the Russians, and the Russians then sell those USD to get their money in rubles.

But the US gains very little from this deal at all. In fact, the actual transaction gains the US nothing. What does matter, to some extent, is that all those US dollars being churned through contracts means that traders and companies need to hold dollars out there, with a lot more churning through the markets. People smarter than me have estimated it at about 500 billion dollars. This basically works as an interest free loan to the US - instead of having to raise 500 billion in bonds and pay somewhere between 20 and 30 billion a year in interest, instead the US has 500 billion extra dollars demanded by international trade and finance, costing the US nothing.

Now, if that were to stop happening and the US were find itself with a new cost of 20 to 30 billion each year that'd suck. It's a lot of money, but in the context of a 14 trillion economy, it's a rounding error, which will not affect the average US citizen one bit.

dereksatkinson wrote:
The implications of losing the petrodollar is pretty damn extreme and I don't know of a single financial institution that hasn't commented on those implications.

There are plenty of implications for commodities traders and and other people looking to maximise their returns from a macro scale events. In that sense it's no different to, say, Russia's move to issue bonds last month that received really dreadful bid prices, causing them to withdraw the issue. A big deal for traders, and fascinating stuff to read about if that's your deal, but for the punter on the street is means one third of feth all.

Zero hedge, being a junk site that trades in terrible financial advice for people who haven't yet figured out that day trading is a sucker's game, ignores that last bit.

Also.. Infowars/alex jones comments on everything. They aren't always wrong, especially when they are quoting other journalists and people who actually know what they are talking about.

Even when they're quoting decent sources they take the comments out of perspective, removing important context or blowing minor events way out of perspective. And much of the rest of the time they're talking pure lunacy.

You're pretty much better off with no news than with the likes of zerohedge.


Automatically Appended Next Post:

 whembly wrote:
We're stable.

It's as simple as that.

Yep, and I'd add heavily traded to that. So you know pretty much what price the dollar is going to trade at, and you know you can either buy it or sell it easily.

Now... if foreign countries stops buying our treasury bonds.... whoa moma, the reckoning would be around the corner.

It doesn't really work like that. First up, almost all t-bills are bought domestically (a large portion are even bought by government - US federal accounting is really weird). Second up, where is that money going to instead? All the foreign bond buyers, are they shifting in to some other country's bonds, or are they just not buying bonds at all any more? And why would they do any of that?

I think you are understating it's importance and you completely ignore the issue of "reserves". The "reserve" currency means that it is being held by other central banks as a means of defending it's currency. That is the source of buying that actually matters. If other central banks diversify out of USD and sends their dollars off their balance sheets and into the world, we have a problem.

The federal reserve has already monetized most of our debt but market participants seem to still be expecting them to sell that debt one day. I think that attitudes will start to change regarding this and within the next couple years we will see rates spike, gold spike and the dollar resume it's downtrend.

If the sovereign debt crisis should have taught us anything is that while rates are low, everyone is happy. If rates start moving up, interest payments can quickly get out of hand on these highly indebted countries and make a bad situation much worse very fast. When we are already paying $415 b last year but only generating about $2 trillion in revenue (this is obviously without social security) you have 20.75% of your revenue going towards interest payment while rates are basically at zero. if rates were at 5% (historical average) we couldn't generate enough revenue to pay off the interest on our debt. Even if you massage the numbers down to 10% of revenue (which is the often quoted number mind you) you are still breaking 60% of revenue when interest rates finally do go back to normal. Keep in mind that once greece crossed the 30% of revenue line, it was deemed that the country would need to restructure. We all know how that turned out.

dereksatkinson wrote:
I think you are understating it's importance and you completely ignore the issue of "reserves". The "reserve" currency means that it is being held by other central banks as a means of defending it's currency. That is the source of buying that actually matters. If other central banks diversify out of USD and sends their dollars off their balance sheets and into the world, we have a problem.

Once again... the amount held offshore for that reason is about 500 billion. Which amounts to about 20 to 30 billion a year in what is effectively an interest free loan. It's not irrelevant, but losing it is about two orders of magnitude away from an actual, real problem.

You need to remember that the world has seen all of this before, the UK use to be the reserve currency. Interestingly enough, they happened to remain the world's reserve currency long after they were the largest trader, and long, long after they were the largest economy. Once you become the reserve currency, then it tends to provide large and stable markets simply by itself. Anyhow, the point is that when they lost that status, it meant so little to them you actually can't pick out the exact point or the exact impact of the move to the USD in UK economic figures. This great, vast disaster was lost in the noise of the actual, real issues facing the UK.

The federal reserve has already monetized most of our debt but market participants seem to still be expecting them to sell that debt one day. I think that attitudes will start to change regarding this and within the next couple years we will see rates spike, gold spike and the dollar resume it's downtrend.

Viva la gold!

Hahaha.... anyway, let's just watch and see. Bookmark this thread and see how right you are in three or five or ten years or whatever.

If the sovereign debt crisis should have taught us anything is that while rates are low, everyone is happy.

If the sovereign debt crisis taught us anything, it should have been that debt held in your own currency is vastly different to debt held in another country's currency.

If rates start moving up, interest payments can quickly get out of hand on these highly indebted countries and make a bad situation much worse very fast. When we are already paying $415 b last year but only generating about $2 trillion in revenue (this is obviously without social security) you have 20.75% of your revenue going towards interest payment while rates are basically at zero. if rates were at 5% (historical average) we couldn't generate enough revenue to pay off the interest on our debt.

Interest paid was closer to 200b, revenue closer to 3 trillion, and 5% is a bit high even if you think there's going to be another 1970s style even (the Phillips Curve is beyond debunked now).

And you're forgetting that it would be growth and expansion that would drive interest rates up, and that would also drive up tax revenue.

Keep in mind that once greece crossed the 30% of revenue line, it was deemed that the country would need to restructure. We all know how that turned out.

Keep in mind the currency in which Greece borrowed was not a currency under the sole control of Greece.

http://www.zerohedge.com/news/2014-05-20/china-signs-non-dollar-settlement-deal-russias-largest-bank

As RT reports, Day 1 for Putin is going well...

VTB, Russia’s second biggest lender, has signed a deal with Bank of China, which includes an agreement to pay each other in domestic currencies.

“Under the agreement, the banks plan to develop their partnership in a number of areas, including cooperation on ruble and renminbi settlements, investment banking, inter-bank lending, trade finance and capital-markets transactions,” says the official VTB statement.

The deal underlines VTB Group’s growing interest in Asian markets and will help grow trade between Russia and China that are already close trading partners, said VTB Bank Management Board Vasily Titov.

But it's not just the banking relationships...

In the first day of a two-day trip to China Russia’s President Vladimir Putin said the two countries will be increasing their bilateral trade to reach a new level.

“Our countries have done a huge job to reach a new historic landmark…. China has firmly settled in a position of our key trade partner,” Putin said.

Putin also said that trade turnover between Russia and China grew almost 2 percent during 2013 to reach about $90 billion.

“If we sustain this pace the level of bilateral trade of $100 billion will be reached by 2015 and we’ll confidently move on,” Putin said.

Increasing investment cooperation is crucial, Putin added.

...

“Together it’ll be possible to discuss investment in various projects much more efficiently and clearly,” as Interfax quotes Kirill Dmitriyev the head of Russia’s Direct Investment Fund.

Nothing lasts forever... remember...

There should be a law against posting zerohedge. Did you see the thing they posted recently about the car yard full of cars sitting there, by their report rusting away. OMG here's what the media doesn't tell you, a sure fire sign of collapsing car sales and certain economic doom, short everything, don't be one of the sheeples!

Except the photo was taken five years ago at the peak of the GFC, and the massive backlog of cars was due to the sudden credit panic meaning distributors were suddenly unwilling to move cars to dealerships on credit. The photo was recently attached to a chain email that claimed it was from just last month, and there was a vast backlog of unsold cars that hinted at an economy about to topple over. Now, while the nonsense about car sales can be quickly disproven by looking at the real car sales figures, the bigger point here is that zerohedge picked up and published a story based on a chain email, without doing any basic verification. As a source of information, it's junkier than the National Enquirer - at least those guys go to the trouble of making their stories up themselves.

Anyhow, the basic problem with your reporting there is it still ignores the basic reality that losing status as the reserve currency means very, very little. It relies on this really hazy train of logic that says 'those countries were very powerful and they were the reserve currency, and then they lost their place as the reserve currency and then they weren't as powerful any more'. But any kind of clear thinking on the issue will tell you that what happened is that those countries were powerful, and became less powerful for reasons entirely separate to their place as a reserve currency, and once they were less powerful their place as the reserve currency fell away. Clear thinking will tell you which event causes which.

Now, as a symbol of a nation's decline the loss of reserve currency might be interesting. But we're not even seeing that, what we're seeing is two rivals to the US making a formal decision to not use US dollars. Well for reasons of competition and national pride France avoided the UKP... and it didn't mean gak.