The dollar does not need: China is undermining the US economy


Доллар не нужен: Китай подрывает экономику США

The economic war between the US and China goes into an active phase. The Americans refused to recognize China as a country with market economy and prepare another batch of anti-dumping measures. Beijing has prepared an asymmetric response and soon going to start in a trade oil futures in yuan that can be converted to gold. “Газета.Ru” understood, will China be able to deny the dollar’s status as the main oil currency in the world.

The United States formally notified the world trade organization (WTO) that refuse to recognize China as a country with market economy. The European Union stands in solidarity with the Americans. Chinese authorities want to achieve for themselves a “market” status to get rid of protective duties on their goods.

Earlier, the Ministry of Commerce, in the framework of the anti-dumping investigation in respect of the supply of Chinese aluminium foil, refused to recognize China as a country with market economy.

In turn, the EU adopted new anti-dumping rules, which allow to introduce a special import regime for countries with “significant distortion of the market” and practicing “social and environmental dumping”.

These actions, as expected, caused outrage in Beijing. Official representative of the Ministry of Commerce of China noted, for example, that the US “is a serious distortion of the real situation in China, at the same time urged the us side to take real steps to correct the erroneous actions”, reported the Agency “Xinhua”.

States are constantly engaged in anti-dumping investigations against Chinese products and they rely on the rules applicable to those non-market economies.

Thus, on 13 November, the US Department of Commerce decided that the manufacturers of plywood from China made of dumping and subsidies received.

Director of commercial protection, and investigations of Commerce Wang Hatsune, quoted in Xinhua, pointed out that in the anti-dumping investigation continued, “by ignoring WTO commitments,” refer to the so-called “country-analogues” – a practice that is discriminatory”.

According to him, the Americans refused to consider “evidence-based material presented in a large number of Chinese companies, and due to a distorted impression of the production processes in Chinese factories unreasonably raised the magnitude of the dumping margin”.

The Chinese side hoped that the recent visit of US President Donald trump to China will allow to remove at least part of trade disputes. Despite the signing of agreements between companies of the two countries at $250 billion, breakthrough at the state level has not occurred.

Deputy foreign Minister of China Zheng Tsagaan reported that China is prepared to significantly increase access to the Chinese financial sector, to reduce tariffs on imported cars, as well as to soften restrictions on foreign car manufacturers in the new energy.

But apparently, Donald Trump all you need, not an individual assignment. He is convinced that trade relations with China unprofitable for the USA (America imports much more than exports to China), and is going to change the situation. The non-recognition of the market status, anti-dumping investigations, the elements of this economic war.

But China has to respond. And the answer is not so straightforward, but its effect can be much more effective.

China continues to press the U.S. on global foreign exchange market. Previously, China has been the inclusion of the RMB in the list of currencies, the IMF, and now wants to oust dollar as universal means of payment for oil.

According to the published plans, by the end of the year at one of the Chinese exchanges can be started trading oil futures in yuan, and to convert them into gold.

A bunch of oil — yuan — gold can be very attractive for investors and countries-oil producers, primarily those in varying degrees in conflict with the United States. Russia, Venezuela, Iran.

While Russia is the largest supplier of oil to China. By the end of October delivery stood at 4.65 million tons. In second place Saudi Arabia from 4.61 million tonnes, the third Angola from 3.57 million tons.

Analysts say that the selling of oil futures in yuan is a tool aimed at dedollarization and the oil market and the global economy. However, this process is not fast.

With the 70-ies of the last century, OPEC countries are selling “black gold” in the “petrodollars”, reminiscent of Analytics UK “Kapital”. Wide conversion of petrodollars into U.S. Treasury bonds (treasuries) has been and remains a vital component of the American economy. But now producers will be able to take a strategic step to exchange oil for gold or treasuries depending on future expectations.

“In addition, China is going to give greater market share to those countries who agree to sell oil futures denominated in yuan. The largest trading partners of China are virtually forced to resort to a new tool to save their market share. In the end, we should expect a gradual de-dollarization” — they say.

The market of this type of derivatives looks quite promising, said Eugene Loktionov, head of analysis of industries and capital markets PSB. The growth of its capacity will be fueled by two categories of customers.

First and foremost, this tool will be the interesting parts of professional participants of the oil market, the risk to get problems due to us sanctions. The second category is the Chinese speculative capital, utilizing the same the yuan, which China very much, while opportunities for conversion to other assets is limited, says Eugene Loktionov. He recalled that the rapid growth of the cryptocurrency market was also driven largely by Chinese capital.

“This category of market participants is likely to be seduced by the possibility of converting derivatives into gold, which would support the gold market, but not necessarily will lead to a redistribution of the currency market”, — he said.

Eugene Loktionov believes that the impact of the launch of a new derivative of dollarisation of oil market will be very moderate, and it is not necessary to consider it as a threat to the dollar in the world.

At the same time, Andrew Khokhrin, the chief of Department on work with wealthy clients of IC “Zerich capital Management” has doubts about the viability of the mechanism of conversion into gold.

The oil market and the gold market is not comparable in volume, he said. Therefore, if the conversion into gold is possible, not in the metal itself (it in this case, it is simply not enough), and some gold derivatives.

“However, the question immediately arises, why so difficult? It is possible, in the event that settlement of futures to the yuan, but to buy or gold futures, or gold itself. Therefore, the tool of this complexity is unlikely to be viable. And as soon as any exchange is a very pragmatic party trade relations, and chances for the emergence of such tool a little,” he said.

However, he agrees that the dollar, obviously, is gradually losing its status as the main currency of exchange. The emergence of the Euro, the rapid rise of China’s economy, the plans of some countries of the former USSR, the Middle East and Asia to move to settlements in the regional currencies did, the dollar, rather, the measure of value than the obligatory currency transactions.

“And unceasing accumulation of the debt burden of States seems to be only speed up the loss of the dollar monopoly position,” says the analyst.

Decolorization is a trend recently. A lot of attention being paid to this within BRICS (an informal club of Brazil, Russia, India, China and South Africa).

Russian President Vladimir Putin said that Russia shares the concerns of BRICS countries about the injustice of the global financial and economic system which ignores the growing weight of emerging market countries.

“We are ready to work together with our partners to promote reforms in the international financial regulation and to overcome excessive domination of a limited number of reserve currencies”, — said Putin.

Fresh initiative, in addition to payments in national currencies and the imminent arrival of netaware is a proposal to create a BRICS single system of gold trading.

“The traditional system is that everything goes through London, partly through the Swiss city, is losing its relevance, and new centers of trade in gold, particularly in India, China, and South Africa. We discuss in the framework of BRICS, and at the level of bilateral contacts, the possibility of organizing a single glass, a single gold trade,” — said recently the first Deputy Chairman of the Central Bank Sergey Shvetsov.

The Bank of Russia has already signed a Memorandum with the Chinese colleagues on the development of mutual trade gold. The first steps in creating a new system of trading gold can be done in the next year.

While all of these initiatives can quickly change the dollar status quo. But it is worth remembering that China is making its own steps in the long-term.


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