*****Brazil and China eye plan to axe dollar*****

The Financial Times reports that Brazil and China eye plan to axe dollar.

(emphasis mine) [my comment]

Brazil and China eye plan to axe dollar
By Jonathan Wheatley in Săo Paulo
Published: May 18 2009

Brazil and China will work towards using their own currencies in trade transactions rather than the US dollar, according to Brazil's central bank and aides to Luiz Inácio Lula da Silva, Brazil's president.

The move follows recent Chinese challenges to the status of the dollar as the world's leading international currency.

Mr Lula da Silva, who is visiting Beijing this week, and Hu Jintao, China's president, first discussed the idea of replacing the dollar with the renminbi and the real as trade currencies when they met at the G20 summit in London last month.

An official at Brazil's central bank stressed that talks were at an early stage. He also said that what was under discussion was not a currency swap of the kind China recently agreed with Argentina and which the US had agreed with several countries, including Brazil.

"Currency swaps are not necessarily trade related," the official said. "The funds can be drawn down for any use. What we are talking about now is Brazil paying for Chinese goods with reals and China paying for Brazilian goods with renminbi."

Henrique Meirelles and Zhou Xiaochuan, governors of the two countries' central banks, were expected to meet soon to discuss the matter, the official said.

Mr Zhou recently proposed replacing the US dollar as the world's leading currency with a new international reserve currency, possibly in the form of special drawing rights (SDRs), a unit of account used by the International Monetary Fund.

In an essay posted on the People's Bank of China's website, Mr Zhou said the goal would be to create a reserve currency "that is disconnected from individual nations".

In September, Brazil and Argentina signed an agreement under which importers and exporters in the two countries may make and receive payments in pesos and reals, although they may also continue to use the US dollar if they prefer.

An aide to Mr Lula da Silva on his visit to Beijing said the political will to enact a similar deal with China was clearly present. "Something that would have been unthinkable 10 years ago is a real possibility today," he said. "Strong currencies like the real and the renminbi are perfectly capable of being used as trade currencies, as is the case between Brazil and Argentina."

In what was interpreted as a sign of Chinese concern about the future of the dollar, the governor of China's central bank proposed in March that the US dollar be replaced as the world's de-facto reserve currency.

In an essay posted on the People's Bank of China's website, Zhou Xiaochuan, the central bank's governor, said the goal would be to create a reserve currency "that is disconnected from individual nations" and modelled on the International Monetary Fund's special drawing rights, or SDRs.

Economists have argued that while the SDR plan is unfeasible now, bilateral deals between Beijing and its trading partners could act as pieces in a jigsaw designed to promote wider international use of the ­renminbi.

Any move to make the renminbi more acceptable for international trade, or to help establish it as a regional reserve currency in Asia, could enhance China's political clout around the world
[and would weaken the dollar].

My reaction: China wants to stop trading in dollars as soon as can. There is only one key point to take away from this article.

1)
Brazil and China are working towards using their own currencies in trade transactions rather than the US dollar.

"What we are talking about now is Brazil paying for Chinese goods with reals and China paying for Brazilian goods with renminbi."


Conclusion: As the yuan becomes an international currency, the dollar will fall.

1) China clearly wants to start settling trades in yuan instead of dollar.
2) To allow international trades to settle in yuan, China must allow foreign central banks to hold yuan reserves.
3) If centrals banks have the choise between holding their reserves in yuan or dollars, they will choose dollars (China has the world's best economic fundamentals, and the US has the world's worst economic fundamentals)
4) Any shift in the reserves of foreign central banks will cause the dollar to fall rapidly.


Some past entries on China's efforts to make the yuan an international currency:

*****China makes Yuan an international currency*****
*****Chinese Authorities Are Accelerating Efforts To Make Yuan An International Currency*****
*****China and Argentina agree to currency swap*****
Yuan trade settlement gets the nod
China Opening Its Capital Markets And Currency To The World

This entry was posted in China, Currency_Collapse, News_Developments. Bookmark the permalink.

3 Responses to *****Brazil and China eye plan to axe dollar*****

  1. vahadad says:

    Russia Dumps the U.S. Dollar for Euro as Reserve Currency / Currencies / Global Financial System
    By: Pravda

    i came across this through www. market oracle.com.

    What will happen if US devalues dollar in terms of gold in a single stroke. US debt is almost wiped out as worthless paper, thereby enbaling the Fed to print the NEW DOLLAR for the next century and still retain its reserve currency seniorage?

  2. Hugo says:

    Eric,

    If centrals banks have the choise between holding their reserves in yuan or dollars, they will choose dollars (China has the world’s best economic fundamentals, and the US has the world’s worst economic fundamentals)I think you want to say for "..., they will choose yuans (China ...".

  3. Anonymous says:

    What about oil ?

    As long as oil will be sold in dollar, dollar should keep some value.

    Are the middle-east oil producers progessing concerning their new currency based on gold ?

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