The Russian central bank opened its first overseas office in Beijing on
March 14, marking a step forward in forging a Beijing-Moscow alliance to
bypass the US dollar in the global monetary system, and to phase-in a
gold-backed standard of trade.
According to the South
China Morning Post the new office was part of agreements made between the
two neighbours “to seek stronger economic ties” since the West brought in
sanctions against Russia over the Ukraine crisis and the oil-price slump hit
the Russian economy.
According to Dmitry Skobelkin, the deputy governor of the Central Bank of
Russia, the opening of a Beijing representative office by the Central
Bank of Russia was a “very timely” move to aid specific cooperation,
including bond issuance, anti-money laundering and anti-terrorism measures
between China and Russia.
The new central bank office was opened at a time when Russia is preparing
to issue its first federal loan bonds denominated in Chinese yuan. Officials
from China’s central bank and financial regulatory commissions attended the
ceremony at the Russian embassy in Beijing, which was set up in October 1959
in the heyday of Sino-Soviet relations. Financial regulators from the two
countries agreed last May to issue home currency-denominated bonds in each
other’s markets, a move that was widely viewed as intended to eventually test
the global reserve status of the US dollar.
Speaking on future ties with Russia, Chinese Premier Li Keqiang said in
mid-March that Sino-Russian trade ties were affected by falling oil prices,
but he added that he saw great potential in cooperation. Vladimir Shapovalov,
a senior official at the Russian central bank, said the two central banks
were drafting a memorandum of understanding to solve technical issues
around China’s gold imports from Russia, and that details would be
released soon.
If Russia – the world’s fourth largest gold producer after China, Japan
and the US – is indeed set to become a major supplier of gold to China, the
probability of a scenario hinted by many over the years, namely that Beijing
is preparing to eventually unroll a gold-backed currency, increases by orders
of magnitude.
Meanwhile, as the Russian central bank was getting closer to China, China
was responding in kind with the establishment of a clearing bank in Moscow
for handling transactions in Chinese yuan. The Industrial and Commercial Bank
of China (ICBC) officially started operating as a Chinese renminbi clearing
bank in Russia on Wednesday this past Wednesday.
“The financial regulatory authorities of China and Russia have signed a
series of major agreements, which marks a new level of financial
cooperation,” Dmitry Skobelkin, the abovementioned deputy head of the Russian
Central Bank, said.
“The launching of renminbi clearing services in Russia will further expand
local settlement business and promote financial cooperation between the two
countries,” he added according to.
Irina Rogova, a Russian financial analyst told
the Russian magazine Expert that the clearing center could become a large
financial hub for countries in the Eurasian Economic Union.
Bypassing the US dollar appears to be paying off: according to the Chinese
State Administration of Taxation, trade turnover between China and Russia
increased by 34% in January, in annual terms. Bilateral trade in January 2017
amounted to $6.55 billion. China’s exports to Russia grew 29.5% reaching
$3.41 billion, while imports from Russia increased by 39.3%, to $3.14
billion. Just as many suspected, with Russian sanctions forcing Moscow to
find other trading partners, chief among which China, this is precisely what
has happened.
The creation of the clearing center enables the two countries to further
increase bilateral trade and investment while decreasing their dependence on
the US dollar. It will create a pool of yuan liquidity in Russia that enables
transactions for trade and financial operations to run smoothly.
In expanding the use of national currencies for transactions, it could
also potentially reduce the volatility of yuan and ruble exchange rates. The
clearing center is one of a range of measures the People’s Bank of China and
the Russian Central Bank have been looking at to deepen their co-operation, Sputnik
reported.
One of the most significant measures under consideration is the previously
reported
push for joint organization of trade in gold. In recent years, China and
Russia have been the world’s most active buyers of the precious metal. On a
visit to China last year, the deputy head of the Russian Central Bank Sergey
Shvetsov said that the two countries want to facilitate more transactions in
gold between the two countries.
“We discussed the question of trade in gold. BRICS countries are
large economies with large reserves of gold and an impressive volume of
production and consumption of this precious metal. In China, the
gold trade is conducted in Shanghai, in Russia it is in Moscow. Our
idea is to create a link between the two cities in order to increase trade
between the two markets,” First Deputy Governor of the Russian
Central Bank Sergey Shvetsov told Russia’s
TASS news agency.
In other words, China and Russia are shifting away from dollar-based
trade, to commerce which will eventually be backstopped by gold, or what is
gradually emerging as an Eastern gold standard, one shared between Russia and
China, and which may day backstop their respective currencies.
Meanwhile, the price of gold continues to reflect none of these
potentially tectonic strategic shifts, just as China – which has been the
biggest accumulator of gold in recent years – likes it.
