US Dollar Discarded by Russia, China to Trade in Local Currency

US Dollar Discarded by Russia, China to Trade in Local Currency
Wed Dec 31, 2014 09:15:57

Russia and China are set to use their own currencies in trading using financial tools as swaps and forwards in response to the latest round of US sanctions against Moscow over the Ukraine crisis.

On Monday, an agreement signed at the end of October came into effect which would allow a currency swap of CNY150 billion (up to 25 billion USD) between the two countries in an effort to reduce the influence of the US dollar and foreign exchange risks.

Russia has been hit with a series of sanctions by the US and the European Union which have accused Moscow of playing a role in the ongoing crisis in eastern Ukraine, a claim Russia has repeatedly rejected.

Regarding the sanctions, Russia's Deputy Foreign Minister Sergei Ryabkov has said, "Undoubtedly, we will not be able to leave this without a response."

 The China Foreign Exchange Trade System would use swaps and forwards for Malaysian ringgit and the New Zealand dollar as well, which would expand the yuan’s swaps trading to 11 currencies on the foreign-exchange market.

China has established bilateral currency swap lines with more than 20 countries and regions since 2009, including Switzerland, Brazil, Hong Kong, Indonesia and South Korea.

A swap is a financial tool to ease transactions. It is a cash-settled contract between two parties to exchange (or "swap") cash flow streams.

Russia's economy has shrunk for the first time in five years amid falling oil prices and Western sanctions.

However, Putin has warned that no country can “intimidate” or “isolate” Russia. He has also promised an eventual recovery for the ruble.