CHINA AND RUSSIA QUIT THE DOLLAR

Is this the beginning of the End? Is the dollar about to finally collapse?  Not today but maybe tomorrow or the day after. China and Russia have announced they will no longer use the US dollar for bilateral trade and from now on will use their own currency.

Chinese experts said the move reflected closer relations between Beijing and Moscow and is not aimed at challenging the dollar, but to protect their domestic economies.

"About trade settlement, we have decided to use our own currencies," Putin said at a joint news conference with Wen in St. Petersburg.

The two countries were accustomed to using other currencies, especially the dollar, for bilateral trade. Since the financial crisis, however, high-ranking officials on both sides began to explore other possibilities.

The yuan has now started trading against the Russian rouble in the Chinese interbank market, while the renminbi will soon be allowed to trade against the rouble in Russia, Putin said.

"That has forged an important step in bilateral trade and it is a result of the consolidated financial systems of world countries," he said.

China says the move represents concern about the stability if the American Currency.

Sun Zhuangzhi, a senior researcher in Central Asian studies at the Chinese Academy of Social Sciences, said the new mode of trade settlement between China and Russia follows a global trend after the financial crisis exposed the faults of a dollar-dominated world financial system.

Pang Zhongying, who specializes in international politics at Renmin University of China, said the proposal is not challenging the dollar, but aimed at avoiding the risks the dollar represents.

China has been concerned about the dollar for months, back in February they started to reduce their American holdings:

"The Chinese are worried that we have unsustainable debt levels, and we do not have a policy for dealing with it," Meltzer said.

He said the Chinese worry that confidence in the U.S. government's ability to repay its debt could erode. That would cause the value of Treasurys and the dollar to fall — and lead to losses on Beijing's' U.S. debt holdings.

The Fed's latest quantitative easing move (banker talk for devaluing the a currency) is another factor in the Russian/Chinese move. Creating $600 billion dollars out of nothing and its corresponding damage to the American dollar has been criticized worldwide, making it even more urgent that the Russians and Chinese protect their investments. 

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