Friday, December 26, 2014

China steps into the spotlight as we head into 2015

We have covered the efforts of China to get more international respect for the Yuan as an alternative reserve currency. Recently we posted an article about how getting the Yuan included in the SDR basket at the IMF might be the most important (yet under the radar) story related to the global monetary system in 2015.  It looks like the issue is moving onto the radar more and more all the time.

Now we see a number of recent articles about how China is stepping up to help out Russia and also using the situation to expand the use of the Yuan. All this certainly ties in to our view that China expects to get the Yuan in the SDR basket next year. Below are links to some articles with a brief quote from the article just below the link.


Bloomberg: China offers Russia Help with Currency Swap Suggestion

"Two Chinese ministers offered support for Russia as President Vladimir Putin seeks to shore up the ruble without depleting foreign-exchange reserves. China will provide help if needed and is confident Russia can overcome its economic difficulties, Foreign Minister Wang Yi was cited as saying in Bangkok in a Dec. 20 report by Hong Kong-based Phoenix TV. Commerce Minister Gao Hucheng said expanding a currency swap between the two nations and making increased use of yuan for bilateral trade would have the greatest impact in aiding Russia, according to the broadcaster."

BRICSPOST: China Must Mediate Between Russia and the US

"Chinese state media has said Beijing must offer to act as a “mediator” between the US and Russia, even as it slammed Western sanctions on Russia that can have an adverse impact on “Russia’s morale and unity”.
The mouthpiece of the ruling Communist party, Global Times, said in an editorial on Monday that Chinese efforts to help Russia will have limited impact if the Russian economy does not diversify and remains heavily dependent on oil exports.
China must act as an active mediator between Russia and the US, or it will have to face unavoidable geopolitical risks if their conflict spirals out of control,” it said.
Global Times, a newspaper owned by China’s Communist Party, is known for its strident editorials.
The editorial added that the ineffectiveness of sanctions was evident from the fact that, “Russia’s annexation of Crimea only left the US and Europe impotent earlier this year”.
“Western sanctions cannot be the straw that breaks the back of Russia. This old trick has proven much less effective even in smaller countries like Cuba and Iran. That is why Russia’s annexation of Crimea only left the US and Europe impotent earlier this year,” said the editorial.
The ongoing crisis engulfing Russia in the wake of plummeting oil prices and the ruble depreciating is probably not what the US had planned. For Washington, what is happening in Russia is more or less unexpected,” it added."

Bloomberg: Ruble Swap Shows China Challenging IMF as Emergency Lender

"China is stepping up its role as the lender of last resort to some of the world’s most financially strapped countries."
"Chinese officials signaled Saturday that they are willing to expand a $24 billion currency swap program to help Russia weather the worst economic crisis since the 1998 default. China has provided $2.3 billion in funds to Argentina since October as part of a currency swap, and last month it lent $4 billion to Venezuela, whose reserves cover just two years of debt payments."
"By lending to nations shut out of overseas capital markets, Chinese President Xi Jinping is bolstering the country’s influence in the global economy and cutting into the International Monetary Fund’s status as the go-to financier for governments in financial distress. While the IMF tends to demand reforms aimed at stabilizing a country’s economy in exchange for loans, analysts speculate that China’s terms are more focused on securing its interests in the resource-rich countries."
My added comments:

These articles kind of get more interesting as you move down the page (please read the full articles). The first one just explains that China has offered to step in and help out Russia with its problems with the ruble falling. Note that China suggests "increased use of the Yuan in bilateral trade" is another goal for their proposal along with helping out Russia.

The second article comes from the BRICSPOST and is interesting as well. China clearly is concerned that things between the US and Russia may "spiral out of control". That is a sobering thought. China usually likes to stay out of the spotlight so being this aggressive about getting involved as a mediator suggests they truly are concerned. It also implies they see this as a potential opportunity for China to gain respect on the world stage. It can help them promote the Yuan. More positioning for inclusion in the SDR basket in 2015?

The last article actually talks about China taking over from the IMF as global "lender of last resort" for troubled nations. I find this article the most interesting because here we have a western media source touting China as becoming more influential than the IMF on the global stage. This may well be intended to put pressure on the US Congress to pass the IMF reforms that are currently stalled in there. The article almost sounds like it is hinting that Congress better pass the IMF reforms or else US influence around the world (and at the IMF) will take a beating. China will become the world leader when it comes to being there for countries in need.

All of this suggests that in 2015, there is likely to be a big push for monetary system change that involves more influence for China and the BRICS one way or another . Also, a push to try and increase the stature of the IMF. With the new US Congress not really interested in advancing either China or the stature of the IMF, it will be interesting to see how all this turns out next year.

Added Update 2pm: BRICSPOST runs these two related articles today.

China launching forwards swaps with Ruble

Gazprom mulls issuing bonds in offshore Yuan

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