China Punches Back

In a move pretty much guaranteed to catch the attention of the currency markets and upset the American financial system, Russia and China have agreed to forgo using the US dollar as the currency of trade between the two nations. Instead, they will begin using their own currencies for trade settlement. The yuan has already begun trading against the Russian rouble in the Chinese interbank markets, and Russia will soon allow the renminbi to trade against the rouble in its own markets.

Big news? Yes. The US dollar is a world currency. 40% to 60% of all international transactions are denominated in US dollars.

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.

Perhaps. But whether it was intended as a challenge,whether or not the move was intended as the latest gambit in the bickering between Beijing and Washington over Chinese control over the yuan, the US will still see it that way. Particularly since the timing is so interesting.