China Replacing Dollar in International Trade

While trying to set up an SDT based world currency alternative for the dollar, China is laying the practical basis for such a system by replacing the dollar in large scale international trade. If succesful, this plan will allow China to increasingly opt out of the dollar system as bankroller of US debt. Forbes hinted to this development today in an article on the recent 10 billion dollar currency swap with Argentina.

"Facing a precipitous slide in exports and tens of millions of unemployed migrants, China is hoping to lubricate financing for emerging markets to buy its goods, in the process symbolically raising the yuan's profile on the global economic stage.

In the first such move involving a Latin American country, China struck a 70 billion yuan ($10.2 billion) currency swap agreement with Argentina that would allow the latter to put in yuan-denominated orders for Chinese imports and thereby avoid using the U.S. dollar in bilateral trade. Analysts expect China to pursue more bilateral currency swaps with emerging markets in order to give a boost to its ailing export sector.

The agreement with Argentina marked China's sixth bilateral currency swap. Beijing extended a 100 billion yuan ($14.6 billion) swap line to Indonesia last week and a 20 billion yuan ($2.9 billion) swap line to Belarus earlier this month. China has also reached swap arrangements with South Korea, Malaysia and Hong Kong. The swaps, totaling 650 billion yuan ($95.1 billion), will last for three years."