China and Russia will establish a payment-versus-payment system between the remminbi and the ruble, to lower exchange rate risks in trade, Russian media announced recently.
A report by Rossiya Segodnya on Oct. 24 points out there is nothing strange in the United States aiming to harm Sino-Russia trade, which is increasing on a large scale.
The bilateral trade volume is expected to hit US$80 billion this year, up 30 percent year-on-year. The new payment-versus-payment system is part of China Foreign Exchange Trading System’s efforts to promote the renminbi’s internationalization.
The CFETS plans to establish the system between the renminbi and other currencies under the framework of the Belt and Road Initiative, meaning it will expand further beyond the ruble, the report said.
The report also said that the construction of the renminbi-ruble PVP system is one of the most important changes in the international financial system, which naturally, is not welcomed by Wall Street.
The purpose of the system is to lower exchange rate risks, as the two countries have avoided using US dollars in their bilateral trade for a long time, by using the renminbi and the ruble directly. This move may set an example for bilateral trade for countries on the Belt and Road routes, laying a solid foundation for the replacement of the US dollar as an international reserve currency, according to the report.
Western economists denied such things would happen ten years ago, calling it “absurd”. They argued the renminbi still need decades to become a reserve currency in the world.
Renminbi was not even issued out of China before 2004. Yet, China’s financial supervisory agencies have initiated a series of careful steps in preparation for the currency’s internationalization since 2004. HSBC’s report last year said that the renminbi has become the world fifth-largest payment currency since 2012.
China launched the Cross-border Inter-Bank Payment System for renminbi in Oct. 2015. Before that, China signed cooperation agreements with the Society for Worldwide Interbank Financial Telecommunications. Building a payment system using its own currency can effectively buffer the effects of possible sanctions from the US. Russia also recognizes the importance of building its own payment system, so as to reduce its reliance on the decisions of Washington.
Elvira Nabiullina, governor of the Bank of Russia (Russia’s central bank), said they have finished the work on building their own payment system. If an untoward event occurs, all of Russia’s financial operations within the SWIFT system can continue at home, according to the report.
The report outlines that China and Russia do not seek to harm the US dollar, because it is almost impossible and neither would it benefit them either.
The two countries just aim to protect their trading interests from the increasingly frequent attacks from Wall Street, and have an independent reserve currency of their own. This has become an important part of a country’s sovereignty, because the US uses the dollar system to infringe upon the economic sovereignty of the whole world.