Dedollarization: China, Japan Seal Currency Swap Deal

by Ike Obudulu Posted on October 27th, 2018

Beijing China : China and Japan have signed a currency swap agreement as part of a larger dedollarization plan to wean their financial sectors of the US dollar against a backdrop of trade friction with Washington.

The arrangement which is set to last until 2021 will pave the way for both sides’ central banks to exchange local currencies up to 200 billion yuan or 3.4 trillion yen. ($30bn)

The two main holders of the US Treasury securities, China and Japan have trimmed their ownership of notes and bonds in August.

“With the strengthening of economic and financial linkages between Japan and China, Japanese financial institutions have been expanding their renminbi-based businesses,” said the BOJ.

It added that would be prepared to provide liquidity in the yuan currency, should Japanese financial institutions face unexpected difficulties in yuan settlements, and if the bank judges the liquidity provision to be necessary for ensuring the stability of Japan’s financial system.

“The Bank of Japan is prepared to provide liquidity in the yuan currency, if Japanese financial institutions face unexpected difficulties in yuan settlements and if the bank judges the liquidity provision to be necessary for ensuring the stability of Japan’s financial system,” a statement by the Bank Of Japan (BOJ) said.

It was signed during the visit of Japan’s Prime Minister Shinzo Abe to Beijing for talks with Chinese officials.The three-day visit, which is the first by a Japanese premier since December 2011, comes shortly after the 40th anniversary of the Treaty of Peace and Friendship between the world’s second and third economies.

China and Japan will forge a landmark agreement to cooperate in the third-party market, with plans to ink over 50 bilateral agreements during Japanese prime minister Shinzo Abe’s visit to Beijing from 25 to 27 October.

The two countries will cooperate in green economy, energy, and smart city projects, among others, China’s National Development and Reform Commission (NDRC) chair He Lifeng said early Friday at the Third Party Market Cooperation Forum in Beijing, adding that the third-party market involves emerging markets in Asia and Latin America with high infrastructure construction demands.

The NDRC chairman added that cooperation was helpful to the development of bilateral ties and a great platform to learn from each other, in addition to strengthening advantages based on mutual trust and benefit and driving global recovery harmed by protectionist measures.

Premier Li Keqiang echoed He’s sentiments at a reception during the first session of the China-Japan Third-Party Market Cooperation Working Mechanism held on Thursday in Beijing.

Li stated that the treaty led to a direction of “peaceful coexistence and lasting friendship between China and Japan” under the principles of the 1972 Sino-Japanese Joint Statement.
“The China-Japan relationship has gone through wind and rain in the past four decades, yet peace, friendship and cooperation have always been the mainstream,” Li said in a press statement.

Li also praised previous generations who signed the treaty, stating that their actions laid “another milestone in the history of bilateral ties following the normalization of relations” that shaped the “political and legal foundation for China-Japan ties”.

Li added that following the 40th anniversary, both parties should adhere to the “general direction of peace, friendship, and cooperation” and build more mature and progressive Sino-Japanese ties.

The Third-Party Market Cooperation Forum event commemorates the 40th anniversary of the Sino-Japanese Treaty of Peace and Friendship, which both sides signed in August 1978, and follows the

Vice minister of commerce Qian Keming, deputy secretary general of the NDRC Su Wei, and Japanese special advisor to the prime minister Izumi Hiroto attended the event.

China’s 13th Five-Year development plan also proposes building cooperation platforms with State Owned Enterprises (SOEs) from Russia, Japan, and the Republic of Korea.

China has been actively seeking to boost the use of its currency in mutual trade settlements with partners, bypassing the US dollar. The idea of moving away from the dollar in global trade has become a trend lately among countries like Russia, China, Japan, Iran, Turkey, Venezuela, and others.

During the visit, the two sides also signed several agreements on strengthening bilateral ties in various areas including finance and trade.

China has seriously sought to use its national currency in mutual trade settlements with partners as part of a larger plan to bypassing the US dollar in the past months.

A similar trend is witnessed among other countries like Russia, China, Japan, Iran, Turkey, Venezuela, and others which are facing the US economic wars. The governments of these countries have recently called for weaning their financial sectors off the US dollar, warning that the dollar monopoly could have dangerous consequences for world’s economy.

Russian President Vladimir Putin has recently supported weaning the country’s financial sector off the greenback, saying the dollar monopoly was unsafe and dangerous for the global economy.

Russian President Vladimir Putin supports weaning the country’s financial sector off the US dollar, VTB Bank head Andrey Kostin told RIA Novosti. He added the move doesn’t mean the complete phasing-out of the American currency.
The idea of de-dollarizing the Russian economy has been actively discussed in the country lately due to the tightening of US sanctions.

In July, Kostin, who is president and chairman of the management board of Russia’s second largest bank VTB, submitted a suite of proposals to move away from the greenback and further promote the Russian ruble in international settlements. His plan consists of four major steps.

First, it assumes an accelerated transition to payments in other currencies when carrying out export-import transactions with foreign countries. The alternative currencies include the euro, Chinese yuan and the ruble.

The second step is the re-registration of the largest holdings in the Russian jurisdiction. The plan also envisages the placement of Eurobonds through the Russian depositary; and the licensing of all stock market participants so that they can act by the same rules.

Russia has been seeking ways of decreasing its dependence on the US currency after Washington and its allies imposed sanctions against the country in 2014. In May, President Putin said Russia can no longer trust the US dollar-dominated financial system since America is imposing unilateral sanctions and violating World Trade Organization (WTO) rules. Putin added that the dollar monopoly is unsafe and dangerous for the global economy.

Discussions on the need to de-dollarize the Russian economy intensified after a bill was introduced to Congress in August with a whole range measures targeting Russian financial institutions.

The Russian Ministry of Finance has already supported Kostin’s plan, with the head of the Ministry of Economic Development and Trade, Maxim Oreshkin, noting that the role of the US currency is already actively diminishing. The Central Bank of Russia is already pursuing a de-dollarization policy and said it will continue.

Author

Ike Obudulu

Ike Obudulu

Versatile Certified Fraud Examiner, Chartered Accountant, Certified Internal Auditor with an MBA in Finance And Investments who has both worked for and consulted with some of the world's largest companies on main street and wall street in over 20 countries, Ike brings his extensive reporting and investigations experience to bear on his role as Chief Editor.
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