The dollar is seeing it’s importance dwindle. The latest blow to the hold that US currency has on the world is China and Japan (2nd and 3rd largest economies) have agreed to trade using their own currencies, cutting the need for both countries to hold US dollars. As the economies of the world continue to decline this will lead greatly to the falling value in the US dollar. Without countries like China and Japan needing as US dollars as much, this may force the federal reserve to monetize the debt and add to our already growing inflation.
The announcement was made in a statement by the Japanese government on Monday after the Asian leaders met in China’s capital Beijing.
Both sides also agreed that Japan will hold Chinese currency, yuan, in its foreign-exchange reserves, now largely denominated in dollars.
Chinese Foreign Ministry spokesman Hong Lei said after the meeting that the agreement “benefits the ease of trade and investments between the two countries.”
“It strengthens the region’s ability to protect against risks and deal with challenges,” Lei added.
The direct currency swap between the world’s second- and third-largest economies reflects efforts to reduce risks stemming from fluctuations of foreign exchange rates and transaction costs.
“As implications from the current global financial crisis continue to spread and the complexity and severity of the world and regional situations are worse than expected, it is necessary and possible that China and Japan join efforts to address the challenges and deepen strategic reciprocal ties,” the Chinese premier said.
China is Japan’s biggest trading partner, with transactions between the two amounting to $340 billion in 2010, from $120 billion a decade earlier.
China also forged a deal with Thailand for a direct currency swap worth $11 billion last week as part of a plan outlined in October to promote the use of the yuan in the Association of Southeast Asian Nations and establish free trade zones.