Russia and China Begin Bilateral Trading In Their Own Currency - Should We Worry?

Today, we're talking about a recent occurrence of the Chinese and the Russians just last week, deciding to discontinue trading in U.S. Dollars, and rather let their own currencies be the base for trade. What does this mean to the average American and what should we do about it, if anything?

At the heart of this issue is the growing lack of confidence in the U.S. dollar by the international community. As paper currency from any nation is effectively a confidence game, nations are seeing the growing U.S. debt and the unwillingness by our politicians to do anything about it as a sign of fundamental weakness in our currency. But what does this translate into for you and me? Should we be really concerned or just mildly concerned?

As currencies devalue relative to other currencies, that is they become cheaper because the perceived value is less, the price of goods and services changes. For example, if the Chinese Yuan is trading at $.15 equivalence like it is today, and let's say it goes to $.30, or doubles because people begin to have more faith in the Chinese government's ability to pay its bills than they do in the U.S. government. Well, simply stated, goods imported from China will be twice as expensive, and goods exported to China will be half as expensive. So in some respects, a "weak dollar" does benefit certain segments of the economy, specifically exporters. But, for those of us who aren't in the exporting segments, we simply pay an inflated price for everything.

Today, the U.S. dollar is still, as it has been since the end of World War II the basic trading currency of the world. That is that most global transactions are priced and settled in dollars. The concern here is that as the U.S. dollar is reduced in its confidence, as it shown to be by this Russian and Chinese decision, we run the risk of further slowing down the U.S. economy. Let's look at oil. Today, it trades around $85 US dollars to the barrel. If the U.S. dollar depreciates against other currencies, the price oil will go up, and possibly by a lot. If you think $3.00 per gallon gasoline is expensive, wait and see what happens if it's priced in some new currency rather than the dollar.

So the bottom line of this news is this. Today, there's probably no real concern about this happening as it relates to you and me. But, it should be a "shot across the bow" for us as we watch over our elected leaders who so cavalierly are borrowing on our nations Visa card. Leon Panetta, Director of Central Intelligence actually said recently that our national deficits and debts are in fact a cause for national security concern. This is where it's serious. The U.S. imports vast amounts of manufactured goods. If our dollar depreciates against world currencies and loses faith, those products will become quite expensive and we as a nation will see a greatly reduced standard of living. So all we can really do is hope that Ben Bernanke, Chairman of the Federal Reserve is actually smart enough to navigate these treacherous waters and isn't destroying the value of the dollar with his "quantitative easing" or put English, printing money to pay our debts. And further, we can only hope that our elected officials have the backbone and fortitude to take the political heat and truly reduce our spending. That means reduce it, across the board. Less Defense, Less Social Security, Less Medicare, Less Entitlements of all kinds, and yes, likely changed tax code that will affect some positively, and some negatively. But we don't take these steps, the standard of living that we've known, will go by the wayside much like the horse and buggy - unless we're back to using those!

Steve Beaman is the Author of "Happiness & Prosperity in the 21st Century: The Five Paths To a Transformed Life". He has authored over 100 articles relating to the Five Paths including articles on Financial Prosperity, Emotional Wellness, Physical Health, Intellectual fulfillment, and Spiritual Security. He enjoyed a highly successful career in Economics and Finance prior to establishing The Steve Beaman Group. The "SBG" is an organization dedicated to helping people on their journey of life.