China and Japan to Bypass USD for Direct Yuan-Yen Trading

China and Japan are planning to trade directly without the USD as the common currency to determine the “cross-rate”.

Instead, the transactions from trading activities will determine the exchange rate. This is a step to promote trading between the two countries.

This could also be an initial sign of the greenback losing its dominance as a reserve currency. As Zerohedge puts it “when one bypasses the dollar, one commits blasphemy to a reserve currency.”

Here is the full report from Agence-France Presse (AFP):

TOKYO — Japan and China are expected to start direct trading of their currencies as early as June as part of efforts to boost bilateral trade and investment, according to reports.

With the planned step, exchange rates between the yen and the yuan will be determined by their transactions, departing from the current “cross rate” system that involves the dollar in setting yen-yuan rates, Kyodo News said on Saturday.

The two governments are eyeing setting up markets in Tokyo and Shanghai, the Yomiuri Shimbun said.

The yen-yuan exchange system would help businesses in the world’s second- and third-largest economies reduce risks associated with exchange rate fluctuations in the dollar and cut transaction costs, Kyodo said.

It will be the first time that China has allowed a major currency except the dollar to directly trade with the yuan, Kyodo said.