"It's A Huge Story": China Launching "Petroyuan" In Two Months

yota691 · September 6, 2017

China to launch future oil contracts in yuan

Agencies - Beijing

A report on China's approach to launching yuan-denominated forward contracts and convertible into gold could help reduce US dollar control over crude pricing.

The Nikkei Asia Review, which published the report, said oil futures would be the first commodity contracts in China open to foreign investment funds and oil companies.

In China's bid to make the new crude contracts more attractive, it plans to make them fully convertible into gold on the Shanghai and Hong Kong exchanges, the report said.

Oil contracts could come into effect by the end of this year, months after the postponement.

Several reports have in recent months sought China to activate future contracts for oil in local currency, at a time when China is the largest importer of oil in the world at the moment, surpassing the United States in the first six months of 2017.

yota691 · September 8, 2017

China threatens the throne of the dollar through the exchange of oil in the golden yuan

the source:

Dubai Mohammed Abdul Rashid

Date:08 September 2017

In a move that could reduce the US dollar's control over crude oil pricing, and in an attempt to change the rules of the game in the global oil and gas market, China is preparing to launch gold futures contracts convertible into gold as Beijing begins to take concrete action to implement its plans announced in advance to buy Its imports of oil in yuan, which is being changed gold, according to the newspaper "Nikkei Asin Review" and will enter into force before the end of this year.

Beijing plans to encourage oil exporters by allowing yuan to be converted into gold in the Shanghai and Hong Kong stock exchanges and another in Budapest, where oil futures will be the first commodity contracts in China open to foreign investment funds and oil companies. China is the first importer of oil Around the world, which will negatively affect the importance of the dollar, which remains the only settlement currency in the world so far.

Experts on the world are currently busy analyzing this very confusing step for the green US currency and threaten to raise it on the one hand. On the other hand, experts consider that the Chinese move allows major oil exporting countries such as Russia and Iran to circumvent any future US sanctions by dealing with yuan instead of The dollar, confirming that "the rules of the global oil game are beginning to change dramatically," and the existence of oil contracts and gold futures linked to the yuan means that users will receive the option to pay gold.

It is worth mentioning that this news is being circulated for about 3 years. The huge oil contracts between Russia and China in 2014 were the beginning of the process of removing the dollar from the global market. However, the new is the confirmation of Beijing this time that the move will be implemented globally before the end of this year, The Chinese government would like the internationalization of the yuan.

And to carry out trade operations through its own currency, especially after being approved as the special drawing rights of the International Monetary Fund, to join the short list of dollars, euros, yen and sterling.

1lucdog · September 9, 2017

"Once upon a time there was a kingdom that embraced many cultures and countries within it...each had it's own interests which they were free to pursue. Some of the cultures were older and wiser and others were young and impetuous but with a good heart they learned fast the unwritten rules of the kingdom. The game was often rough and tumble and then some times more civil and calm but always there were those who were planning silently to manipulate the game to their own advantage....Gold was the coin of the realm, then it wasn't and then it was again...or was it? British pound sterling, the gold backed dollar , the petro-Dollar, the dinar, the euro and on and on ...Then one manipulator caused a war and devalued one currency and bought it up and replaced it with his own which was now much more valuable. Then he proceeded to run his kingdom into debt knowing that one day in the future he would rebuild the war torn country and revalue its currency beyond his own and pay off all the debt he had incurred living the high life ...Then others found out ...they discovered the plan he inherited from other manipulators from ages past and planned to stop it by returning to a currency that they themselves backed with Gold...Now a new king took the throne of the first country and devised a plan to yet capitalize on the plan from the previous corrupt leaders ... He would guide them into reinstating their former glory and value of their currency, pay off his countries debt, that he inherited, and then reestablish a gold standard of his own to back his countries currency surely this would work...or will it? Can he time it just right and implement it before the ancient wise kingdom of the east slips in their plan? Can the two coexist? Tune in tomorrow same bat time and same bat channel for more question and very few answers, but join us as we cheer our new King on to victory against overwhelming odds...You know it is the stuff of every good story!"

https://www.moneymetals.com/news/2017/09/05/china-oil-gold-standard-001150

China Puts Oil on a Gold Standard

by: Clint Siegner

Money Metals News Service

September 5th, 2017

5 Comments

Print

The Chinese are preparing to launch an oil futures contract denominated in yuan and redeemable in gold. That is very bad news for the petro-dollar and for U.S. hegemony in the oil trade. The ability to sell oil on Chinese exchanges for yuan will take the potency out of U.S. sanctions levied on nations such as Russia and Iran.

Gold in China

The gold backing of those contracts figures to lure participants from around the globe – even those with strong ties to the U.S. This additional enticement will go a long way toward allaying concerns of those who may see the dollar as superior to the yuan in trade.

The move is another sign of the Chinese commitment to ending the dollar’s reign as the world reserve currency.

The oil contract, to be traded on the Shanghai International Energy Exchange, will be the China’s first futures contract which is open to international firms for trading. There is no official word on when the contract will launch, but testing has been underway since July.

About the Author:

Clint Siegner is a Director at Money Metals Exchange, the national precious metals company named 2015 "Dealer of the Year" in the United States by an independent global ratings group. A graduate of Linfield College in Oregon, Siegner puts his experience in business management along with his passion for personal liberty, limited government, and honest money into the development of Money Metals' brand and reach. This includes writing extensively on the bullion markets and their intersection with policy and world affairs.

ChuckFinley · September 9, 2017

China is thinking long term here. They have been buying gold for years now.

alreis · September 10, 2017

When the petro dollar come about we were very dependent on Middle East supply. Today we have our own oil.

The reserve currency issue comes down to dealing with China or USA, pick your demon.

SnowGlobe7 · September 11, 2017

iraq is selling oil to china

Butifldrm · September 13, 2017

Mnuchin Threatens More Sanctions on China Over North Korea

By

Saleha Mohsin

and

Arit John

September 12, 2017, 11:18 AM CDT September 13, 2017, 2:15 AM CDT

Treasury secretary invokes potential ban from ‘dollar system’
He urges obeying ‘historic’ new United Nations sanctions

Treasury Secretary Steven Mnuchin warned the U.S. may impose additional sanctions on China -- potentially cutting off access to the U.S. financial system -- if it doesn’t follow through on a fresh round of United Nations restrictions against North Korea.

The UN Security Council added new sanctions against North Korea after leader Kim Jong Un’s regime conducted its sixth and most powerful nuclear test. Mnuchin echoed the U.S. envoy to the UN, Nikki Haley, in calling the sanctions “historic” even though they didn’t include U.S. demands for a full oil embargo and a freeze on Kim’s assets. The new measures include limiting North Korea’s imports of petroleum products and banning textile exports.

“If China doesn’t follow these sanctions, we will put additional sanctions on them and prevent them from accessing the U.S. and international dollar system -- and that’s quite meaningful,” Mnuchin said during an event at CNBC’s Delivering Alpha conference in New York on Tuesday.

The Treasury Department under President Donald Trump has broadened its reach on North Korea by slapping sanctions against Chinese individuals and entities it has accused of helping Pyongyang’s development of nuclear weapons and ballistic missiles.

“North Korea economic warfare works,” Mnuchin said. “We sent a message that anybody that wanted to trade with North Korea -- we would consider them not trading with us.”

China’s Ministry of Commerce said it wouldn’t immediately comment on the threat of fresh measures. The People’s Bank of China said this week that it has ordered domestic banks to suspend opening or changes to accounts for clients on the UN sanction list and also prohibited other financial services for those clients.

"The premise is problematic, as China has executed all UN sanctions on North Korea," said He Weiwen, a senior fellow at the Center for China and Globalization in Beijing and a former official at the Ministry of Commerce, calling Mnuchin’s remarks "pure bluff."

Trump is said to plan a visit to China in November. China’s State Councilor Yang Jiechi told U.S. Secretary of State Rex Tillerson on Tuesday that the Asian nation is looking for "positive" achievements during the visit, and again called for efforts to seek cooperation and manage differences, according to a Ministry of Foreign Affairs statement on Wednesday.

Follow the Trump Administration’s Every Move

Small Step

On Tuesday, Trump appeared to downplay the significance of the UN sanctions.

“We think it’s just another very small step,” Trump told reporters at the White House one day after the Security Council’s unanimous vote. “Not a big deal. Not big. I don’t know if it has any impact but certainly it was nice to get a 15-to-nothing vote. But those sanctions are nothing compared to what ultimately will have to happen.”

At a hearing of the House Foreign Affairs Committee on Tuesday, Republican Chairman Ed Royce said the U.S. should target major Chinese banks, including Agricultural Bank of China Ltd. and China Merchants Bank Co., for aiding Kim’s regime.

Russia also came in for criticism. Assistant Treasury Secretary Marshall Billingslea said in prepared remarks to the committee that North Korean bank representatives “operate in Russia in flagrant disregard of the very resolutions adopted by Russia at the UN.”

While China and Russia supported the latest UN sanctions, officials made clear they were troubled by Haley’s comments in the Security Council that the U.S. would act alone if Kim’s regime didn’t stop testing missiles and bombs. They emphasized the world body’s resolution also emphasized the importance of resolving the crisis through negotiations.

“The Chinese side will never allow conflict or war on the peninsula,” Foreign Ministry spokesman Geng Shuang said in a statement on Tuesday.

Read More: China and Russia Warn U.S. Against Regime Change

China and Russia -- North Korea’s biggest economic patrons -- share the view that North Korea won’t give up nuclear weapons without security guarantees, and they don’t see the point in fomenting a crisis on their borders that benefits American strategic goals. They also don’t want Kim provoking the U.S. into any action that could destabilize the region.

“Sanctions of any kind are useless and ineffective,” Russian President Vladimir Putin told reporters earlier this month at a summit in Xiamen, China. “They’ll eat grass, but they won’t abandon their program unless they feel secure.”

— With assistance by Jeff Black, Kambiz Foroohar, Ting Shi, David Tweed, and Miao Han

https://www.bloomberg.com/news/articles/2017-09-12/mnuchin-threatens-financial-sanctions-on-china-over-north-korea

Edited September 13, 2017 by Butifldrm

Butifldrm · September 13, 2017

US threatens action against China if it doesn't follow new North Korea sanctions

'If China doesn't follow these sanctions, we will put additional sanctions on them', Mr Mnuchin said

Alexandra Wilts Washington DC
9 hours ago
12 comments

66

Click to follow
The Independent US

Treasury Secretary Steven Mnuchin arrives for a closed-door meeting with Speaker of the House Paul Ryan and House Republicans on September 8, 2017 AP

China has been warned that it could face further sanctions from the US if it does not abide by new United Nations sanctions placed on Kim Jong-un’s regime, Treasury Secretary Steven Mnuchin has said.

The UN Security Council unanimously voted this week to ratchet up sanctions on North Korea following its sixth and largest nuclear test, although the penalties fell short of the sweeping sanctions the Trump administration had demanded.

Both Russia and China, North Korea’s main economic ally, had opposed the US’s call for an oil embargo and other far-reaching sanctions.

READ MORE

North Korea says they will make US suffer the greatest pain'

The new penalties include a ban on the sale of natural gas to North Korea and limits the amount of refined petroleum sales to the country to two million barrels per year. China, supplies most of North Korea's crude oil.

“If China doesn't follow these sanctions, we will put additional sanctions on them and prevent them from accessing the U.S. and international dollar system, and that's quite meaningful,” Mr Mnuchin said, adding that “economic warfare works”.

Relax - Wayfair Has You Covered for Everything HomeWayfair

Do You Come From Royal Blood? Your Last Name May Tell You.Ancestry

Cheap Flights. Search And Compare Now From Up To 8 Sites At OnceLadyBug

by Taboola

Kim Jong-un inspects weapon North Korea says is powerful hydrogen bomb

In his remarks, China’s UN ambassador Liu Jieyi cautioned the US against efforts at “regime change” and the use of military force. “China will continue to advance dialogue,” he said.

North Korea's ambassador to the UN, Han Tae Song, told a conference in Geneva: “The forthcoming measures by DPRK [the Democratic Republic of Korea] will make the US suffer the greatest pain it has ever experienced in its history.”

Sanctions approved by the UN Security Council in August were already estimated to slash North Korea’s $3 billion annual export revenue by a third.

Putin Orders End To US Dollar Trade At Russian Seaports

by Tyler Durden

Sep 19, 2017 4:10 PM

237

SHARES

Twitter Facebook Reddit

Whether in response to rising scorching tensions with the US, or simply to provide support for the ruble, on Tuesday Russian President Vladimir Putin instructed the government to approve legislation making the ruble the main currency of exchange at all Russian seaports by next year, RT reported citing the Kremlin website.

The head of Russian antitrust watchdog FAS Igor Artemyev, many services in Russian seaports are still priced in US dollars, even though such ports are state-owned. So, in order to "protect the interests" of dockworkers and their complyees with foreign currency obligations, the government was instructed to set a transition period before switching to ruble settlements.

The commercial sea port of Novorossiysk

The proposal to switch port tariffs to rubles was first proposed by Putin a year and a half ago, but it was mothballed only to pick up speed again in recent days.

Originally, the idea was rejected by large transport companies, which said they prefer to keep revenues in dollars and other foreign currencies due to sharp fluctuations on the volatile ruble. However, the Russian anti-trust watchdog said the decision would force foreigners to buy Russian currency, which would stabilize rates and be good for the ruble.

In 2016, Artemyev's agency filed several lawsuits against the largest Russian port group NMTP.

According to FAS, the group of companies set tariffs for transshipment in dollars and raised tariffs from January 2015 "without objective grounds."

The watchdog ruled that NMTP abused its dominant position in the market and imposed a 9.74 billion rubles fine, or about $165 million at the current exchange rate. The decision was overturned by a court in Moscow in July this year.

While Russia's stated motive for the unexpected redenomination of trade at some of its largest trading hubs has to do with domestic economic policies, there is speculation that the timing of this decision has been influenced by the recent diplomatic fallout between the US and Russia, the result of which would be an heightened demand for the ruble, especially since it is rather complicated to find alternative sources for Russia's largest export by a wide margin: crude.

And while it is still early to discuss whether Moscow has launched the "Petrorouble", Putin's rejection of the Petrodollar in yet another aspect of economic life will raise quite a few eyebrows around the globe.

http://www.zerohedge.com/news/2017-09-19/putin-orders-end-us-dollar-trade-russian-seaports

Butifldrm · September 19, 2017

Putin orders to end trade in US dollars at Russian seaports

Published time: 19 Sep, 2017 13:41

Get short URL

Putin orders to end trade in US dollars at Russian seaports

Novorossiysk commercial sea port © Vladimir Astapkovich / Sputnik

16K101

Russian President Vladimir Putin has instructed the government to approve legislation making the ruble the main currency of exchange at all Russian seaports by next year, according to the Kremlin website.

The Petrodollar Is Under Attack: Here's What You Need To Know

by Tyler Durden

Sep 21, 2017 4:25 PM

95

SHARES

Twitter Facebook Reddit

Authored by Darius Shatahmasebi via TheAntiMedia.org,

Once upon a time, the U.S. dollar was backed by the gold standard in a framework that established what was known as the Bretton-Woods agreement, made in 1944. The dollar was fixed to gold at a price of $35 an ounce, though the dollar could earn interest, marking one notable difference from gold.

The system ended up being short-lived, as President Richard Nixon announced that the U.S. would be abandoning the gold standard in 1971. Instead, the U.S. had other plans for the future of global markets.

As the Huffington Post has explained, the Nixon Administration reached a deal with Saudi Arabia:

“The essence of the deal was that the U.S. would agree to military sales and defense of Saudi Arabia in return for all oil trade being denominated in U.S. dollars.”

This system became known as the Petrodollar Recycling system because countries like Saudi Arabia would have to invest excess profits back into the U.S. It didn’t take long for every single member of OPEC to start trading oil in U.S. dollars.

A little-known economic theory, rejected by the mainstream, stipulates that Washington’s stranglehold over financial markets can be at least partially explained by the fact that all oil exports are conducted in transactions involving the U.S. dollar. This relationship between oil and currency arguably gives the dollar its value, as this paradigm requires all exporting and importing countries to maintain a certain stock of U.S. dollars, adding to the dollar’s value. As Foreign Policy – a magazine that rejects the theory – explains:

“It does matter slightly that the trade typically takes place in dollars. This means that those wishing to buy oil must acquire dollars to buy the oil, which increases the demand for dollars in world financial markets.”

The term “those wishing to buy oil” encompasses almost every single country that does not have an oil supply of its own – hardly a trivial number. An endless demand for dollars means an endless supply, and the United States can print as much paper as it wants to account for its imperial ambitions. No other country in the world can do this.

In 2000, Iraq announced it would no longer use U.S. dollars to sell oil on the global market. It adopted the euro, instead, which was no easy decision to make. However, by February 2003, the Guardian reported that Iraq had netted a “handsome profit” after making this policy change.

Anyone who rejects this petrodollar theory should be able to answer the following question: if currency is not an important factor in America’s imperialist adventures, why was the U.S. so intent on invading a country (based on cold, hard lies), only to make it a priority to switch the sale of oil back to dollars? If they cared so much about Iraq and its people, as we were supposed to have believed, why not allow Iraq to continue netting a “handsome profit”?

In Libya, Muammar Gaddafi was punished for a similar proposal that would have created a unified African currency backed by gold, which would have been used to buy and sell African oil. Hillarious Clinton’s leaked emails confirmed this was the main reason Gaddafi was overthrown, though commentators continue to ignore and reject the theory. Despite these denials, Clinton’s leaked emails made it clear that Gaddafi’s plan for the future of African oil exports was a priority for the U.S. and its NATO cohorts, more so than Gaddafi’s alleged human rights abuses. This is the same Hillarious Clinton who openly laughed when Gaddafi was sodomized and murdered, displaying no regrets that she single-handedly plunged a very rich and prosperous nation into a complete state of chaos.

At the start of this month, Venezuela announced it would soon “free” itself from the dollar. Barely a week or so later, the Wall Street Journal reported that Venezuela had stopped accepting dollars for oil payments in response to U.S. sanctions. Venezuela sits on the world’s largest oil reserves. Donald Trump’s threats of unilateral military intervention — combined with the CIA’s admission that it will interfere in the oil-rich country — may make a lot more sense in this context.

Iran has also been using alternative currencies — like the Chinese yuan — for some time now. It also shares a lucrative gas field with Qatar, which could be days away from ditching the dollar, as well. Qatar has reportedly already been conducting billions of dollars’ worth of transactions in the yuan. Just recently, Qatar and Iran restored full diplomatic relations in a complete snub to the U.S. and its allies. It is no surprise, then, that both countries have been vilified on the international stage, particularly under the Trump administration.

In the latest dig to the U.S. dollar and global financial hegemony, the Times of Israel reported that a Chinese state-owned investment firm has provided a $10 billion credit line to Iranian banks, which will specifically use yuan and euros to bypass U.S.-led sanctions.

Consider that in August 2015, then-Secretary of State John Kerry warned that if the U.S. walked away from the nuclear deal with Iran and forced its allies to comply with U.S.-led sanctions, it would be a “recipe, very quickly…for the American dollar to cease to be the reserve currency of the world.”

Iran, bound to Syria by a mutual-defense pact, was reportedly working to establish a natural gas pipeline that would run through Iraq and Syria with the aim of exporting gas to European markets, cutting off Washington and its allies completely. This was, of course, in 2009 — before the Syrian war began. Such a pipeline deal, now with Russia’s continued air support and military presence, could entail the emergence of a whole new market that could easily be linked to the euro, or any other currency for that matter, instead of the dollar.

According to Russian state-owned outlet RT, the Kremlin’s website announced Tuesday that Russian President Vladimir Putin has also instructed the government to approve legislation to ditch the U.S. dollar at all Russian seaports by next year.

Further, the Asia Times explains that Putin dropped an enormous “bombshell” at the recent BRICS summit in Xiamen early September, stating:

“Russia shares the BRICS countries’ concerns over the unfairness of the global financial and economic architecture, which does not give due regard to the growing weight of the emerging economies. We are ready to work together with our partners to promote international financial regulation reforms and to overcome the excessive domination of the limited number of reserve currencies.” [emphasis added]

According to the Asia Times author, the statement was code-speak for how BRICS countries will look to bypass the U.S. dollar as well as the petrodollar.

China is also on board with this proposal. Soon, China will launch a crude oil futures contract priced in Chinese yuan that will be completely convertible into gold. As reported by the Nikkei Asian Review, analysts have called this move a “game-changer” for the oil industry.

Both Russia and China have been buying up huge quantities of gold for some time now. Russia’s present gold reserves would back 27 percent of the narrow ruble money supply – far in excess of any other major country. The United States’ Federal Reserve admitted years ago that they haven’t held any gold for a very long time.

China is also implementing a monumental project, known as the Silk Road project, which is a major push to create a permanent trade route connecting China, Africa, and Europe. One must wonder much control over these transactions will the U.S. have.

These are just a few of the latest developments that have affected the dollar.

Can those continue to reject this petrodollar-related theory answer the following questions with confidence: Is it a coincidence that all of the countries listed above as moving away from the dollar are long-time adversaries of the United States, including the ones that were invaded? Is it a coincidence that Saudi Arabia gets a free pass to commit a host of criminal actions as it complies with the global financial order? Are Saudi Arabia’s concerns with Qatar really rooted in the latter’s alleged funding of terror groups even though Saudi Arabia leads the world in funding the world’s most vile terror groups?

Clearly, there is something far more sinister at play here, and whether or not it is tied solely to a deranged, psychopathic currency warfare will remain to be seen. The evidence continues to show, however, that the U.S. dollar is slowly being eroded piece by piece and ounce by ounce — and that as these adversarial countries make these developments in unison, there appears to be little the U.S. can do without risking an all-out world war.

http://www.zerohedge.com/news/2017-09-21/petrodollar-under-attack-heres-what-you-need-know

SnowGlobe7 · September 25, 2017

watching this...

Butifldrm · October 13, 2017

China Launches Yuan-Ruble Payment System

by Tyler Durden

Oct 13, 2017 12:15 AM

68

SHARES

Twitter Facebook Reddit

The monetary regimes of China and Russia, two of the world's most resource-rich nations, are drawing closer with every passing day.

In the latest push for convergence, China has established a payment versus payment (PVP) system for Chinese yuan and Russian ruble transactions in a move to reduce risks and improve the efficiency of its foreign exchange transactions. The PVP system for yuan and ruble transactions, designed to streamline commerce and curency transactions between the two nations, was launched on Monday after receiving approval from China’s central bank, according to a statement by the country’s foreign exchange trading system.

It marks the first time a PVP system has been established for trading the yuan and foreign currencies, said the statement, which was posted on Wednesday on the website of the China Foreign Exchange Trade System (CFETS). PVP systems allow simultaneous settlement of transactions in two different currencies.

According to CFETS, the system would reduce settlement risk as well as the risk of transactions taking place in different time zones, and improve foreign exchange market efficiency. Of course, if the two countries had a blockchain-based settlement system, they would already have all this and much more.

CFETS said it plans to introduce PVP systems for yuan transactions with other currencies based on China’s Belt and Road initiative, and complying with the process of renminbi internationalization. Russia, however, is a top priority: the world's biggest oil producer recently became the largest source of oil for China, the world’s top energy consumer.

To be sure, the monetary convergence between Beijing and Moscow is hardly new. The most notable recent development took place in April, when the Russian central bank opened its first overseas office in Beijing on March 14, marking a step forward in forging a Beijing-Moscow alliance to bypass the US dollar in the global monetary system, and to phase-in a gold-backed standard of trade. As the South China Morning Post reported at the time, the new office was part of agreements made between the two neighbours "to seek stronger economic ties" since the West brought in sanctions against Russia over the Ukraine crisis and the oil-price slump hit the Russian economy.

At the time, Vladimir Shapovalov, a senior official at the Russian central bank, said the two central banks were drafting a memorandum of understanding to solve technical issues around China’s gold imports from Russia, and that details would be released soon, to which we said that If Russia - the world's fourth largest gold producer after China, Japan and the US - is indeed set to become a major supplier of gold to China, the probability of a scenario hinted by many over the years, namely that Beijing is preparing to eventually unroll a gold-backed currency, increases by orders of magnitude.

Furthermore, also around the same time, as the Russian central bank was getting closer to China, China was responding in kind with the establishment of a clearing bank in Moscow for handling transactions in Chinese yuan. The Industrial and Commercial Bank of China (ICBC) officially started operating as a Chinese renminbi clearing bank in Russia on Wednesday this past Wednesday

"The financial regulatory authorities of China and Russia have signed a series of major agreements, which marks a new level of financial cooperation," Dmitry Skobelkin, the abovementioned deputy head of the Russian Central Bank, said. "The launching of renminbi clearing services in Russia will further expand local settlement business and promote financial cooperation between the two countries," he added according to.

Irina Rogova, a Russian financial analyst told the Russian magazine Expert that the clearing center could become a large financial hub for countries in the Eurasian Economic Union.

* * *

The creation of the clearing center, and the launch of PVP systems enables the two countries to further increase bilateral trade and investment while decreasing their dependence on the US dollar. It will create a pool of yuan liquidity in Russia that enables transactions for trade and financial operations to run smoothly. In expanding the use of national currencies for transactions, it could also potentially reduce the volatility of yuan and ruble exchange rates. The clearing center is one of a range of measures the People's Bank of China and the Russian Central Bank have been looking at to deepen their co-operation, Sputnik reported.

But one of the most significant measures under consideration is the previously reported push for joint organization of trade in gold.

In recent years, China and Russia have been the world's most active buyers of the precious metal. On a visit to China last year, the deputy head of the Russian Central Bank Sergey Shvetsov said that the two countries want to facilitate more transactions in gold between the two countries.

"We discussed the question of trade in gold. BRICS countries are large economies with large reserves of gold and an impressive volume of production and consumption of this precious metal. In China, the gold trade is conducted in Shanghai, in Russia it is in Moscow. Our idea is to create a link between the two cities in order to increase trade between the two markets," First Deputy Governor of the Russian Central Bank Sergey Shvetsov told Russia's TASS news agency.

In other words, China and Russia are continuing to shift away from dollar-based trade, to commerce which will eventually be backstopped by gold, or what is gradually emerging as an Eastern gold standard, one shared between Russia and China, and which may day backstop their respective currencies.

Meanwhile, the price of gold continues to reflect none of these potentially tectonic strategic shifts, just as China - which has been the biggest accumulator of gold in recent years - likes it.

http://www.zerohedge.com/news/2017-10-12/china-launches-yuan-ruble-payment-system

Butifldrm · October 13, 2017

China proven gold reserves at 12,100 tonnes at end-2016 - Xinhua

Reuters Staff

1 MIN READ

SHANGHAI, Oct 2 (Reuters) - China’s proven gold reserves reached 12,100 tonnes at the end of 2016, the state news agency Xinhua reported on Monday quoting an official with the national gold association.

China has been the world’s biggest gold producer for 10 years and the largest consumer of the metal for four years, it said. China aims to increase its annual gold output to 500 tonnes by 2020 from around 450 tonnes currently, it said.

Last year, 70,000 tonnes of gold were traded in China on spot exchanges, futures exchanges and over-the-counter at banks, and that amount was expected to exceed 100,000 tonnes by 2020, Xinhua quoted Zhang Yongtao, vice chairman of the China Gold Association (CGA), as saying.

In the first half of 2017, China produced 207 tonnes of gold, a drop of 9.8 percent from a year ago, although gold consumption rose nearly 10 percent to 545 tonnes, with consumption of gold bars up more than 50 percent, the CGA said. (Reporting by John Ruwitch; Editing by Christian Schmollinger)

Our Standards:The Thomson Reuters Trust Principles.

https://www.reuters.com/article/china-gold/china-proven-gold-reserves-at-12100-tonnes-at-end-2016-xinhua-idUSL4N1MD2NN

Butifldrm · October 25, 2017

"It's A Huge Story": China Launching "Petroyuan" In Two Months

by Tyler Durden

Oct 25, 2017 4:14 AM

955

SHARES

Twitter Facebook Reddit

As a reminder, nothing lasts forever...

The World Bank's former chief economist wants to replace the US dollar with a single global super-currency, saying it will create a more stable global financial system.

"The dominance of the greenback is the root cause of global financial and economic crises," Justin Yifu Lin told Bruegel, a Brussels-based policy-research think tank.

"The solution to this is to replace the national currency with a global currency."

The writing is on the wall for dollar hegemony. As Russian President Vladimir Putin said almost two months ago during the BRICs summit in Xiamen,

“Russia shares the BRICS countries’ concerns over the unfairness of the global financial and economic architecture, which does not give due regard to the growing weight of the emerging economies. We are ready to work together with our partners to promote international financial regulation reforms and to overcome the excessive domination of the limited number of reserve currencies.”

As Pepe Escobar recently noted, 'to overcome the excessive domination of the limited number of reserve currencies' is the politest way of stating what the BRICS have been discussing for years now; how to bypass the US dollar, as well as the petrodollar.

Beijing is ready to step up the game. Soon China will launch a crude oil futures contract priced in yuan. This means that Russia – as well as Iran, the other key node of Eurasia integration – may bypass US sanctions by trading energy in their own currencies, or in yuan. Inbuilt in the move is a true Chinese win-win; the yuan - according to some - will be fully convertible into gold on both the Shanghai and Hong Kong exchanges.

The new triad of oil, yuan and gold is actually a win-win-win. No problem at all if energy providers prefer to be paid in physical gold instead of yuan. The key message is the US dollar being bypassed.

China's plans for oil futures trading go back more than two decades, with the government introducing a domestic crude contract in 1993 and stopping a year later amid an overhaul of its energy industry. But in 2013, we first hinted at the birth of the petroyuan was looming...

In doing so China is effectively lobbing the first shot across the bow of the Petrodollar system, and more importantly, the key support of the USD in the international arena... setting the scene for the petroyuan.

And now, we are within two months of it becoming a reality as China prepares to roll out a yuan-denominated oil contract within the next two months...

"Approval of the trading rules by the securities regulator marks the clearance of a major hurdle toward launch of the contract," Li Zhoulei, an analyst with Everbright Futures, said by phone.

"The latest rules raised entry threshold for investors from the draft rules, which shows the government wants to avoid volatility when it first starts trading."

Which, according to Adam Levinson, of hedge fund manager Graticule Asset Management Asia, will be a “wake up call” for investors who haven’t paid attention to the plans.

A Yuan-denominated oil contract will be a “huge story” in the fourth quarter.

“The contract is a hedging tool for Chinese oil companies. We’re convinced Chinese oil companies will be anchor investors in the Aramco IPO.”

All of which fits with recent comments and actions from Russian and Venezuelan officials...

“Venezuela is going to implement a new system of international payments and will create a basket of currencies to free us from the dollar,” Maduro said in a multi-hour address to a new legislative “superbody.” He reportedly did not provide details of this new proposal.

Maduro hinted further that the South American country would look to using the yuan instead, among other currencies.

“If they pursue us with the dollar, we’ll use the Russian ruble, the yuan, yen, the Indian rupee, the euro,” Maduro also said.

Additionally, Levison warns Washington that besides serving as a hedging tool for Chinese companies, the contract will aid a broader Chinese government agenda of increasing the use of the yuan in trade settlement... and thus the acceleration of de-dollarization and the rise of the Petro-Yuan.

“I don’t think there’s any doubt we’re going to see use of the renminbi in reserves go up substantially”

Levinson was even more sanguine about China's growing credit exposure. While Chinese debt-to-GDP continues to rise, we note that Chinese sovereign credit risk has collapsed to 9 year lows...

Which as Levinson notes, "All the issues in China are occurring without fully understanding the asset side of the balance sheet." He is not concerned about China credit issues in the near-term, defining the near term as the next two years, as "the capacity of the sovereign to deal with an issue, should it occur, is pretty significant and therefore important.”

Which appears to the market's perspective as China is now the least risky relative to US in four years...

Finally, while he is less concerned about China's credit, Levinson warns that the lack of volatility as stocks and bonds rally is the “scariest part” of global markets...

“If I am concerned about anything it’s where the level of implied volatility trades,” Levinson said in an interview in Singapore on Tuesday.

“It is extremely low. If there is something to be concerned about in global markets, it’s the endogenous level of where implied volatility is trading.”

Small market declines could escalate quickly, Levinson said.

“You don’t know when an event or an issue is going to present itself,” he said.

“But when it does, the nature of the volatility construct in markets today is such that if you have a modest correction it will turn into a much more severe one in a short period of time, because of the entrenched structural short-selling of volatility.”

Any increase in market turbulence could trigger dramatic selling and the biggest of those events could be a broader adoption of China's PetroYuan contract... as Levinson says "will be a huge story" in Q4.

http://www.zerohedge.com/news/2017-10-24/its-huge-story-china-launching-petroyuan-two-months

Butifldrm · October 25, 2017

China has grand ambitions to dethrone the dollar. It may make a powerful move this year

China is looking to make a major move against the dollar's global dominance, and it may come as early as this year
The plan is to price oil in yuan using a gold-backed futures contract in Shanghai, but the road will be long and arduous

Sri Jegarajah | @cnbcSri

Published 1:22 AM ET Tue, 24 Oct 2017 Updated 22 Hours AgoCNBC.com

China wants to dethrone the dollar 22 Hours Ago | 00:48

China is looking to make a major move against the dollar's global dominance, and it may come as early as this year.

The new strategy is to enlist the energy markets' help: Beijing may introduce a new way to price oil in coming months — but unlike the contracts based on the U.S. dollar that currently dominate global markets, this benchmark would use China's own currency. If there's widespread adoption, as the Chinese hope, then that will mark a step toward challenging the greenback's status as the world's most powerful currency.

China is the world's top oil importer, and so Beijing sees it as only logical that its own currency should price the global economy's most important commodity. But beyond that, moving away from the dollar is a strategic priority for countries like China and Russia. Both aim to ultimately reduce their dependency on the greenback, limiting their exposure to U.S. currency risk and the politics of American sanctions regimes.

The plan is to price oil in yuan using a gold-backed futures contract in Shanghai, but the road will be long and arduous.

"Game changer it is not — at least not yet," said Gal Luft, co-director of the Institute for the Analysis of Global Security, a Washington based think tank focused on energy security. "But it is another indicator of the beginning of the glacial, and I emphasize the word glacial, decline of the dollar."

Beijing faces skeptical global oil markets and global perceptions it exerts too much state control. Those factors will hinder its drive to build a viable oil pricing benchmark that's able to compete with more established benchmarks like West Texas Intermediate or Brent (both dollar-denominated).

The architects of the "petro-yuan" face an uphill struggle in dislodging the "petrodollar" and, with it, more than four decades of U.S. dollar-priced oil. Attracting interest from entrenched and active markets in Europe, the U.S. and the Middle East — used to price more than two-thirds of the world's oil worth trillions of dollars – poses another major challenge.

"Many, many futures contracts are launched because they make some sense from a logical market point of view and they get a lot of attention. But then they die because the key is liquidity," said Jeff Brown, president at FGE, an international energy consultant.

There are really only a handful of truly global oil contracts from which all else is based, Brown explained, adding: "It will be extraordinarily difficult to change that."

Level playing field?

Another obstacle standing in the path of China's ambitions to price oil in yuan is the currency itself. The yuan is not yet fully convertible, it's fixed daily, prone to intervention and subject to capital controls.

Given that regime of tight control over the currency, many global players are likely to assume a yuan-denominated oil benchmark would be firmly under Beijing's thumb.

"My biggest reservations are the role of the Chinese central government, potential state intervention and favoritism toward Chinese companies," said John Driscoll, director of JTD Energy Services in Singapore and a former oil trader whose career spans nearly 40 years.

"Will the contract create a level playing field? The biggest challenge in global oil markets may be ensuring that no country or entity garners a dominant advantage," Driscoll added. "China may be world's fastest growing and most formidable energy consumer, but its central government plays a dominant role in the energy sector."

Beijing is likely to lean heavily on state-owned oil companies to adopt the yuan-based contract in an effort to drum up activity and generate sufficient liquidity — the lifeblood of any financial instrument. But despite the scale they bring, involving such state-backed players risks discouraging participants outside China.

Final stage

The main hope for the survival of a yuan-based oil futures contract, according to FGE's Brown, is that the government pushes the Chinese national oil companies onto the exchange.

Still, he added, "Most counterparties will not want anything to do with this contract as it adds in a layer of cost and risk. They also don't like contracts with only a few dominant buyers or sellers and a government role."

Beijing is plowing ahead regardless, and state-run media reported in September the plan was "moving swiftly."

Yuan pricing and clearing of crude oil futures is the "beginning" of a broader strategic push "to support yuan pricing and clearing in commodities futures trading," Pan Gongsheng, director of the State Administration of Foreign Exchange, said last month.

To support the new benchmark, China has opened more than 6,000 trading accounts for the crude futures contract, Reuters reported in July.

'Well-advanced'

The market's response to the yuan-priced oil benchmark is likely to be lukewarm at first, "but could grow over time, especially if it sparks other commodity hedging tools," said Rachel Ziemba, managing director of emerging markets at Roubini Global Economics.

China is likely to approach its main crude oil suppliers in the Middle East, Russia and Asia — some of who already accept the yuan as payment — to price their cargoes off a Chinese benchmark.

"The U.S. coverage is dropping off," said Juerg Kiener, managing director and chief investment officer of asset manager Swiss Asia Capital. "Iraq, Russia and Indonesia have all joined in non-dollar trades."

The petro-yuan is "well-advanced" and already "structurally in place," Kiener added: "As China is an importer it will push harder to get yuan contracts."

https://www.cnbc.com/2017/10/24/petro-yuan-china-wants-to-dethrone-dollar-rmb-denominated-oil-contracts.html

Butifldrm · October 25, 2017

Hedge Fund: China’s Petro-Yuan Plan Could Upend Oil Markets

By Tsvetana Paraskova - Oct 24, 2017, 1:00 PM CDT China

China launching a yuan-denominated oil futures contract by the end of this year will shock those investors who have not been paying attention to the Chinese plans, Adam Levinson, managing partner and chief investment officer at hedge fund manager Graticule Asset Management Asia (GAMA), told Bloomberg Television on Tuesday.

In July, the Shanghai International Energy Exchange, INE, a subsidiary of Shanghai Futures Exchange, completed a four-step trial in crude oil futures denominated in yuan and said that it would carry preparatory works for the listing of crude oil futures, and would try to launch the contract by the end of this year.

This would be a “wake up call” for traders and investors who haven’t been paying attention to Chinese plans to create the so-called petro-yuan and shift oil trade out of petrodollars, according to Levinson.

The yuan-priced oil contract will be a kind of a hedging tool for Chinese firms, Levinson told Bloomberg. The yuan crude futures contract will also help the Chinese in their push to make their currency more international and widely used in global trade settlements, Levinson noted.

In addition, the fund manager expects Chinese oil firms to be key investors in the upcoming IPO of 5 percent in Saudi Arabia’s oil crown jewel, Saudi Aramco.

In its bid to establish the petro-yuan, China is now trying to persuade OPEC’s kingpin and biggest exporter, Saudi Arabia, to start accepting yuan for its crude oil. If the Chinese succeed, other oil exporters could follow suit and abandon the U.S. dollar as the world’s reserve currency. Pulling oil trade out of U.S. dollars would lead to decreased demand for U.S. securities across the board, Carl Weinberg, chief economist and managing director at High Frequency Economics, tells CNBC.

Weinberg believes that the Chinese will “compel” the Saudis to accept to trade oil in yuan.

By Tsvetana Paraskova for Oilprice.com

https://oilprice.com/Latest-Energy-News/World-News/Hedge-Fund-Chinas-Petro-Yuan-Plan-Could-Upend-Oil-Markets.html

Butifldrm · October 25, 2017

China Makes a Move on the USD

By Shayne Heffernan on October 25, 2017No Comment

China is set to roll out a yuan-denominated oil contract as early as this year. Analysts call the plan, announced by Beijing in September, a huge move against the dollar’s global dominance.

The so-called petro-yuan is a “wake up call” for investors who haven’t paid attention to the Chinese plans, according to the head of Graticule Asset Management Asia Adam Levinson, as quoted by Bloomberg.

Earlier this year, the Chinese government announced plans to start a crude oil futures contract priced in yuan and convertible into gold. The contract will enable the country’s trading partners to pay with gold or to convert yuan into gold without the necessity to keep money in Chinese assets or turn it into US dollars.

The new benchmark will reportedly allow exporters, such as Russia, Iran or Venezuela to avoid US sanctions by trading oil in yuan.

The analyst said the new contract would be able to serve as a hedging tool for Chinese corporations, as well as support the government’s broader plans to extend the use of the national currency in trade settlement.

According to Levinson, Chinese companies might grow into anchor investors in Saudi Arabia’s initial public offering of its national oil giant, Saudi Aramco.

At the same time, some analysts are skeptical of China’s ambitious plan to create its own benchmark.

“Game changer it is not — at least not yet. But it is another indicator of the beginning of the glacial, and I emphasize the word glacial, decline of the dollar,” said Gal Luft, co-director of the Institute for the Analysis of Global Security, as quoted by CNBC.

The end of US dollar hegemony has been a consistent message from Russian President Vladimir Putin.

“Russia shares the BRICS countries’ concerns over the unfairness of the global financial and economic architecture, which does not give due regard to the growing weight of the emerging economies. We are ready to work together with our partners to promote international financial regulatory reforms and to overcome the excessive domination of the limited number of reserve currencies,” Putin said two months ago during the BRICs summit in Xiamen.

http://www.livetradingnews.com/china-makes-move-usd-58731.html#.WfB1iGhSyUk

bostonangler · October 26, 2017

This is one of the scariest threads I've read.... While our doofus politicians and media squabble about distractions and meaningless crap, the world is moving to leave us behind. I would have to guess that the majority of Americans have no concept of what is going down. The higher we build our debt, the faster we will slide down to the bottom. What's at the bottom of the slide?

B/A

md11fr8dawg · October 26, 2017

You do not want to know my friend!!

Butifldrm · October 27, 2017

Lies And Distractions Surrounding The Diminishing Petrodollar

by Tyler Durden

Oct 26, 2017 11:55 PM

29

SHARES

Twitter Facebook Reddit

Authored by Brandon Smith via Alt-Market.com,

There are a few important rules you have to follow if you want to join the consortium of mainstream economic con-men/analysts. Take special note if you plan on becoming one of these very "special" people:

1) Never discuss the reality that government fiscal statistics are not the true picture of the health of the economy. Just present the stats at face value to the public and quickly move on.

2) Almost always focus on false positives. Give the masses a delusional sense of recovery by pointing desperately at the few indicators that paint a rosier picture. Always mention a higher stock market as a symbol of an improving economy even though the stock market is irrelevant to the fundamentals of the economy. In fact, pretend the stock market is the ONLY thing that matters. Period.

3) Never talk about falling demand. Avoid mention of this at all costs. Instead, bring up "rising supply" and pretend as if demand is not a factor even worth considering.

4) Call any article that discusses the numerous and substantial negatives in the economy "doom porn." Ask "where is the collapse?" a lot, when the collapse in fundamentals is right in front of your face.

5) Avoid debate on the health of the economy when you can, but if cornered, misrepresent the data whenever possible. Muddle the discussion with minutia and circular logic.

6) When a crash occurs, act like you had been the one warning about the danger all along. For good measure, make sure alternative economic analysts do not get credit for correct examinations of the fiscal system.

7) Argue that there was nothing special about their warnings and predictions and that "everyone else saw it coming too;" otherwise you might be out of a job.

Now, if you follow these rules most of the time, or religiously, then you have a good shot at becoming the next Paul Krugman or one of the many hucksters at Forbes, Bloomberg or Reuters. A cushy job and comfortable salary await you. Good luck and Godspeed!

However, say you are one of those weird people cursed with a conscience; becoming a vapid mouthpiece for the establishment may not sound very appealing. Or, maybe you just have OCD and you can't stand the idea of "creative math" when it comes to economic data. Whatever the case may be, you want to outline the deeper facts of the economy because the economy is life — it is the structure which holds together our civilization, and if we lie about it in the short term, then we only set ourselves up for catastrophe in the long run. Welcome to another dimension. Welcome to the world of alternative economics.

Every aspect of the U.S. economy or the global economy can be presented two very different ways depending on whether you "interpret" the data to fit a preconceived conclusion, or simply relay it to the public as it really is.

Let's use oil and the petrodollar as an example...

To illustrate the mainstream establishment reaction to legitimate economic concerns on oil, I highly suggest going back and reading an article by Foreign Policy, the official magazine of the Council On Foreign Relations, titled "Debunking The Dumping-The-Dollar Conspiracy," published in 2009. The idiocy of this article was truly bewildering at the time it was released, but even more so now in retrospect.

First, it is important to note that Foreign Policy refused to even acknowledge the issue of the dollar losing petro-currency status until Robert Fisk of The Independent, someone closer to mainstream exposure, dared to broach the topic, warning that a trend was in play to dump the dollar as the petro-currency by 2018. The alternative economic community had been warning about the world moving away from U.S. oil dominance for some time beforehand.

Second, the CFR uses a typical circular fallacy when confronting the potential end of the dollar's world reserve status; the fallacy that the dollar is the world reserve currency because "the U.S. is the preeminent world economic power." Actually, the reverse is true — the U.S. is the world's preeminent economic power only because the dollar has world reserve status. It was also once an industrial powerhouse after WWII, but this was ONLY because the U.S. was one of the few manufacturing hubs in the world that wasn't demolished by years of kinetic destruction. When you are the only game in town, of course you reap huge economic benefits including massive international investment, but not forever.

Today, obviously, the U.S. is far surpassed by other nations in the area of manufacturing and production, and has also been surpassed as the largest global importer and exporter. The "preeminence" argument is unmitigated garbage.

Third, almost every danger Foreign Policy dismissed as "conspiracy" back in 2009 is now coming true. Just as Robert Fisk warned, and just as the alternative economic community warned long before him, numerous shifts in the world of oil as well as geopolitical relationships have created a spiraling nexus of anti-dollar sentiment. Is it possible that the dollar will lose petro-status by 2018? Absolutely, and here is why...

While the U.S. remains the world's largest oil consumer according to the Energy Information Administration (EIA), American consumption of petroleum products has greatly diminished over the past few years; falling demand by increasingly destitute U.S. consumers has left oil producers searching for buyers elsewhere. The World Economic Forum noted in 2015 the drastic fall in U.S. demand since the 2008 debt crisis, but this admission went largely unnoticed in the mainstream media. Interestingly, while demand was crashing, the price per barrel continued to skyrocket because of the Federal Reserve's inflationary QE policies. Almost immediately after the Fed began tapering QE, oil prices drastically declined in line with the lack of existing demand.

In 2017, the EIA claims there has been a rise in global demand since the second quarter. And has "projected" increasing demand including higher U.S. demand going into 2018, outpacing supply.

image.png.14ce899d0deb6dbdf196cf18cdc4a805.png

Yet, at the same time the EIA admits a frustrating stagnation in global oil demand, with the U.S. being the primary drag on consumption since 2010.

image.png.e11af2d24530fcf1a7f429966a485c77.png

So, which trend are we supposed to believe? The one that is right in front of us, or the one that is optimistically projected? It is clear, even according to "official" statistics on crude oil imports, that the U.S. market began sinking in 2009 to levels not seen since the 1990's and has not recovered since. Everyone knows that each new year is supposed to bring exponential demand, like clockwork. But this has not been the case at all in the U.S.

Meanwhile, China has recently surpassed the U.S. as the world's largest oil importer, even though the EIA lists the U.S. as the world's largest oil "consumer."

The argument mainstream analysts would probably make here is that imports of oil are diminishing because U.S. shale oil is filling demand domestically. This argument overlooks the overall process of declining demand, though. The US is the largest consumer of oil NOW, but will that pace continue? According to the data, the answer is no. Americans are buying less petroleum products since the 2008 credit crisis, regardless of where they come from, and oil producers are seeking to diversify into other markets, and other currencies.

On top of that, even if it were true that imported oil is crumbling because US domestic oil is filling rising demand, this still begs the question - Why would oil producing nations stick with the dollar as the petrocurrency when the US has decided to take its ball and go home?

The US has now become a COMPETITOR in the oil market with shale, so why would OPEC nations and others also continue to give the US the enormous advantage of owning petrocurrency status?

In the meantime, the geopolitical situation grows more unstable. I believe the Iranian sanctions issue has gone ignored far too long, and this has direct repercussions on the dollar's petro-status. How? Well, consider this — Europe continues its appetite for Iranian oil, with 40 percent of Iran's oil exports going to the EU. With the very oddly timed U.S.-led effort by the Trump administration to renew sanctions, Europe has been caught in a catch-22; either defy sanctions and upset relations with the U.S. or lose a significant source of petroleum imports. For now it appears that the EU will support sanctions, but this time solidarity on the issue is nowhere near as strong as it was back in 2012.

With Iran as a major supplier for Europe as well as China, and overtaking Saudi Arabia as the top oil supplier for India, Trump's latest call to put economic pressure on the nation may add more fuel to the accelerating rationale against the dollar as the primary trade mechanism for oil. The question becomes, who benefits from American influence in oil, and who suffers? The more countries that suffer because of a world reserve dollar, the more likely they will be to look for an alternative.

China has deepened ties to Russia for this exact reason. With Russia supplanting Saudi Arabia as China's largest petroleum source, and bilateral trade between Russia and China cutting out the dollar as world reserve, this is just the beginning of the shift. In the past week it has been hinted that China will be shifting in the next two months into using its OWN currency, the Yuan, to price oil instead of using the dollar.

Saudi Arabia, America's longtime partner in the oil dominance chain, is now moving away from the old relationship. Tensions between the Saudis and the U.S. State Department over the rather surreal Qatar embargo are just part of a series of divisions. With China's influence in the region increasing, the mainstream has finally begun to acknowledge that Saudi Arabia may be "compelled" to trade oil in currencies other than the dollar.

Why is oil so important? Because energy, along with currency, is the key to understanding the state of the economy. When demand for energy goes stagnant, this usually means the economy is stagnant. When a nation has maintained a monopoly on global energy trade by coupling its currency to oil, an addiction can be formed and its financial structure becomes dependent in that addiction being continuously satiated.

Foreign Policy argued in 2009 that oil trade in dollars is "nothing more than a convention." I would actually agree with that in part; it is indeed a convention that can change dramatically at any given moment. But, Foreign Policy asserts that there would be no consequences for the U.S. if and when the change takes place and the dollar loses petrostatus. This is absurd. Trillions in dollars are held overseas and the singular function of those dollars is to fulfill international trade based on the "convention" of the dollar's world reserve status. What purpose do those dollar's serve if world reserve status is abandoned? The answer is none.

All of those dollars would come flooding back into the U.S. through various channels. Market psychology would immediately trigger a massive loss in the dollar's international value, not to mention incredible inflation would be spiking here at home. This process has already begun, and it is looking more and more like the next couple of years will bring a vast "reset" (as the IMF likes to call it) in the hegemony of certain currencies.

Some people believe this will be a wellspring, a change for the better. They think the death of the dollar will lead to "decentralization" of the global economy and a "multipolar world," but the situation is far more complex than it seems. I will go into greater detail in my next article as to why the dollar and the U.S. economy in general has actually been slated for deliberate demolition and how this will likely come about.

As far as oil and petro-status are concerned, the mainstream media is perfectly willing to report on the developments I have mentioned here in a fleeting manner, but at the same time they are completely unwilling to account for the effects that will result or the deeper meaning behind these events. They will report on the smaller stories, but refuse to acknowledge the bigger story. It is quite a contradiction, but a contradiction with a purpose.

http://www.zerohedge.com/news/2017-10-26/lies-and-distractions-surrounding-diminishing-petrodollar

Butifldrm · October 27, 2017

Petroyuan may supplant petrodollars as Russia’s oil and gas replace US influence in Asia

PUBLISHED : Thursday, 26 October, 2017, 1:21pm

UPDATED : Thursday, 26 October, 2017, 10:39pm

COMMENTS: 5

280f9240-ba0c-11e7-affb-32c8d8b6484e_128

Peter Guy

426SHARE

5

PrintEmail

The “Great Game” over oil and energy dominance is being played out in Asia’s energy markets. While US President Donald Trump plays a reactive, tactical game to “Make America Great Again” through unilateralism, China, Russia and Japan have their eyes on the long game. They are reshaping the global balance of power with bold, multilateral energy infrastructure plans and near-completed projects.

The Chinese President Xi Jinping’s recreation of the New Silk Road has attracted enormous attention as a high profile concept, whose public relations campaign has almost obscured any other regional infrastructure developments. But the Belt and Road Initiative, as it’s called, actually carries less near-term, economic and geopolitical impact than the vast gas pipeline infrastructure projects that are under way.

After years of high level meetings between political leaders and then engineers, a gas network from Russia to its Far East is coming together in a way that points towards evolving relationships. Whether it is a Kissinger-like, realpolitik goal of Russian strategic planning or sheer opportunism, these projects are reshaping and reducing China’s dependence on US oil and gas, shifting that dependence to Russia.

Through exports and investment deals, Russia has expanded its influence on Asia. CEFC China Energy last month bought 14.16 per cent of the Russian state crude oil producer Rosneft for about US$9 billion. The deal shows that the growing oil and gas relationship between Russia and China is more vital and real today - and in the near future - than building the New Silk Road. According to data by the Organisation of the Petroleum Exporting Countries, or OPEC, China’s total crude oil demand rose 6 per cent in July to 11.67 million barrels per day (BPD), from a year earlier.

Meanwhile, the US$55 billion “Power of Siberia”, a 3,000-kilometre gas pipeline built by Russian state gas producer Gazprom, will soon reach Russia’s border with China. The line is the realisation of a 30-year, US$400 billion deal that will deliver more than 1.16 trillion cubic metres of gas, starting in December 2019. It’s one of Russia’s most important energy investments and a commitment with China to forge a long term supply link.

For Russia, utilising its Siberian oil and gas fields to serve northeast China gives it an opportunity to expand into a major market outside of Europe. Gazprom supplies about a third of Europe’s gas. “Power of Siberia” could open up to 12 per cent of the Chinese gas market.

China benefits from the gas pipeline’s long term, reliable and cheap gas supplies. But, as the world’s biggest oil and gas importer, China is also making moves towards pricing its buys in its own currency, the yuan, instead of the US dollar. A shift away from petrodollar dominance is a critical step to assert the yuan as a global reserve currency.

Russia’s energy ambitions don’t end there. After many years of delay, engineers are finally starting to build a US$6 billion, 1,500km undersea gas pipeline to transport gas from the southern tip of Sakhalin island to the region around Tokyo, via Japan’s northern island of Hokkaido.

Japan, a land bereft of energy resources or mineral commodities, is entirely dependent on gas and oil imports, which are expensive to ship from the US or the Middle East. A Russia-Japan pipeline would reduce this dependence and expand Russia’s influence in Asia.

Russia also began talking with India in 2016 about the feasibility of building a US$25 billion gas pipeline, which aims to transport Russian gas from Siberia over 6,000 kilometres through Chinese territory. A project of such scope requires China’s permission and long-term cooperation, which would force the three one-time historical rivals to settle their difference for their own mutual benefit.

All of these projects will require immense funding from Asian capital markets, considering that the Russian economy and all the state energy companies are still choking for funds from global financial sanctions.

United Company Rusal, the world’s second-largest aluminium producer, was the first of the Russian resource giants to raise capital in Hong Kong, with its equity offering in 2010. It won’t be the last. Expect more Russian energy and resource companies to tap the city’s bourse.

Perhaps the profile of these fundraising activities will match the technology companies that the Hong Kong exchange is actively courting.

Russia’s ambitious gas and oil pipelines are not merely engineering marvels that must traverse some of the world’s most hostile and challenging terrain, but are also plans that cut through cold war legacies and distrust.

Few projects will advance the yuan’s internationalisation as effectively as dominance in oil and gas. Call it the rise of the petroyuan, and the demise of the petrodollar.

This article appeared in the South China Morning Post print edition as: Rise of the petroyuan

http://www.scmp.com/business/article/2117072/petroyuan-may-supplant-petrodollars-russias-oil-and-gas-replace-us

FlyHi · October 27, 2017

Mainstream economists continue to bury their heads in the sand.

It is amazing to see the speed of results from cooperation of once three former enemies as Russia lays the pipe work for gas supplies to China, India and Japan.

It is not being done by stealth it is unfolding right before our eyes.

Sorry guys the petrol dollar is doomed the petrol yuan will be the new big player with major benefit to Russia too. Smart chess moves Russia

No the you n China are playing the long game and working to a plan.

Butifldrm · October 28, 2017

The World's New Reserve Currency? Everything You Need To Know About PetroYuan

by Tyler Durden

Oct 27, 2017 9:00 PM

84

SHARES

Twitter Facebook Reddit

Earlier this week, we pointed out that the 'PetroYuan' is on the verge of becoming reality with Graticule's Adam Levinson noting that the birth of a yuan-denominated oil contract will be a “huge story” in the fourth quarter, and will be a “wake up call” for investors who haven’t paid attention to the plans.

As a reminder, nothing lasts forever...

Judging by the interest in the topic, investors are less informed than many believed and so the different teams within Société Générale Cross Asset Research examine what this contract would mean for the global oil markets and for the internationalisation of the yuan - if it gets off the ground.

Part 1 The proposed yuan-denominated crude oil futures contract

Why is a yuan-denominated Chinese crude futures contract interesting to think about? Why is it potentially significant?
Would yuan-denominated Chinese crude futures affect the physical markets?
Has China actually proposed changing its crude buying from USD to yuan?
What about the crude producers and exporters?
How much non-USD crude trade currently exists?
If small volumes don’t change how the oil market operates, how big would the volumes have to be to make a difference?
Is there another commodity that trades in multiple currencies at different exchanges that we can learn lessons from?

Part 2 Another step towards currency internationalisation?

Why does China want to introduce a yuan-denominated crude oil futures contract?
How can the yuan succeed in becoming a reserve currency?
What does the status of an international currency mean for the yuan?
What will an internationalised yuan mean to China’s FX reserves?

* * *

Part 1: The proposed yuan-denominated crude oil futures contract

In November 2013, the Shanghai International Energy Exchange (INE) was established. Fully owned by the Shanghai Futures Exchange, the INE began efforts to offer an alternative crude oil futures contract to the global oil markets. After four years, these efforts are continuing. The proposed contract is for medium sour crude oil, is physically deliverable, and – most significantly – would be denominated in yuan.

We begin with the oil markets.

Why is a yuan-denominated Chinese crude futures contract interesting to think about? Why is it potentially significant?

Such a contract would be a tool that would make it possible for crude exporters selling to Chinese refiners to hedge their sales in yuan. This could help any future effort by China to import crude using yuan; on the other side of the coin, it could also help any future effort by various crude exporters to sell crude in a currency other than USD.

In the abstract, the potential volumes are large, which is why this is worth thinking about. China is the world’s biggest crude importer, with net imports in January-July 2017 of 8.4 Mb/d (and trending higher); the second biggest crude importer is the US, with net imports of 7.2 Mb/d in January-July 2017 (and trending lower).

To put this into context, according to the IEA, in 4Q17, global product demand will be 98.5 Mb/d and global crude demand will be 82.2 Mb/d (including refinery runs and direct burn). Crude trade is much less, at 42.4 Mb/d in 2016, according to the BP Statistical Review; this excludes crude that is produced and consumed in the same country. In other words, Chinese net crude imports account for over 10% of the global crude market and almost 20% of global crude trade.

Would yuan-denominated Chinese crude futures affect the physical markets?

No, not at all. That’s not what this is about – there would be no impact on physical supply (like the example of natural gas – see below). In theory, if this were to happen, it would purely be about pricing. The global oil markets are denominated almost entirely in USD, so it is interesting to think about that landscape changing.

Has China actually proposed changing its crude buying from USD to yuan?

No. In recent years, there has been occasional general talk from China of moving away from the USD for purchases of crude oil and other commodities; however, we are not aware of any serious or concrete proposal on the table to start buying crude in yuan any time soon. That said, it is worth acknowledging that most Chinese crude buying is done by three large stateowned oil companies. Therefore, if it so chooses, the Chinese government certainly has the ability to push such an agenda; similarly, the government has the ability to push the use of INE crude futures for hedging crude in yuan.

What about the crude producers and exporters?

This is an important question to ask because it’s not just about what the Chinese want. As with any commercial transaction, both the buyer and the seller need to agree. In the case of crude oil, they need to agree on the volume, price, type and quality of crude as well as the delivery date and delivery location, among other things. However, the currency is almost always the USD – that is not a point of negotiation.

Over the years, including 2017, major crude producers such as Iran, Russia and Venezuela have talked about selling and exporting crude in non-dollar currencies. The reasons have been general geopolitical tensions with the US and Europe, and more specifically, oil-related sanctions; the use of non-dollar currencies may offer a way to circumvent oil-related sanctions, at least partially.

Hypothetically, if China were to have serious talks with Iran, Russia and Venezuela about importing crude and paying in yuan, that would be important because it would add another dimension to the geopolitical analysis. If sanctioned countries could simply side-step the measures by selling crude in yuan or other non-dollar currencies, it would mean that the risk of supply disruptions and potential upside risk for oil prices would be reduced.

How much non-USD crude trade currently exists?

It is very difficult to make an accurate and confident estimate. Again, depending on the political context, talk of non-dollar crude trade from the countries mentioned above comes and goes, and sometimes some deals are done more for political and public relations purposes than for anything else.

Our “guesstimate” is that such volumes probably amount to no more than 300-350 kb/d out of the 82.2 Mb/d global crude market noted above. For reference, to put that in terms of physical crude trade, 5 VLCC-size tankers each month carrying 2 Mb each would equal 333 kb/d. We would consider that, or its equivalent in smaller vessels, to be a generous estimate. We would consider 10 VLCCs or equivalent each month, or 666 kb/d, to be an extreme upside estimate but highly unlikely. This excludes barter arrangements and loans-for-crude deals. China lent Russia large sums of money after the global financial crisis in 2008-2009 in exchange for longterm crude supply deals; more recently, China had such an arrangement with Venezuela.

The bottom line, in our view, is that actual crude trade paid in cash but not using USD has never amounted to more than a few token cargoes. Importantly, when this does happen, the entire transaction and negotiation of the price is done in USD as usual, with pricing done the normal way; for example, both Urals and Dubai, which are key marker crudes in their own right, are priced as differentials to Brent. The only difference when a non-USD currency is used is that a last step is added, where the amount for the invoice is converted from USD into a different currency.

If small volumes don’t change how the oil market operates, how big would the volumes have to be to make a difference?

The question is really: what is the tipping point? How much non-USD crude trade does there need to be for the entire negotiation to take place in yuan, or rubles, or euros? In other words, what does it take for price discovery and price formation to take place not in USD but in another currency?

The short answer is that we don’t know. But something on the order of 7-8 Mb/d of crude trade seems to be a sensitive level from a practical standpoint. How do we come up with this? It’s simple: we are thinking about Saudi Arabia. Saudi crude exports have averaged 7 Mb/d through the first eight months of this year; in 2016, before the current OPEC cuts took effect, they averaged 7.6 Mb/d. The 7-8 Mb/d range works out to 16-19% of the 42.4 Mb/d global traded crude volumes.

Our view is that physical efforts to shift global crude trade away from US dollars seem doomed to failure unless the Saudis fully participate. Usually in matters of pricing, the other Middle East exporters follow the lead of the Saudis, so there is a “double whammy” effect and the volumes could start to increase quickly.

In this context, the warming relationship between Saudi Arabia and Russia becomes more interesting, too. Could the two countries cooperate on this in the same way they’ve cooperated on cutting production this year, in order to stabilise prices? Perhaps. That would add even more volumes because Russia is the second-biggest crude exporter in the world. According to the BP Statistical Review, Russian crude exports averaged 5.5 Mb/d in 2016.

However, the geopolitics of oil quickly gets complicated. Why would the Saudis want to do something (like encourage non-USD crude trade) that would benefit Iran? This is always true, but is even more true now at a time when US-Iran tensions are ramping up and the US is threatening to re-impose oil sanctions on Iran. Also, why would the Saudis want to do something that would diminish the value of their currency, which is pegged to the USD, their huge USD reserves, and other USD-denominated assets?

If it would take the Saudis to make a real fundamental change in moving the oil markets away from a sole reliance on the USD to a multiple currency market, from a Saudi perspective, the arguments “against” are at least as strong as the arguments “in favour”. In short, we are sceptical of Saudi support for such a move.

Rather than support from Saudi Arabia or a cooperative effort between Saudi Arabia and Russia, a more realistic and higher-probability scenario would be a move to non-USD crude exports led by Russia on its own or perhaps a cooperative effort between Russia and Iran – with China being the key crude buyer, using yuan, in all the scenarios. Without the inclusion of Saudi Arabia and other Middle East exporters such as the UAE, Kuwait and Iraq, the volumes involved with Russia and Iran would be much less; this would make a fundamental change in oil price formation away from USD slower and more difficult but not impossible.

Is there another commodity that trades in multiple currencies at different exchanges that we can learn lessons from?

The answer to this question is yes and the best example is natural gas. The point of making this comparison is that ultimately different denominated prices in the same underlying commodity do not affect the physical balances but do influence trade flows, arbitrage and market analysis.

The US natural gas market is the largest regional market in the world (IEA estimates it alone represented 21% of total global gas demand) and is almost entirely priced in USD (AECO, Canada’s most liquid supply point, prices in CAD/GJ). The US LNG market (imports and exports) are also denominated in USD.

The global LNG market is heavily indexed to USD as well, but that is due to the dominance of oil indexation in long-term LNG sales agreements; the USD dominance of the global LNG market thus reflects the dominance of USD in oil prices.

In Europe (which represents 13% of total global gas demand according to IEA estimates), there are two main natural gas price points. In the UK, the National Balancing Point (NBP) – the hub of UK gas trading – is denominated in GB pounds and pence/therm. In the Netherlands, the hub of natural gas trading is known as Title Transfer Facility (TTF), and this contract is in euros and euro cents per MWh. Recently, there has been an observed shift in the dominance of these price points regionally; critically, this is a function of the physical characteristics of the market rather than the currency used or the exchange rate.

Historically, NBP was the most liquid point and also the price structure included in European LNG sales contracts, making it the dominant global representation of the European market. Recently, however, TTF has seen an increase in liquidity (increased open interest) and has become increasingly reflective of the physical continental European market. Factors such as the higher carbon price in the UK, which has an impact on gas competitiveness/pricing within the regional power generation stack, the declining trend of the UK production profile, and the region’s increased dependence (seasonal switching) on the Interconnector pipeline between the UK and continental Europe have all contributed to the reduced ability of NBP to reflect the wider European market; hence the rise of TTF. Importantly, it is the changes in the physical market that have changed the competitive landscape among TTF and NBP, and it has little to nothing to do with the different exchange rates (although Brexit may have decreased NBP’s popularity).

The existence of varying price structures in the global natural gas market is a critical comparison to make for oil, which has the potential to see a rise in pricing in currencies other than the USD. It is important to emphasise that even with multiple price structures, global natural gas trading behaviour is dominated by physical market conditions. At the same time, there is sometimes an influence from fluctuations in exchange rates, making analysis of flows, arbitrage, and trading somewhat more complicated; however, supply and demand dynamics are not fundamentally affected.

Part 2: Another step towards currency internationalisation?

Why does China want to introduce a yuan-denominated crude oil futures contract?

The Chinese government wants the yuan to become an international currency. This means that it wants the yuan to be used widely in international transactions (a settlement currency), to be adopted as a pricing currency for goods and services in global markets (an invoicing currency), and to be considered as a store of value by international investors (an investing currency). The goal of internationalisation also goes hand in hand with the profile objective for the yuan to obtain a reserve currency status since these two are highly correlated. While it is currently unclear (or too early to discern) whether China is aiming for the yuan to become the reserve currency – dethroning the dollar – Chinese policymakers are certainly eyeing the yuan as one of the major reserve currencies.

China has been working much harder on this project since 2009. The process has moved at varying speeds depending on capital account pressures, domestic asset prices and growth considerations, but much progress has been made (see the timeline on the next page). A quarter of China’s exports and imports are settled in yuan, although most of them are still invoiced in other hard currencies.

The proposed yuan-denominated crude oil futures contract to be listed on the Shanghai International Energy Exchange (INE), fully owned by the Shanghai Futures Exchange, is another step on the road to promote internationalisation and erode the USD hegemony in the global financial system. While over the years, there have been some relatively small volumes of oil traded in non-USD currencies, including the yuan (as discussed in the oil section above), the value of oil is still priced in dollars. One of the main impacts of the proposed new crude futures contract, and presumably one of the intentions behind the proposal, is that by providing a yuandenominated financial hedging tool for crude oil, this will likely help to promote the appeal of the yuan as a pricing currency in global oil trade.

From the Chinese policymakers’ perspective, China should arguably have a bigger say in the pricing of commodities since it has become the biggest consumer of many of them. Also, the petro-dollar system seems to be a successful model to imitate: first, the yuan would be more widely accepted by natural resource exporters, and in turn, these exporters could invest their yuan revenues (as FX reserves) into yuan-denominated financial assets.

How can the yuan succeed in becoming a reserve currency?

To improve the yuan’s chances of becoming an international and reserve currency, the main areas of development would be strengthening the institutional framework, fully opening the capital account to foreign residents, allowing market forces to play a greater role and establishing and managing a policy framework that alleviates the risk of crisis over an extended period.

China technically joined the reserve currency club when the IMF added it to the SDR basket in September 2016. The narrow definition of a reserve currency is for currencies used for international trade and willing to be held by other central banks as part of their reserves. On these narrow criteria, China has achieved what few currencies have been able to do.

Realising “true” reserve status and supplanting or even meaningfully competing with the USD in the global financial system is a very high hurdle that will take time (maybe 10-20 years) and require further enhancements in various areas. A broader set of criterion (listed below) of a reserve currency highlights the enormous challenges that China faces:

Medium of exchange. Entities outside China would need to widely adopt the RMB for transactional purposes (i.e. trade settlement). The yuan trade/investment settlement, the offshore yuan market and the Belt & Road Initiative (BRI) would need to be promoted. China is making steady strides in this area, with now 25% of China’s cross-border transactions settled by yuan. According to the SWIFT, however, the yuan share in international payments has not been able to advance and has hovered around 2% since late 2014.

Store of value. Individuals, companies and central banks would need to have faith in the currency as able to preserve wealth. About 60 central banks now hold some RMB assets in their portfolios, but this amount only represented 1% of total global reserves at the end of 2016.

Liquidity and market access. To become widely accepted, a currency would need to have high liquidity with foreigners having unencumbered access to local financial markets. China has created numerous schemes for global investors to access its equity and bond markets, but it is only a start, with foreign investors’ share in onshore capital markets at merely 2%. Further liberalising the capital account for foreign residents would be a necessary condition.

Institutional framework. Ultimately, confidence in the legal, regulatory and policy framework would need to be paramount for foreigners to hold large quantities of the currency. The current (USD) and previous (GBP) dominant global reserve currencies already had these qualities before attaining their status.

In many ways, China is working in reverse order – pushing internationalisation before the others condition are in place. Critically, policy priorities would need to be reoriented. It will be a challenge for China to meaningfully challenge the USD’s dominance, but it is not insurmountable over the next 10-20 years provided China takes steps in opening up (full capital account convertibility), giving up control of markets and strengthening and improving transparency in its legal, regulatory and policymaking framework.

What does the status of an international currency mean for the yuan?

Before the reserve currency status can support the yuan, the yuan may have to continuously prove itself as a stable currency to boost its status as a reserve currency. We think that the fundamental factors of economic growth, debt risk and interest rate differentials will continue to play dominant roles in the yuan’s FX trends over the medium term.
A quick check of the history of the four major currencies – the dollar, euro, yen and sterling – since the 2000s suggests a visible and positive correlation between a currency’s traded weighted performance and its share in global FX reserves. However, correlation does not necessarily mean causality, and the causality can go both ways.

For instance, in the case of the yen and sterling, however, changes in their valuations look to have led their changing popularity among global reserve managers. The strength of the yen between 2009 and 2013 did not attract significantly more reserve inflows right away, probably because of the lacklustre economic development at the time. Sterling only started to gain a share in global reserves in 2003 despite its persistent strength since late 1990s.

For the yuan, we observe that the pace of yuan internationalisation was faster during the phase of currency appreciation or stability and slower when the yuan depreciated. This came despite the continuous policy efforts.

For the past seven years, USD/CNY has moved surprisingly closely with US-China yield differentials, and in the past three years the correlation of CNY to broad dollar moves has increased. Contrary to popular belief, the CNY shows few idiosyncratic tendencies and rather behaves in a similar manner to other EM/G10 currencies.

No matter what happens, the correlation between the CNY and the USD could remain high. The simple fact is that the correlation across most currencies is high over the cycle given that many top-down macro factors tend to drive FX over the medium term.

The CNY may, however, play an increasing role in leading currency cycles, just as the USD does now. This would mean an increasing importance of Chinese data, monetary and fiscal policy in affecting global currency trends.

What will an internationalised yuan mean to China’s FX reserves?

The project of yuan internationalisation comprises currency liberalisation, capital account open-up and domestic capital market deepening. Liberalising the currency implies that the central bank will intervene less and less in the currency market, and a relatively stable level of FX reserves is therefore most consistent with the goal of making the yuan an international currency.

Indeed, Chinese policymakers have repeatedly expressed their commitment to making the yuan a more flexible currency, freer from direct currency interventions by the central bank. However, it is also a stated goal for the yuan to maintain relatively stability against a basket of China’s major trade partners’ currencies. These two goals are only compatible when there is no major depreciation (or appreciation) pressure on the yuan resulting from major outflow (or inflow) pressure.

China’s FX reserves can recover this year after the $1tn drop over the previous 2.5 years because the yuan has managed to stabilise against the dollar and a basket of currencies. The yuan’s stability should be a function of 1) dollar weakness, 2) capital controls and 3) China’s stable growth this year. These three factors will likely be the main drivers of the trend in China’s FX reserves over the next few years. While there remains much uncertainty around the dollar, it seems that Chinese policymakers have honed the skill of capital controls. This ought to reduce the risk of sharp declines in FX reserves going forward.

In the meantime, we think the chance of China persistently increasing its FX reserves is also limited unless the weak dollar trend continues and accelerates. The relationship with the US is one factor, and domestically there will likely remain strong demand from Chinese households and corporates for investment diversification if China continues to rely on rapid debt growth and money creation to sustain its economic model (see Anatomy of China's outflows). As the developments in 2015 and 2016 proved, such capital outflow pressure could outweigh the support from a decent current account surplus for the yuan.

What will the yuan’s internationalisation mean to global FX reserves?

China’s share of global reserve portfolios should increase over time. Depending on whether it achieves true reserve currency status in the eyes of foreign participants, that share will be either low (5%), high (25%) or very high (25%+).

Emerging market central banks still need a significant amount of dollars to undertake intervention assuming their currency regimes are not fully flexible, and a precautionary stockpile is desired to manage balance of payments shocks. Against all EM currencies, except most notably the CEE euro bloc, the dollar is by far the most widely traded and liquid FX cross. Virtually all intervention is done in USD crosses, and one prerequisite for central banks to shift their anchor currency to the RMB would be CNY crosses that are tradable without underlying dollar transactions being required. For instance, while EUR/CNY is quoted and traded onshore through the CFETS, it requires dealers to facilitate the trade through two separate transactions (USD/CNY and EUR/USD). The sheer size of the Chinese economy, growing global financial linkages and increasing RMB trade settlement will see a shift in this direction over time, but it will be a very long and slow process. Products such as the proposed yuan-denominated crude oil futures contract will help to marginally speed up the progression.

Reserves can be divided into two broad categories: precautionary and excess. The precautionary portion needs to be in liquid assets to meet demand for foreign currency/dollars on short notice and mitigate balance of payments stress. Currently, these are mostly held in US government bonds or deposits, followed by European bonds, then UK, Japan, Canada and Australia down the list. China is below these. Gold is liquid but somewhat lower on the scale compared to deposits or government bonds, so there are natural limitations to how much central banks would hold.

The excess portion of reserves can be invested in anything, and central banks have an excess globally. Central banks have undertaken various diversification efforts over the past few decades, with the share of euros in global reserve portfolios for example having increased from 20% in 2002 to 27% in 2008 before falling back to 20% in 2016. Central banks have been more active in holding commodity currencies (CAD and AUD) over the past five years.
Russia has been buying a lot of gold. To do this, it either sells existing USD or other currency holdings, or when it intervenes and accumulates dollars it then diverts the currency to gold instead of treasuries. If central banks have excess reserves or do not want to accumulate more dollars, they could hold gold instead.

The proposed yuan-denominated crude oil futures contract reduces the need to use dollars for the transaction, but it does not change the outcome or address the fundamental question: do central banks want/need USD or yuan? They could have bought yuan previously. The proposed yuan-denominated crude oil futures contract does not make it an easier process. But for those countries subject to sanctions, it might be attractive. According to the 4Q16 IMF COFER report (link), foreign central banks held USD85bn in allocated reserves in the CNY (or 1% of global reserves). Total foreign holdings of Chinese bonds amounted to USD135bn, according to ChinaBond, suggesting the vast majority of holdings are from central banks.

If reserve manager allocations to the RMB doubled over the next five years, and if those inflows were spread out evenly over the period, they would amount to roughly USD6bn per quarter (or another USD100bn). While not insignificant, that is still a drop in the ocean compared to other balance of payments components. However, if reserve manager allocations reached the weighting of the JPY in allocated global reserves (4%), the inflows could be closer to USD500bn over five years. An allocation equivalent to the euro (around 20% of global) reserves could see nearly USD1.5trn in inflows.

It could be challenging for the CNY to reach a high weight if global reserves are not rising. In 2002-2008, when central banks were diversifying into euros, global FX reserves were rising sharply and a significant portion of the growth in reserves was due to China. During this period, central banks were buying dollars through intervention (in an attempt to keep their currencies weaker than otherwise) and with some of those newly acquired dollars they decided to diversify their holdings and buy euros. However, in the absence of a strong increase in global FX reserves going forward, it would present a significantly higher hurdle for reserve managers to diversify into the CNY. It would require active diversification out of other currency holdings (i.e. sell existing dollar assets) to acquire the CNY.

http://www.zerohedge.com/news/2017-10-26/everything-you-wanted-know-about-petroyuan-were-afraid-ask

Butifldrm · October 28, 2017

Putin’s revenge may see petro-yuan replace petrodollar

Bryan MacDonald is an Irish journalist, who is based in Russia

Published time: 27 Oct, 2017 17:07Edited time: 28 Oct, 2017 12:18

Get short URL

Putin’s revenge may see petro-yuan replace petrodollar

3.1K3

The key to the coming petro-yuan lies in Moscow. And, if the Chinese currency eventually succeeds in usurping the long-standing petrodollar, Washington will only have itself to blame.

News that China plans to launch a yuan-denominated oil futures contract by the end of this year has come as a surprise to many analysts. However, Russia experts aren’t startled in the slightest because this move has been coming since Moscow abandoned its quarter-century attempt to integrate with the West, following the 2014 Ukraine crisis. A catastrophe which the Kremlin blames on the United States and the European Union, as part of what it considers to be an attempt to reduce Russian influence in its "near abroad.”

READ MORE: US ‘Empire of Debt’ will go to war to stop emergence of petro-yuan – Max Keiser

Beijing’s scheme aims to shift trade in “black gold” from petrodollars to a proposed petro-yuan. Which benefits China by making its currency more attractive internationally and providing greater energy security. However, the biggest winners may well be in Moscow. Because any decline in the dollar’s status severely dilutes Washington’s ability to wage economic war against Russia, via sanctions.

As the world’s biggest petroleum producer, Russia is vital to Beijing’s project. And, in turn, as the planet’s largest crude importer and most sizable economy (measured by purchasing power parity), China is the only country with the heft to challenge American financial hegemony.

Of course, Vladimir Putin and Xi Jinping can’t achieve their aims alone. Because if the petro-yuan is to succeed, other leading oil-drilling nations, will need to come on board. And, while Iran, Indonesia, and Venezuela have indicated their interest in the project, the key is tempting the Arab states to trade in yuan. And this essentially means Saudi Arabian cooperation is the big prize.

Plan of Action

Because, after all, the petrodollar was born in Jeddah in 1974, when the US Treasury Secretary William Simon convinced the Saudis that America was the safest place to park their oil revenue. And this cash flow has allowed the US to live beyond its means for decades.

However, in recent years, relations have become frayed, with Washington’s support for its fracking industry crushing petroleum prices and causing severe fiscal pain for the Saudis. Indeed, the primary reason for Riyadh’s developing detente with Russia has been a mutual desire to prevent a further slide in energy earnings. As a result, earlier this month, King Salman made a historic visit to Moscow, where the yuan plan was surely on the agenda.

Informed analysts insist the Saudis will have to come on board: “I believe that yuan pricing of oil is coming and as soon as the Saudis move to accept it — as the Chinese will compel them to do — then the rest of the oil market will move along with them," Carl Weinberg, chief economist and managing director at High-Frequency Economics, told CNBC.

The Masterplan

The roots of the petro-yuan lie in a series of "color revolutions" in the former USSR, which convinced Moscow that the West would never treat it as an equal partner. This culminated in a March 2014 speech, in the Kremlin’s majestic Georgievsky Hall, where Vladimir Putin addressed over 1,000 Russian dignitaries. But this was no ordinary keynote. Because tensions between Russia and the West were at levels not seen since the Cold War.

Just a few weeks previously, Ukraine’s government had been violently removed and, amid the chaos, Moscow had hastily moved to reabsorb its “lost province" of Crimea. A strategically important peninsula, which had been controversially transferred to Kiev in 1954, when the two formed a union-state. At the same time, pro-Russian protests raged in the eastern Ukrainian cities of Donetsk and Lugansk.

CRYPTO REWARDS!

"It's A Huge Story": China Launching "Petroyuan" In Two Months

Recommended Posts

Link to comment

Share on other sites

Top Posters In This Topic

Popular Days

Top Posters In This Topic

Popular Days

Popular Posts

caz1104

SgtFuryUSCZ

Pitcher

Posted Images

Link to comment

Share on other sites

China Puts Oil on a Gold Standard

Link to comment

Share on other sites

Link to comment

Share on other sites

Link to comment

Share on other sites

Link to comment

Share on other sites

Mnuchin Threatens More Sanctions on China Over North Korea

Small Step

Link to comment

Share on other sites

US threatens action against China if it doesn't follow new North Korea sanctions

Kim Jong-un inspects weapon North Korea says is powerful hydrogen bomb

READ MORE

Link to comment

Share on other sites

Putin Orders End To US Dollar Trade At Russian Seaports

Link to comment

Share on other sites

Putin orders to end trade in US dollars at Russian seaports

Link to comment

Share on other sites

The Petrodollar Is Under Attack: Here's What You Need To Know

Link to comment

Share on other sites

Link to comment

Share on other sites

China Launches Yuan-Ruble Payment System

Link to comment

Share on other sites

China proven gold reserves at 12,100 tonnes at end-2016 - Xinhua

Link to comment

Share on other sites

"It's A Huge Story": China Launching "Petroyuan" In Two Months

Link to comment

Share on other sites

China has grand ambitions to dethrone the dollar. It may make a powerful move this year

Level playing field?

Final stage

'Well-advanced'

Link to comment

Share on other sites

Hedge Fund: China’s Petro-Yuan Plan Could Upend Oil Markets

Link to comment

Share on other sites

China Makes a Move on the USD

Link to comment

Share on other sites

Link to comment

Share on other sites

Link to comment

Share on other sites

Lies And Distractions Surrounding The Diminishing Petrodollar

Link to comment

Share on other sites

Petroyuan may supplant petrodollars as Russia’s oil and gas replace US influence in Asia

Link to comment

Share on other sites

Link to comment

Share on other sites

The World's New Reserve Currency? Everything You Need To Know About PetroYuan

Part 1: The proposed yuan-denominated crude oil futures contract