Guest views are now limited to 12 pages. If you get an "Error" message, just sign in! If you need to create an account, click here.

Jump to content
  • CRYPTO REWARDS!

    Full endorsement on this opportunity - but it's limited, so get in while you can!

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


Recommended Posts

 
 
 
 
 
AUTHOR`S NAMEDMITRIY SUDAKOV
 YESTERDAY AT 22:05

End of Western capitalist era and dawn of new era

By Sawraj Singh

 

In the last few months, so many things have happened that it appears as if Western capitalism is going to collapse sooner than anybody would have imagined. Both internal and external contradictions of capitalism have become so acute that the present crisis of Western capitalism may very well prove to be the terminal crisis. Among external factors, the most striking are Russia's growing military challenge and China's economic challenge. Internal contradictions in capitalist countries are also becoming sharp, particularly racial, cultural, and gender-based differences.                                                             

Russia has developed weapon systems which appear to have more capabilities than Western weapons. S-500 missiles and Satan 2 missiles are two of such weapons. The S-500 is a surface-to-air missile which will supplement the S-400 missile system. It is designed to intercept and destroy intercontinental ballistic missiles, hypersonic cruise missiles and aircraft. The Satan 2 is the biggest nuclear missile ever tested by Russia, which can destroy the whole of the UK, France or Texas with a single strike. Just like the AK47 rifle, these Russian weapons are unmatched by any Western country's weapons.                                                                                                                                                                                               
China is giving Western countries the biggest economic challenge in the last two centuries. China's Petro-Yuan is going to seriously challenge American dollar's hegemony. Other countries like Russia, Venezuela and Iran can bypass the American dollar and convert the Yuan directly into gold. This will make American and European countries' economic sanctions ineffective against them. If we look at the recent European sanctions against Russia, it becomes clear that these European countries hurt themselves more with these sanctions, than they hurt Russia. The American dollar may lose its status of the reserve currency of the world. It may start the de-dollarization of the world. If Saudi Arabia joins this de-dollarization campaign, then it can pose the most serious challenge to the world status of the dollar, which was established after the Breton Woods conference.                                                                                                  
Among internal contradictions faced by Western capitalist countries, the most serious at this time seems to be women coming out with their confessions of sexual harassment. These women are very well-known, like Hollywood actresses and other very accomplished women. If these women face this problem, then we can imagine what other women have to go through. According to some studies in the UK, more than 50% of women have come across sexual harassment and violence in their lifetime. Women constitute more than 50% of population in many of these countries. One can imagine the magnitude of this problem when more than half of the population of the country feels discriminated.                                                                                 
Men's attitude to women is not an isolated incidence limited to a few people, but is part and parcel of the capitalist culture. Men are raised with the attitude that having affairs and sex with many women is synonymous with having power and wealth. An equally disturbing fact is that women are given the feeling that it is acceptable to use their physical attractiveness and sexuality as a marketable commodity in capitalist society. In a way, both men and become victims of capitalist culture. Moreover, this also complicates the issue because it becomes very difficult to believe the sincerity of some of these women because they sometimes feel justified to use any means to advance their carriers and achieve success, and many years later retaliate against their alleged abusers because it can become financially lucrative or gets them wide publicity.

 

                                                             
In some capitalist countries, presenting yourself as a victim has become part of a culture which promotes this trend because there are others who have vested interest in this. Many lawsuits are started with this intention. There is still another phenomenon called shark-like instinct. When somebody is wounded, sharks are provoked to attack by the site and smell of blood. Similarly, when somebody is weakened, people feel that it is a good time to finish them off and get a part of the meat. Moreover, capitalism incites vengeance instead of forgiveness. In reality, capitalism has pushed people to primitiveness instead of civilizing them.

                                                     
Racial and cultural contradictions in the western capitalist countries are also becoming sharper. The white population is finding itself in a growing conflict with the minorities in these countries, whom they are blaming for everything which has gone wrong in their countries. This contradiction has become most acute with the Muslim population in these countries. Not only this is a racial and cultural contradiction, but Islam seems to have achieved the status of a counterculture to capitalism. The refugee problem in Europe seems to have taken this challenge to unprecedented levels. It is challenging the concept that the European civilization in essence is a Christian civilization.

 

All of these contradictions and challenges can hasten the demise of the western capitalist era, and a new era can dawn sooner than anybody could have imagined. The western capitalist order will be replaced by a multipolar order where the world is not dominated by any one country, race, color, religion or nationality. This is going to happen sooner than what anybody would have guessed. I feel this transition will occur before middle of the century (2050).

         
Sawraj Singh M.D. F.I.C.S.
Chairman, Washington State Network for Human Rights 
Chairman Central Washington Coalition for Social Justice  

 

http://www.pravdareport.com/opinion/columnists/27-10-2017/139055-0/

End of Western capitalist era and dawn of new era
 
 
139055_five.jpeg
 

In the last few months, so many things have happened that it appears as if Western capitalism is going to collapse sooner than anybody would have imagined. Both internal and external contradictions of capitalism have become so acute that the present crisis of Western capitalism may very well prove to be the terminal crisis. Among external factors, the most striking are Russia's growing military challenge and China's economic challenge. Internal contradictions in capitalist countries are also becoming sharp, particularly racial, cultural, and gender-based differences.                                                             

Russia has developed weapon systems which appear to have more capabilities than Western weapons. S-500 missiles and Satan 2 missiles are two of such weapons. The S-500 is a surface-to-air missile which will supplement the S-400 missile system. It is designed to intercept and destroy intercontinental ballistic missiles, hypersonic cruise missiles and aircraft. The Satan 2 is the biggest nuclear missile ever tested by Russia, which can destroy the whole of the UK, France or Texas with a single strike. Just like the AK47 rifle, these Russian weapons are unmatched by any Western country's weapons.                                                                                                                                                                                               
China is giving Western countries the biggest economic challenge in the last two centuries. China's Petro-Yuan is going to seriously challenge American dollar's hegemony. Other countries like Russia, Venezuela and Iran can bypass the American dollar and convert the Yuan directly into gold. This will make American and European countries' economic sanctions ineffective against them. If we look at the recent European sanctions against Russia, it becomes clear that these European countries hurt themselves more with these sanctions, than they hurt Russia. The American dollar may lose its status of the reserve currency of the world. It may start the de-dollarization of the world. If Saudi Arabia joins this de-dollarization campaign, then it can pose the most serious challenge to the world status of the dollar, which was established after the Breton Woods conference.                                                                                                  
Among internal contradictions faced by Western capitalist countries, the most serious at this time seems to be women coming out with their confessions of sexual harassment. These women are very well-known, like Hollywood actresses and other very accomplished women. If these women face this problem, then we can imagine what other women have to go through. According to some studies in the UK, more than 50% of women have come across sexual harassment and violence in their lifetime. Women constitute more than 50% of population in many of these countries. One can imagine the magnitude of this problem when more than half of the population of the country feels discriminated.                                                                                 
Men's attitude to women is not an isolated incidence limited to a few people, but is part and parcel of the capitalist culture. Men are raised with the attitude that having affairs and sex with many women is synonymous with having power and wealth. An equally disturbing fact is that women are given the feeling that it is acceptable to use their physical attractiveness and sexuality as a marketable commodity in capitalist society. In a way, both men and become victims of capitalist culture. Moreover, this also complicates the issue because it becomes very difficult to believe the sincerity of some of these women because they sometimes feel justified to use any means to advance their carriers and achieve success, and many years later retaliate against their alleged abusers because it can become financially lucrative or gets them wide publicity.

 

                                                             
In some capitalist countries, presenting yourself as a victim has become part of a culture which promotes this trend because there are others who have vested interest in this. Many lawsuits are started with this intention. There is still another phenomenon called shark-like instinct. When somebody is wounded, sharks are provoked to attack by the site and smell of blood. Similarly, when somebody is weakened, people feel that it is a good time to finish them off and get a part of the meat. Moreover, capitalism incites vengeance instead of forgiveness. In reality, capitalism has pushed people to primitiveness instead of civilizing them.

                                                     
Racial and cultural contradictions in the western capitalist countries are also becoming sharper. The white population is finding itself in a growing conflict with the minorities in these countries, whom they are blaming for everything which has gone wrong in their countries. This contradiction has become most acute with the Muslim population in these countries. Not only this is a racial and cultural contradiction, but Islam seems to have achieved the status of a counterculture to capitalism. The refugee problem in Europe seems to have taken this challenge to unprecedented levels. It is challenging the concept that the European civilization in essence is a Christian civilization.

 

All of these contradictions and challenges can hasten the demise of the western capitalist era, and a new era can dawn sooner than anybody could have imagined. The western capitalist order will be replaced by a multipolar order where the world is not dominated by any one country, race, color, religion or nationality. This is going to happen sooner than what anybody would have guessed. I feel this transition will occur before middle of the century (2050).

         
Sawraj Singh M.D. F.I.C.S.
Chairman, Washington State Network for Human Rights 
Chairman Central Washington Coalition for Social Justice       


Читайте больше на http://www.pravdareport.com/opinion/columnists/27-10-2017/139055-0/
  • Upvote 3
Link to comment
Share on other sites

The World’s New Reserve Currency? Everything You Need To Know About PetroYuan | Zero Hedge

October 29, 2017 administrator ChinaEconomics 0

 

20171026_petroyuan_0-1.jpg

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

by Tyler Durden Oct 27, 2017 9:00 PM

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…

20120103_JPM_reserve_0-1.png

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.

20171026_petro1_0-1.jpg

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.

20171026_petro2_0-1.jpg

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.

20171026_petro3_0-1.jpg

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.

20171026_petro4_0-1.jpg

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.

20171026_petro5_0-1.jpg

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.

20171026_petro6_0-1.jpg

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.

  • Upvote 2
Link to comment
Share on other sites

Iran Urges Russia To Ditch The Dollar, Isolate America

 
 
Tyler Durden's picture
Nov 3, 2017 5:00 AM
46
SHARES
TwitterFacebookReddit
 

Iran has suggested isolating the US by ditching the dollar during a meeting yesterday with Russian President Vladimir Putin in Tehran.

20171102_iran.jpg

Remonstrating against US threats to impose new sanctions and cancel the nuclear agreement, Ayatollah Ali Khamenei branded the US an enemy and urged Moscow to completely sever ties with the US currency:

 
 

"By ignoring the negative propaganda of the enemies, that seek to weaken relations between countries, we can nullify US sanctions, using methods such as eliminating the dollar and replacing it with national currencies in transactions between two or more parties; thus, isolate the Americans.

As The Express reports, Putin met Iranian political leaders in an effort to nurture a warming relationship strengthened since Donald Trump recently threatened to abandon the international nuclear deal with Iran reached in 2015.

The Russian premier criticised American interference in the region and described his country’s warm relations with Tehran. Despite the sanctions, Putin said:

 
 

“We devoted our funds to scientific and technological progress, and we had significant growth in the fields of biotechnology, IT, agriculture and space industries. Now, in spite of the initial concerns, we have realised that we can do whatever we decide to.”

Khamenei wants to step up cooperation to enable peace in the Middle East, Iranian state TV reported.

During the meeting with Putin, Khameini said:

 
 

"Full resolution of Syria's crisis needs strong cooperation between Iran and Russia. Our cooperation can isolate America. This cooperation will restore stability in the region.”

Mr Putin praised cooperation with Iran as "very productive," adding that "we are managing to coordinate our positions on the Syrian issue."

 

http://www.zerohedge.com/news/2017-11-03/iran-urges-russia-ditch-dollar-isolate-america

  • Upvote 3
Link to comment
Share on other sites

Iran suggests Russia help ‘isolate the Americans’ by ditching dollar

Published time: 2 Nov, 2017 09:18Edited time: 3 Nov, 2017 05:52
Iran suggests Russia help ‘isolate the Americans’ by ditching dollar
© Thomas Whit / Reuters
5.6K
The best way to beat US sanctions against Iran and Russia is joint efforts to dump the American currency in bilateral trade, according to Iranian Supreme Leader Ali Khamenei.

"By ignoring the negative propaganda of the enemies, that seek to weaken relations between countries, we can nullify US sanctions, using methods such as eliminating the dollar and replacing it with national currencies in transactions between two or more parties; thus, isolate the Americans," he said on Wednesday at a meeting with Russian President Vladimir Putin in Tehran.

According to Khamenei, economic relations have vast room for improvement. "In the transportation sector, we can expand cooperation, using the main axis of Chabahar port to the port of Saint Petersburg, as well as in other economic areas,” he said.

During the meeting, which lasted about an hour and a quarter, Putin replied that Russia considers Iran “a strategic partner and a great neighbor, and we will take advantage of every opportunity to expand and consolidate relationships in all dimensions.”

The Russian president said the US wants to interfere in all matters of the world and the region and often ignores interests of its allies to do so.

However, since 2014, despite the sanctions, “we devoted our funds to scientific and technological progress, and we had significant growth in the fields of biotechnology, IT, agriculture and space industries. Now, in spite of the initial concerns, we have realized that we can do whatever we decide to," said Putin.

Putin is visiting the Iranian capital to attend a trilateral summit with the leaders of Iran and Azerbaijan.

 

https://www.rt.com/business/408542-russia-iran-ditch-dollar/

  • Upvote 2
Link to comment
Share on other sites

The Economic End Game Continues

 
 
Tyler Durden's picture
Nov 3, 2017 10:40 PM
66
SHARES
TwitterFacebookReddit
 

Authored by Brandon Smith via Alt-Market.com,

In November of 2014 I published an article titled 'The Economic End Game Explained'. In it I outlined what I believed would be the process by which globalists would achieve what they call the "new world order" or what they sometimes call the "global economic reset."

20171103_alt.jpg

As I have shown in great detail in the past, the globalist agenda includes a fiscal end game; a prize or trophy that they hope to obtain. This prize is a completely centralized global economic structure, rooted in a single central bank for the world, the removal of the U.S. dollar as world reserve currency, the institution of the SDR basket system which will act as a bridge for single a global currency supplanting all others and, ultimately, global governance of this system by a mere handful of "elites."

The timeline for this process is unclear, but there is some indication of when the "beginning of the end" would commence. As noted in the globalist owned magazine The Economist, in an article titled "Get Ready For The Phoenix," the year of 2018 seems to be the launching point for the great reset. This timeline is supported by the numerous measures already taken to undermine dollar dominance in international trade as well as elevate the International Monetary Fund's SDR basket. It is clear that the globalists have deadlines they intend to meet.

That said, there have been some new developments since I wrote my initial analysis on the end-game strategy that I think merit serious attention. The end game continues, faster than ever before, and here are some of the indicators showing that the "predictions" of the globalists at The Economist in 1988 were more like self-fulfilling prophecies and 2018 remains a primary nexus point for a re-engineering of our economic environment.

Using The East To Dismantle The Petrodollar

As I mentioned in last week's article, 'Lies And Distractions Surrounding The Petrodollar,' there has been silence and often disinformation in the mainstream when it comes to the quite open and obvious international pivot away from the dollar as the defacto purchasing mechanism for oil. This trend is only set to accelerate in two months as China begins fulfilling oil contracts in the Yuan instead of the dollar.

The problem is that even in the alternative media there is a continuing myth that Eastern nations are angling to "break away" from the international order. I often see the argument presented that the loss of the petrodollar can only be a good thing for the world. I am not here to comment on whether the end of oil-denominated in dollars is a good or bad thing. I am here, though, to point out that there is absolutely no indication whatsoever that major eastern powers like Russia and China are acting to undermine the existing globalist system.

On the contrary, China and Russia remain, as ever, heavily partnered with the IMF as well as the Bank for International Settlements, and their ties to international banking monoliths like Goldman Sachs and JP Morgan are long established.

Eastern political and economic officials have consistently called for a new reserve system supplanting the dollar, this is true. But what so many analysts seem to overlook is that they ALSO call for that new system to be dominated by the IMF.

The delusion that the financial world operates on is that the IMF is "controlled" by the U.S. It is not. It is controlled by international bankers, who have no loyalties to any specific country. Once one understands this fact, the systematic sabotage of the U.S. makes perfect sense, as well as the collusion between China, Russia and the IMF. America is a sacrificial appendage of the globalist edifice and is being torn down piece by piece in order to feed the creation of something new and perhaps even more sinister.

As George Soros proclaimed back in 2009, the "new world order" would rely in part on China as a replacement economic engine for the globalist machine and depend far less on a diminishing United States. China would serve as a smaller engine, but a replacement engine none the less.

China is more than happy to oblige the globalists with a concerted  and incremental program of de-dollerization. But this does not mean that the end-goal is a "petroyuan." No, the goal is for the IMF to assert the dominance of the SDR basket system as a reserve hub. And, China is now the flagship market for the SDR after its recent induction into the fold. There will be no single reserve currency after the dollar is brutalized. At least, not until all currencies are homogenized through the SDR basket and finally replaced with a single global currency unit. Until then, the IMF or the BIS will dictate nation-to-nation trade and monetary exchange.

It only follows that this highly-volatile rebirth of the global financial order would begin in part with the dollar's loss of petro-status. The oil trade is the one defining element that gives the dollar a fundamental edge over all other currencies. It is the closest thing we have to commodity backing for the dollar and it is an advantage no other currency in the world can yet boast. There are many ways to destroy the dollar, but the BEST method would be to end its petro-status.

The Global Currency Unit Is Already Here

One argument I used to hear often from naysayers on global currency was that there "is no monetary unit with enough liquidity to replace the dollar." Of course, these people have no understanding of the SDR basket and how it could be used to envelop and absorb most if not all currencies into a single reserve mechanism. That said, I understand the confusion. When people think of currencies, they think of physical tickets of measurement; they want to see a piece of paper with symbols, or, they want to at least see a brand name for the product, which is what all currencies really are.

When The Economist in 1988 called for a global currency to launch in 2018, they were perhaps not aware of the exact form the destructor would take. Even in 2014 I was not fully convinced we had enough evidence on what that unit of measurement would be or look like. Today, it is clear as crystal — the one world currency system will not only be a cashless system, but it will also be based on digital blockchain technology.

As I examined in my article 'The Globalist One World Currency Will Look A Lot Like Bitcoin,' while some politicians and banking moguls publicly attack blockchain-based products like Bitcoin or Etherium, in the background they are actually heavily invested in these systems and are even building their own. With central banking mascots like Ben Bernanke becoming keynote speakers at blockchain conferences, it is not exactly an elusive secret that the global banks love blockchain tech.

Even major elitist corporations like Amazon appear ready to adopt blockchain products as currencies.  So, one needs to ask the question:  If the blockchain and Bitcoin are such a dire threat to the centralization of the establishment, why are they rapidly laying all the groundwork necessary for blockchain systems to replace paper currencies?

What is interesting to me is that even in the highly vigilant world of alternative economics, which is well aware of the trend towards a global currency system, blockchain systems are still revered as if they will save us from central bank tyranny. Very few people have noticed that The Economist call for a 2018 one world monetary framework has arrived slightly early; it has been right under our noses for several years. With blockchain-based methods of exchange, a replacement structure for the dollar and all other national currencies is not very far away.

20171103_alt1_0.jpg

The Federal Reserve Implosion Program Continues

I remember back before 2008 when the media almost never treated actions at the Federal Reserve as major news.  In fact, I remember back when the average American had never even heard for the Federal Reserve, and some believed the very existence of the institution was a "conspiracy theory".  Now, the nomination for the new Fed chair is at the top of the news feeds, but for all the wrong reasons.

The changing of the Fed chair is absolutely meaningless as far as policy is concerned.  Jerome Powell will continue the same exact initiatives as Yellen; stimulus will be removed, rates will be hiked and the balance sheet will be reduced, leaving the massive market bubble the Fed originally created vulnerable to implosion.  Equities in particular display the behavior of an out of control bullet train similar to the 2006/2007 bubble, or even the delusional exuberance prominent before the crash of 1929. 

All of this optimism is dependent on two things - dumb blind faith that all investors will continue to act in perfect concert to always "buy the dip", and, continued faith that central banks will forever step in to obstruct and reverse any market correction.

An observant person, however, might have noticed that central banks around the world seem to be acting in a coordinated fashion to remove stimulus support from markets and raise interest rates, cutting off supply lines of easy money that have long been a crutch for our crippled economy.  The Bank of England raised rates this past week, as the Federal Reserve indicated yet another rate hike in December.  The Europeans Central Bank continues to prep the public for coming rate hikes, while the Bank of Japan has assured the public that "inflation" expectations have been met and no new stimulus is necessary.  If all of this appears coordinated, that is because it is.

Fed policy is not dictated by the Fed chair, and it is certainly not dictated by Donald Trump. As former chairman Alan Greenspan openly admitted, the central bank does NOT answer to government, it is an autonomous policy making machine.  Fed chairs are as easily replaced as lawnmower parts; they are mascots for the banking system, nothing more.  Once they are "nominated" by the president, they take their orders from another source entirely, and I would even question the validity of the nomination process and how the original list of candidates is chosen.  For the real puppeteers at the Fed, one would need to look to an organization outside the U.S., called the Bank for International Settlements.

Many Subtle Changes Add Up To Unprecedented Instability

I think it is vital for people to consider time when it comes to economics. Changes we think were abrupt during historic moments of crisis were often not abrupt at all. Almost all financial crisis "events" were preceded by years if not decades of growing but subtle cracks in the foundation. If you were to travel back 10 years ago and explain to the average person (or the average mainstream economist) what is happening today, he would probably scoff indignantly. Yet today these things are accepted as commonplace, or ignored as unimportant.  Time and short attentions spans are the bane of free societies.

The skeleton of the "new world order" economy is right in front of us. The triggers for explosive change have already been planted. What concerns me is, when these changes come to fruition and crisis follows, will the masses even notice?

 

http://www.zerohedge.com/news/2017-11-03/economic-end-game-continues

  • Upvote 2
Link to comment
Share on other sites

China and Russia do not seek to attack the dollar to destroy it, but to create an independent alternative reserve currency for other nations.

Translated by Axis of Logic and Tortilla con Sal

RELATED:
1st Russia, Eurasia and Caribbean Conference Opens in Grenada

China, the only country with enough weight to challenge U.S. financial hegemony, has just announced through its People’s Bank a payment versus payment, PVP, system for transactions in Russian rubles and Chinese yuans so as to reduce the influence of the U.S. dollar on international transactions.

The grand design behind the One Belt, One Road Initiative, ICR, has an integral gold-based currency component that could change the balance of global power in favor of the Eurasian nations, from Russia and the Eurasian Economic Union, EAEU, countries to China and all of Asia.

The war dollar – bad business

The trade between China and Russia in their own currencies, bypassing the dollar, has become significant ever since the U.S. sanctioned Russia over the 2014 crisis in Ukraine, described by some as a very clumsy move by the Obama administration.

Since 1945, it has been well known that the U.S. world superpower status has been based on two pillars: the world’s most powerful military and the dollar as the world’s unchallenged reserve currency, which allows it to control the global economy. Since 1944 when all other currencies were linked to the dollar, the U.S. dollar began its ascendancy as the benchmark currency held by the world’s central banks. This linkage was reinforced by the fact that the OPEC countries agreed to sell their oil in dollars and that most global trade is financed in dollars. 

The U.S. dollar continues being the most important reserve currency. Currently 64 percent of the world’s financial reserves are still held in U.S. dollars with the Euro its closest rival at 20 percent. This gives the U.S. government an extraordinary advantage.

The U.S. has run a budget deficit in 41 of the last 45 years. This is a big disadvantage for many countries because their own central bank investments in U.S. Treasury bonds lose value. But they are more or less obliged to invest U.S. dollars they earn from their export surpluses, for example China’s central bank’s annual flow of U.S. dollars, or the U.S. dollars of Japan’s trade surplus, or Russia’s prior to 2014, or Germany and other countries with a trade surplus. This allows the United States to keep its interest rates low and to finance its budget and trade deficits relatively easily. This year the U.S. budget deficit reached US$585 billion.

This is how China and Russia have financed the U.S. military budget in recent years, by purchasing bonds and bills that allow the U.S. Treasury to finance this deficit without raising interest rates. The U.S. military budget is aimed at controlling China and Russia and the Eurasian bloc, and destroying their economies, while those countries need to hold dollar reserves against possible future U.S. currency wars.

Towards the internationalization of the yuan and the ruble

China, Russia, allied countries of Eurasia, the rest of the BRICS countries, countries of the Shanghai Cooperation Organization, SCO, and possible members such as Iran and Turkey, are preparing to reduce their vulnerability to a bankrupt world banking system. If they resort to bilateral currency agreements for their trade, bypassing the U.S. dollar, it will lose its reserve currency status and be replaced by other currencies, most probably the Chinese Yuan.

In 2014, China and Russia reached an agreement to exchange rubles and yuan for three years of up to an equivalent of 25 billion dollars. In May 2017, Russia and China established an investment fund worth 68 billion yuan (US$10 billion) and also plan to extend the bilateral currency exchange agreement for another three years. Trade between the two countries increased by a third in the first eight months of this year.

RELATED:
A New Era for Socialist China

In 2016, China joined the International Monetary Fund as one of the five main currencies in the currency basket by which the IMF calculates the value of its Special Drawing Rights. That step gave the yuan a big boost in international acceptance. Before 2004 it was not permitted as an instrument of international trade outside of China, but since then its monetary authorities have laid a careful foundation for the internationalization of the yuan, which already exceeds expectations, to become a global anchor, a reserve currency that will overtake the Euro in the next few years.

In a 2016 report, the HSBC bank reported that since 2012, the Yuan (or renminbi, RMB) has become the fifth most used currency in the world. Elvira Nabiullina, governor of the Central Bank of Russia said: "We have finished working on our own payments system, and if something happens, all operations in SWIFT format (World Society for Interbank Financial Telecommunication) will also work within our system. We have created an alternative,” something which alarms the U.S. Treasury, the Federal Reserve and Wall Street banks.”

"The world financial system needs more balance," said Russian Prime Minister Dmitry Medvedev  yesterday in a meeting with Chinese Premier Li Keqiang. "We are discussing the use of our own national payments systems, including China's UnionPay, and we are also developing our own Mir system." He revealed that the two countries will issue a joint payment system in the future.

Venezuela as a platform for the petroyuan

In 1974 the U.S. government worked out how to control the international oil trade by convincing the Saudi Arabian authorities that their petrodollars would be most secure in U.S. banks. But recently the U.S. hydraulic fracking industry has crushed oil prices, creating a fiscal problem for Saudi Arabia.

In order to avoid a steep fall in oil revenue, Suadi Arabia’s King Salman visited Moscow in early October where no doubt the plan for a petroyuan was discussed

China has been pushing for more use of the yuan in oil settlements. As the country has become the largest importer of oil, surpassing the U.S., it can call the shots internationally and provide greater energy security. So Beijing hopes to challenge the dollar by establishing a futures market with its own currency and reports indicate that China is willing to introduce a benchmark index of oil with a price in yuan in the coming months.

An oil futures market based on the yuan will stimulate demand for its currency that will give China strategic influence. The plan is to launch an oil futures contract on the Shanghai International Energy Exchange, INE, but convincing large oil producers and consumers to use the yuan and invest in the Shanghai benchmark faces obstacles.

RELATED:
China-Russia Trade Grew 35% in First Half of 2017: Medvedev

Without the participation of some oil producing countries, such as Saudi Arabia, Russia, Iran, Indonesia or Venezuela, it will be difficult to create a market that makes a difference.

Due to sanctions and global intimidation by the U.S. Treasury Department, Iran, in particular, was one of the first to adopt yuan-based oil sales. Now in 2017, Venezuela is following suit. For the same reason, Russia agreed to trade some oil based on the yuan in 2015. Any decline in the status of the dollar severely weakens Washington's ability to wage its economic war against Russia and destabilize the Eurasian bloc.

China and Russia do not seek to attack the dollar to destroy it, but to create an independent alternative reserve currency for other nations that want to protect themselves from increasingly frequent financial attacks by U.S. Treasury banks, Wall Street and hedge funds. For Venezuela it is about building a crucial element of national sovereignty because today’s dollar system is being used to devastate its economic sovereignty through sanctions that affect its social programs and investments, as well as its trade with the rest of the world.

Now, China and Russia’s system of settling bilateral payments is being extended to other Belt and Road Initiative countries in Eurasia, to the BRICS countries and to Venezuela as part of its geopolitical orbit, the Chinese government’s declaration contributes towards creating this alternative monetary system. Moreover, as an alternative backed by gold, independent of the politically explosive and speculative U.S. dollar system, in years to come it could protect China’s allies from economic attacks and financial war by Washington the European Union.

 

https://www.telesurtv.net/english/opinion/China-and-Russia-Digging-the-US-Dollars-Grave-20171107-0015.html

  • Upvote 2
Link to comment
Share on other sites

Why Launch of Oil Futures in China's Currency is Important

© REUTERS/ Jason Lee

US 100 dollar banknotes and Chinese 100 yuan banknotes are seen in this picture illustration in Beijing, China, January 21, 2016.

Why Launch of Oil Futures in China's Currency is Important

Why Launch of Oil Futures in China's Currency is Important

 

 

OPINION

21:24 10.11.2017Get short URL
123761441

China's decision to launch yuan-denominated oil futures backed by gold may deal a substantial blow to the petrodollar and open the door to the further internationalization of the renminbi. Chinese scholars have told Sputnik that Beijing is ready to take risks and push ahead with its "petro-yuan" project.

The launch of oil futures denominated in yuan is an important step toward the internationalization of the Chinese currency, Cheng Fengying, research fellow at the World Economy Institute of the China Institutes of Contemporary International Relations (CICIR), told Sputnik.

"Now is just the right moment: Oil prices are low, supply exceeds demand and China is the largest consumer of oil," Cheng highlighted speaking to Sputnik China.  "If we do not set the payments in yuan now, we will not learn how to influence prices and when the market situation changes and demand exceeds supply, we will be in a losing position."

 

The researcher admitted that China is facing certain risks related to its plan to price oil in yuan using futures contract, such as the outflow of investments and currency.

 

According to Cheng, the process of internationalization of the yuan "could be compared to the boundless ocean": "It all depends on our ability to swim and take risks. We are prepared for risks. For example, a committee under the People's Republic of China (PRC) State Council to oversee financial stability and development was set up [on Wednesday]."

The official statement quoted by Xinhua News Agency reads that the Committee "will be tasked with deliberating major reform and development programs for the financial sector, coordinating financial reform, development and regulation, coordinating issues concerning monetary policy, and coordinating the making of financial policies and related fiscal and industrial policies."

What is the Major Advantage of China's Oil Futures Being Priced in Yuan?

Wang Zhimin, director of the Center for Globalization and Modernization at China's Institute of Foreign Economy and Trade, regards the possibility of converting futures into gold as a competitive advantage over Brent and West Texas Intermediate (WTI) benchmarks.

"Settlements in renminbi will be convenient, because the 'petro-yuan' can then be converted into gold," Wang told Sputnik. "It is very good. After all, the Bretton Woods system was supposed to be tied to gold. Although [the dollar's convertibility into gold] was suspended [in 1971], gold still remains a solid commodity."

 

The Chinese scholar highlighted that given the instability in the global economy, the precious metal has taken on a new significance.

 

Wang noted that some countries, such as Russia, have already agreed to trade oil with China in yuan. He believes that gold-backed futures contracts will attract even more attention from global players.

While Russia has been receiving payments in yuan for oil supplies to China since June 2017, Venezuela has also jumped at the opportunity to nominate oil prices in the Chinese currency. The logic behind the move is clear: It is advantageous for some countries subjected to US sanctions to avoid transactions in dollars. All these countries — Russia, Iran and Venezuela — are major suppliers of crude.

Wang believes that even Saudi Arabia, which has been trading hydrocarbons in US dollars since the 1970s, as a result of an agreement struck by the Gulf monarchy and its neighbors with then President Richard Nixon, may soon switch to the yuan.

"The US will import less and less oil due to its 'shale revolution' while Chinese imports will not decline, on the contrary, it will grow," the Chinese scholar emphasized. "The number of cars [in China] will increase, the economy will develop, and energy consumption will grow. Therefore, it is not in Saudi Arabia's interest to lose the Chinese market."

 

US 100 dollar banknotes and Chinese 100 yuan banknotes are seen in this picture illustration in Beijing, China, January 21, 2016.
© REUTERS/ JASON LEE
Moreover, Russia is ready to occupy this niche: it has outpaced the Gulf kingdom by selling 52.5 million tons of oil to China worth $16.87 billion. The Saudis seem to understand the risks and will likely turn to the Chinese currency for at least some of its contracts, the scholar surmised.

 

Furthermore, in September 2017, the China Daily noted that "Saudi Arabia is willing to consider funding itself in Chinese yuan." According to the media outlet, "obtaining some funds in Chinese yuan will diversify Saudi Arabia's financing channels after it borrowed tens of billions of US dollars overseas last year."

In October, CNBC reported, citing Carl Weinberg, chief economist and managing director at High Frequency Economics that the Chinese may "compel" Riyadh to shift to yuan pricing of oil. The media outlet added that Saudi Arabia currently remains "at the crux of the petrodollar." 

"Moving oil trade out of dollars into yuan will take right now between $600 billion and $800 billion worth of transactions out of the dollar," Weinberg estimated, as quoted by the media outlet.

China's decision to price crude in yuan using gold-backed futures is aimed at "dethroning" the dollar, Sri Jegarajah of CNBC wrote on October 24.

The journalist cited Gal Luft, co-director of the Institute for the Analysis of Global Security, a Washington-based think tank focused on energy security, who stressed that although the move has not become a "game changer" yet, it "is another indicator of the beginning of the glacial… decline of the dollar."

https://sputniknews.com/analysis/201711101058998483-china-yuan-dollar-oil-futures/

  • Upvote 3
Link to comment
Share on other sites

China’s Next Step to Destroy the Dollar
Byron King

BY BYRON KING
POSTED 
MAY 31, 2017

 
 

China’s Next Step to Destroy the Dollar

China is currently modifying the terms of its oil trade with Saudi Arabia. Specifically, China is working on a deal to pay for Saudi oil using Chinese yuan. This effort poses a direct threat to the security of the dollar.

If this China-Saudi deal happens — yuan for oil — it’s another step closer to the grave for the petrodollar, which has dominated global finance since 1974. You can revisit Jim Rickards article about the Assault on the Dollar, here.

To recap, the petrodollar is weakening because the dollar is losing power as the world’s reserve currency. This is similar to the way pounds sterling gradually fell out of favor during the decline of the British Empire. The decline may take a long time, but what we’re seeing today is another step in the death march of the dollar.

I’ll tell you how to protect your wealth in dollars after I explain this shift.

Since 1974, Saudi has accepted payment for almost all of its oil exports — to all countries — in dollars. This is due to an agreement between Saudi and the U.S., dating back to the days of President Nixon.

Beginning about 15 years ago, China ceased being self-sufficient in oil, and began buying Saudi oil. As per all Saudi customers, China had to pay in dollars. Even today, China still pays for Saudi oil in U.S. dollars and not yuan, which perturbs China’s leaders.

Since 2010, China’s total oil imports have nearly doubled. According to Bloomberg News, China has surpassed the U.S. as the world’s largest oil importing nation. Here’s a chart, showing the trend.

Dollar Gold New Levels Bloomberg

As China imports more and more oil, the idea of paying for that oil in yuan instead of dollars becomes more critical. China does not want to use dollars to buy oil. So, China is beginning to squeeze Saudi over the form of currency in which their oil trade is conducted. China is doing this by steadily lowering its oil purchases from Saudi.

Presently, China’s three top oil suppliers are Russia, Saudi and the West African nation of Angola. Backing-up these three key suppliers are a combination of sources in Iran, Iraq and Oman, which help to diversify China’s oil-supply chain.

In the past few years, China has shifted oil purchases away from Saudi, and Russia’s oil exports have risen from 5% to 15% of the Chinese total.

China imports more oil from Russia, Iran, Iraq and Oman; less from Saudi.

Saudi’s share of Chinese imports has dropped from over 25% in 2008, to under 15% now. Meanwhile, Saudi competitors Russia, Iran, Iraq and Oman are selling more oil to China.

Saudi would like to reverse this declining trend of oil-trade with China. However, these kind of major oil flows don’t just happen in a vacuum.

There’s a good reason why Russian oil sales to China are increasing. As you’ll see in Nomi’s article, trade and financial services are often closely linked. Over the past few years, China has deepened its trading roots with Russia — now, China pays for Russian oil in yuan. Russia, in turn, uses yuan to buy goods from China.

Beyond trade in goods, within the past six months Russia has set up a branch of the Bank of Russia in Beijing. From there, Russia can use its Chinese yuan to buy gold on the Shanghai Exchange. In a sense, Chinese-Russian oil trade is now backed-up by a “gold standard.”

Looking ahead, Saudi Arabia will find itself more and more locked-out of the Chinese oil market if it won’t sell oil for yuan. But to do this, the Saudis must move away from U.S. dollars— and from petrodollars — if Saudi wants to maintain and increase access to China’s oil market.

We’ll know more about the likelihood of this after Donald Trump’s tour of the Middle East.

If Saudi begins accepting yuan for oil, all bets are off on the petrodollar. Yuan-for-oil will entirely change the monetary dynamics of global energy flows. I expect the U.S. dollar to weaken severely when that news breaks.

Much of this oil-for-yuan news is public information. Yet, for some strange reason, there’s a form of blindness within western policymaking and media circles concerning the implications of yuan-for-oil. The idea is so “off-the-wall” that many policy leaders simply ignore it.

Ignore away. But we could wake up one morning in the midst of a massive currency crisis, in which dollar values are falling and oil prices in dollars are soaring.

Jim and I strongly recommend a 10% allocation of your investable portfolio to precious metal.

Regards,

Byron King
for The Daily Reckoning

https://dailyreckoning.com/china-destroy-dollar/

  • Upvote 2
Link to comment
Share on other sites

Lagarde: China's move to liberalize financial system "positive towards development"

Lagarde: China's move to liberalize financial system "positive towards development"
 
 13 November 2017 01:24 PM

The International Monetary Fund (IMF) chief described China's plan to ease restrictions on foreign ownership within financial systems as "a very positive step towards development."

Christine Lagarde told Bloomberg on Sunday that the partial removal of the restrictions is a reference to the first two things opening up, and the second to better trust in their financial system.

China's official authorities announced at the end of last week that Beijing would raise the cap of foreign equity in insurance and domestic securities companies to 51 percent.

But so far, the date of implementation has not yet been set, while the deputy finance minister said China would announce the timetable and road map.

Lagarde added that China's monetary policy makers are responding to the call for control of credit-backed growth.

The fund manager explained that they discussed the debt issue with the central bank of China and other authorities, and took measures to avoid the economic expansion of credit.

  • Upvote 2
Link to comment
Share on other sites

How the Developments in Saudi Arabia May Foretell Collapse of Petrodollar
 
 
15:37 14.11.2017(updated 16:23 14.11.2017)Get short URL
31223150

Saudi Arabia’s crown prince Mohammed bin Salman has vowed to return his country to "moderate Islam"; the pledge was followed by the dismissal and detainment of many of the country's high-profile princes and businessmen. Turkish energy analyst Dr Volkan Ozdemir commented that it is not about politics but rather about economics and petrodollars.

In his interview with Sputnik Turkiye, Volkan Ozdemir, the Chairman of Ankara-based EPPEN (Institute for Energy Markets and Policies), said that Riyadh is possibly cleaning out the opponents to the oil trade in US dollars and the changes the country is currently living through could be viewed as part of the US' attempt to fight against a strengthening China.

His comments refer to the latest developments in Saudi Arabia, with numerous dismissals and reshuffling of the country's government.

Saudi Arabia's Crown Prince Mohammed bin Salman sits during an allegiance pledging ceremony in Mecca, Saudi Arabia June 21, 2017
© REUTERS/ BANDAR ALGALOUD/COURTESY OF SAUDI ROYAL COURT
Saudi Arabia's Crown Prince Mohammed bin Salman sits during an allegiance pledging ceremony in Mecca, Saudi Arabia June 21, 2017

Dr Ozdemir recalled that Saudi Arabia remains the world leader in oil exports – producing about 10 million barrels per day and exporting about 7 million barrels daily.

"For the last 44-45 years, the petrodollar system has been ruling the world, which means that the international oil trade had been mostly paid for in US dollars. It stems from the Middle Eastern crises of the 1970s, when Saudi Arabia bound itself to selling oil only in US dollars. Given that Saudi oil has played the major role in the US dollar becoming the world's reserve currency, the US turned into the guarantor of the security of Saudi Arabia. Being the world's reserve currency, the US dollar has remained the foundation of the US' global hegemony," the expert explained.

READ MORE: End of Petrodollar: Rise of Economic Protectionism to Reshape Global Trade

In the past few years however, especially during the last term of Barack Obama, this status quo began to change due to the rapprochement between the US and Iran, he further noted. After the Arab Spring, the Saudis started feeling a threat to the country’s security and doubts emerged over whether the US will cease being its protector and turn instead to Iran.

These very doubts have highlighted the need for the royal family to opt for other guarantors of its security besides the US, thus, for the first time in 3-4 years there is a split within the family with regards to the oil trade.

These differences within the country's royalty, however, should be viewed alongside certain other external factors, the energy analyst noted.

"First, after becoming self-sufficient in natural gas supplies, the US is becoming self-reliant in oil, which means it has less demand for Saudi energy resources. In other words, it has yielded to China as the major consumer of Saudi oil," Dr Ozdemir explained.

However China, he further elaborated, is moving towards its 2020 goal, which is the deadline to setup its own indexes for oil and natural gas trading at the Shanghai International Energy Exchange. This implies that China is targeting abandoning the petrodollar and at switching to the petro-yuan backed by gold or other precious metals.

READ MORE: Venezuela Seeks Dollar Freedom by Pricing Oil in Yuan

According to the expert, China and Saudi Arabia have recently been negotiating the possibility of oil trading in yuan, which has received the backing of many high-ranking Saudis. This has coincided with the election of Donald Trump, who, unlike Barack Obama, announced his adherence towards a conservative American foreign policy.

Hence, cooperation with Saudi Arabia and Israel against Iran topped the agenda, Dr Ozdemir pointed out.

"Therefore, as I see it, there is an ongoing process in Saudi Arabia of cleaning out the elements who are against the petrodollar system," he explained.

Dr Ozdemir, however, said that the petrodollar system has little chance of survival in the long-term.

"Although with the election of Trump, the supporters of this system have won in the short-term, it has no chance for success in the long-term. We should expect new moves from other large oil suppliers into China, namely Russia and Iran. If we review who the major oil importers to this country are, it is Russia in the first place, then Iran and only then Saudi Arabia. For the petrodollar system to keep working, Iran will be chosen as a target," the expert suggested.

(Front R-L) Jordan's King Abdullah II, Saudi Arabia's King Salman bin Abdulaziz Al Saud, U.S. President Donald Trump, and Abu Dhabi Crown Prince Sheikh Mohammed bin Zayed al-Nahyan pose for a photo during Arab-Islamic-American Summit in Riyadh, Saudi Arabia May 21, 2017
© REUTERS/ JONATHAN ERNST
(Front R-L) Jordan's King Abdullah II, Saudi Arabia's King Salman bin Abdulaziz Al Saud, U.S. President Donald Trump, and Abu Dhabi Crown Prince Sheikh Mohammed bin Zayed al-Nahyan pose for a photo during Arab-Islamic-American Summit in Riyadh, Saudi Arabia May 21, 2017

In support of his theory, he said that Donald Trump has already canceled some of the US' agreements with Tehran and will do his utmost to preserve the US hegemony. However he doubted that these efforts have any chance of success in the medium-term. He suggested that the US might succeed in deterring Iran through Saudi Arabia but doubted that Washington will be able to contain it through Yemen, and this could ultimately change the situation.

READ MORE: Russia, China Considering Possibility of Linking National Payment Systems

Dr Ozdemir noted that the fact that the International Monetary Fund has recognized the yuan as an official reserve currency, the new system which China is introducing in its international payments, the development of bank clearing only confirm that Russia and China are strengthening their capabilities and will soon switch to their national currencies for all payments.

The expert also noted that recent developments in the Asian-Pacific region signal that this region is coming to the forefront – with China being in the very center of affairs. This might well signify the last stage of the US hegemony and petrodollar system, he concluded.

https://sputniknews.com/analysis/201711141059085004-saudi-arabia-oil-petrodollars/

  • Upvote 4
Link to comment
Share on other sites

  • 4 weeks later...

De-Dollarization Continues: China, Iran To Eliminate Greenback From Bilateral Trade

 
 
Tyler Durden's picture
Dec 7, 2017 7:25 PM
12
SHARES
TwitterFacebookReddit
 

The more Washington lashes out in anger at those who will not bow to the unipolar world order, the more the rest of the world fights back. As the launch of its Yuan/Gold-settled oil futures loomsChina is escalating its de-dollarization scheme further by seeking a bilateral rial-yuan agreement with Iran.

As a reminder, nothing lasts forever...

20120103_JPM_reserve_0.png

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, and now, as RT reportsTehran and Beijing are determined to find ways to avoid using the US dollar as a settlement currency in trade, according to a report by Iranian economic daily Financial Tribune.

20171205_yuan.jpg

The topic of de-dollarization was raised at a meeting between leading Chinese government political adviser Chen Yuan and Iranian central bank officials in Tehran.

 
 

“Rial-yuan’s bilateral monetary agreement can have a significant role in increasing the volume of trade between the two countries and in this regard, we have conducted a series of negotiations with the central bank of the Republic of China’s president,”  said the Central Bank of Iran’s Governor Valiollah Seif.

Tehran has been pursuing the goal of eliminating the dollar in its trade, and has been trying to sign currency swap agreements with a few target countries.

20170601_chinaa_0.jpg

Chen said that Iran and China should develop their banking links and also underlined the unfairness of the existing financial system, dominated by a few developed countries. He added, other nations would do better if the unfair system is eliminated.

 
 

“We could use the experiences of European countries in establishing the euro as a common currency between many countries, which is not exclusively controlled by a single country. But until then, we need to utilize the maximum available capacities to expand our banking relations,” he was quoted as saying by the Iranian daily.

As Federico Pieraccini previously noted, until a few decades ago, any idea of straying away from the petrodollar was seen as a direct threat to American global hegemony, requiring of a military response. In 2017, given the decline in US credibility as a result of triggering wars against smaller countries (leaving aside countries like Russia, China, and Iran that have military capabilities the likes of which the US has not faced for more than seventy years), a general recession from the dollar-based system is taking place in many countries.

In recent years, it has become clear to many nations opposing Washington that the only way to adequately contain the fallout from the collapsing US empire is to progressively abandon the dollar. This serves to limit Washington’s capacity for military spending by creating the necessary alternative tools in the financial and economic realms that will eliminate Washington's dominance. This is essential in the Russo-Sino-Iranian strategy to unite Eurasia and thereby render the US irrelevant.

De-dollarization for Beijing, Moscow and Tehran has become a strategic priority. Eliminating the unlimited spending capacity of the Fed and the American economy means limiting US imperialist expansion and diminishing global destabilization. Without the usual US military power to strengthen and impose the use of US dollars, China, Russia and Iran have paved the way for important shifts in the global order.

The US shot itself in the foot by accelerating this process through their removal of Iran from the SWIFT system (paving the way for the Chinese alternative, known as CIPS) and imposing sanctions on countries like Russia, Iran and Venezuela. This also accelerated China and Russia’s mining and acquisition of physical gold, which is in direct contrast to the situation in the US, with rumors of the FED no longer possessing any more gold. It is no secret that Beijing and Moscow are aiming for a gold-backed currency if and when the dollar should collapse. This has pushed unyielding countries to start operating in a non-dollar environment and through alternative financial systems.

For China, Iran and Russia, as well as other countries, de-dollarization has become a pressing issue.

 

http://www.zerohedge.com/news/2017-12-05/de-dollarization-continues-china-iran-eliminate-greenback-bilateral-trade

  • Upvote 2
Link to comment
Share on other sites

China's Push to Trade Oil in Yuan Faces a Key Hurdle

By 
Enda Curran
 and 
Chris Anstey
December 6, 2017, 10:01 AM CST Updated on December 7, 2017, 3:16 AM CST
  • Proposal for a yuan crude oil futures contract gains attention
  • Success seen hinging on how much freedom officials will allow

China’s moves to set up trading oil in yuan have sparked enthusiasm about what could be a shift in the global financial system: a reduced role for the U.S. dollar. Players like Adam Levinson, founder of hedge fund Graticule Asset Management Asia, call it a "huge story" to come.

 

But with policy makers prioritizing market stability over internationalization, plans laid back in 2012 to start oil-futures trading priced in yuan or dollars in Shanghai that year are still pending. The latest from the city’s International Energy Exchange: it’s coming soon, with test trades scheduled this weekend.

 

"This contract has the potential to greatly help China’s push for yuan internationalization," said Yao Wei, chief China economist at Societe Generale SA in Paris. "But its success will hinge critically on the degree of freedom allowed for the capital flows related to the contract," she said.

 

As the world’s largest energy consumer and an increasing source of investment capital for oil-producing nations, China has an interest in using its own currency rather than that of a geopolitical competitor. One hurdle for setting up a rival to Brent or West Texas Intermediate: Overseas oil producers and traders would need to swallow China’s capital controls and penchant for occasional market interventions.

 

Similar hurdles have kept foreign investors as bit players in China’s giant mainland stock and bond markets.

800x-1.png

Chinese authorities have avoided the kind of big international push that accompanied their campaign to get the yuan into the International Monetary Fund’s basket of official reserve currencies in 2015, suggesting ambitions for pricing commodities in yuan remain restrained for now. There was no mention of the petro-yuan in key National Development and Reform Commission documents following a pivotal October Communist Party leadership gathering.

The latest developments have been incremental. Shanghai’s INE plans to conduct a drill to test trading, settlement and quote transmission of crude futures Dec. 9-10. No date was announced for the debut. Back when futures were proposed in 2012, it followed spikes in crude prices above $100 a barrel. Nowadays, oil is much less costly, at under $60 and averaging little more than $50 this year.

Saudi Hopes

The prospect of the Middle East embracing the petro-yuan has been stoked in part by speculation that Saudi Arabia could announce it will accept the yuan for some of its exports to China.

 

"The currency’s influence in the region is set to grow in tandem with Xi’s proactive and assertive foreign policy," economists led by Chris Leung at the Singaporean bank DBS Group Holdings Ltd. wrote in a report titled "China in 2018/19: The Age of the Strongman." Xi’s signature Belt and Road Initiative of developing ties across Eurasia "will be an indispensable catalyst for greater use of the yuan on oil settlement," the team wrote.

Saudi Arabia’s Energy Ministry and Saudi Aramco, its state-run oil company, declined to respond to requests for comment on being open to accepting yuan for payment. U.A.E. Energy Minister Suhail Al Mazrouei told reporters in Abu Dhabi Nov. 20 he didn’t have enough background on the potential petro-yuan to comment on it.

One major challenge for Middle East producers to accept a big share of their oil contracts in yuan would be the exchange-rate risk they would run, given that most of the region maintains currency pegs to the dollar.

Dollar ‘Entrenched’

"The dollar is so entrenched that it’s difficult to see that role diminishing," said Shady Shaher, head of macro strategy at Dubai-based lender Emirates NBD PJSC. "It makes sense in the long-run to look at transactions in yuan, because China is a key market," though it will take years to develop, he said. 

Big Chinese participation in Aramco’s planned initial public offering could help sway Saudi opinion toward accepting yuan, which is used in less than 1.5 percent of global payments measured by Swift. Yet the experience of Russia shows that even when leadership goals are aligned, yuan use can be slow to take off -- read about that here.

China once had oil-futures trading, in the mid-1990s, before abandoning the effort along with trading in bond futures, due to volatility. Concerns about destabilizing moves continue today, prompting intervention of one kind or another in markets from stocks to the yuan, which has unusually low fluctuations in daily trading relative to its counterparts.

"Chinese regulators have made it clear that they want stability in financial markets, including the new futures contracts to be listed" for oil, said Li Zhoulei, an analyst with Everbright Futures Co. in Shanghai. "It remains to be seen how the crude contract can gain influence and at the same time avoid excessive volatility."

Missteps in moves to embrace a more flexible yuan in 2015 prompted China to double down on controls since then, and there’s no clear sign they’ll be lifted anytime soon.

"It is not unreasonable to envision a world in which the overwhelming share of commodity contracts, especially for oil, are no longer denominated just in dollars," said Eswar Prasad, a former China division chief at the IMF. But "the yuan’s role in global finance will ultimately be determined by the degree of commitment of Xi Jinping’s government to economic and financial market reforms."

https://www.bloomberg.com/news/articles/2017-12-06/petro-yuan-delays-show-hurdles-confronting-china-s-currency-push

  • Upvote 1
Link to comment
Share on other sites

Russia-China real gold standard means end of US dollar dominance

Published time: 9 Dec, 2017 06:29Edited time: 9 Dec, 2017 09:19
Russia-China real gold standard means end of US dollar dominance
© Ilya Naymushin / Reuters
7.7K
The BRICS counties are considering starting an internal gold trading platform, according to Russian officials. When this happens, the global economy will be significantly reshaped, and the West will lose its dominance, predicts a precious metals expert.

In 2016, 24,338 tons of physical gold were traded, which was 43 percent more than in 2015, according to Claudio Grass, of Precious Metal Advisory Switzerland.

Gold moving from the West to the East

“We have to put the BRICS initiative into a broader context. It is just part of a geopolitical tectonic shift which started decades ago. We have seen a constant outflow of physical gold from the West to the East. At the same time, the West has lost the economic war, and as a consequence, the focus now turns to the financial system. China dominates the world economy and has displaced the US as the world’s most formidable economic powerhouse, he told RT.

The creation of a new gold standard by BRICS is also a step to end the US dollar’s domination of the global economy

“As Bejing and Moscow understand that America used the dollar to control the world, by implementing a new kind of ‘Gold standard 2.0’ they want to distance themselves from this control. Furthermore, the vast majority of the people in Asia sees gold as superior, or ‘real’ money, something the West has forgotten, because of all the paper wealth (credit) they have accumulated, said Grass.

The expert notes the BRICS countries account for 40 percent of the world’s population and around 23 percent of the world’s domestic product.

"In combination with the announcement of pricing oil in yuan, using a gold-backed futures contract in Shanghai, the establishment of the Asian Infrastructure Investment Bank and the New Development Bank, China is setting up an alternative to the post-Bretton Woods establishment. This is certainly a game changer, said Grass.

Physically backed precious metals market spells the end of paper gold trade

The level of trust between BRICS countries can help them establish intragroup gold trading, which would be 100 percent physically backed.

“This will present a viable challenger that could over time lead to a break up of the current system since the West will likely still trade paper gold in the meantime,” Grass said.

According to London gold clearing statistics for 2016, the total trading volume in the London Over-the-Counter (OTC) gold market is estimated at the equivalent of 1.5 million tons of gold. The volume of 100oz gold futures on New York's COMEX reached 57.5 million contracts during 2016 or 179,000 tonnes of gold, the analyst notes.

The amount of mined gold is much smaller

“If we now take into consideration that only approximately 180,000 tons of gold have actually been mined up to today the scam is just gigantic and obviously unsustainable. The paper scams in London and New York will either blow up when the paper price of gold drops to zero or when just a fraction of investors insists upon receiving physical gold in return,” Grass said.

 The expert believes that with paper gold trading, the established gold exchanges could cease to exist sooner or later.

“They will likely become obsolete and lose their importance over time. Although one cannot predict exactly how fast this will happen, the trend is clear: OTC and COMEX are working toward their own destruction, he said.

Gold prices could explode if trading were backed by physical precious metals

“It will definitely lead to higher prices for physical gold. Imagine if you could buy on COMEX and OTC gold at a much lower price and still have the option to sell it in Asia for a much higher price; this would kill the old paper scams immediately. Therefore, I would guess that both could come up with new restrictions that only cash settlements will be allowed to avoid this. We know for example that even today 99.96 percent of COMEX gold futures are settled in cash,” Grass wrote.

The final battle: Gold vs. US dollar

The analyst recollected the Heartland Theory of Halford Mackinder, a British geostrategist at the beginning of the 20th century who influenced the likes of Kissinger and Brzezinski. Following the theory, we will soon face a war between physical gold and the US dollar.

“As per my understanding, we are moving into the final phase, the battle between currencies – one that will be backed by a hard asset which was real money since time immemorial until 1971 and the other one, backed by promises that future generations will pay through debt, inflation and ever-rising taxation, he said.

Getting away from fiat currencies will be good for gold

“I would like to conclude with a final thought from my friend Jayant Bandari: the combination of negative yields, massive political risks around the world, and any attempt to move away from traditional currencies will be positive for gold and will take it to the next level. Investing is very much linked with geopolitics - once you understand the big picture, it becomes apparent what you should invest in,” Grass told RT.

 

https://www.rt.com/business/412546-china-russia-gold-standard-dollar/

  • Upvote 1
Link to comment
Share on other sites

Putin: Russia-China Gold Standard Means Death Of US Dollar

December 10, 2017 Sean Adl-Tabatabai News, World 3

Putin warns new Russian gold standard will mean the death of the US Dollar
 

Russian President Vladimir Putin has warned that the new Russia-China gold standard spells certain death of the US dollar within the next few years.

Metal experts have backed up Putin’s claims, predicting that when BRICS countries launch their internal gold trading platform, the global economy will be completely reshaped, with the West losing its dominance.

 

Rt.com reports: In 2016, 24,338 tons of physical gold were traded, which was 43 percent more than in 2015, according to Claudio Grass, of Precious Metal Advisory Switzerland.

Gold moving from the West to the East

 

“We have to put the BRICS initiative into a broader context. It is just part of a geopolitical tectonic shift which started decades ago. We have seen a constant outflow of physical gold from the West to the East. At the same time, the West has lost the economic war, and as a consequence, the focus now turns to the financial system. China dominates the world economy and has displaced the US as the world’s most formidable economic powerhouse,” he told RT.

The creation of a new gold standard by BRICS is also a step to end the US dollar’s domination of the global economy

“As Bejing and Moscow understand that America used the dollar to control the world, by implementing a new kind of ‘Gold standard 2.0’ they want to distance themselves from this control. Furthermore, the vast majority of the people in Asia sees gold as superior, or ‘real’ money, something the West has forgotten, because of all the paper wealth (credit) they have accumulated,” said Grass.

 

The expert notes the BRICS countries account for 40 percent of the world’s population and around 23 percent of the world’s domestic product.

“In combination with the announcement of pricing oil in yuan, using a gold-backed futures contract in Shanghai, the establishment of the Asian Infrastructure Investment Bank and the New Development Bank, China is setting up an alternative to the post-Bretton Woods establishment. This is certainly a game changer,” said Grass.

Physically backed precious metals market spells the end of paper gold trade

The level of trust between BRICS countries can help them establish intragroup gold trading, which would be 100 percent physically backed.

“This will present a viable challenger that could over time lead to a break up of the current system since the West will likely still trade paper gold in the meantime,” Grass said.

According to London gold clearing statistics for 2016, the total trading volume in the London Over-the-Counter (OTC) gold market is estimated at the equivalent of 1.5 million tons of gold. The volume of 100oz gold futures on New York’s COMEX reached 57.5 million contracts during 2016 or 179,000 tonnes of gold, the analyst notes.

The amount of mined gold is much smaller

“If we now take into consideration that only approximately 180,000 tons of gold have actually been mined up to today the scam is just gigantic and obviously unsustainable. The paper scams in London and New York will either blow up when the paper price of gold drops to zero or when just a fraction of investors insists upon receiving physical gold in return,” Grass said.

The expert believes that with paper gold trading, the established gold exchanges could cease to exist sooner or later.

“They will likely become obsolete and lose their importance over time. Although one cannot predict exactly how fast this will happen, the trend is clear: OTC and COMEX are working toward their own destruction,” he said.

Gold prices could explode if trading were backed by physical precious metals

“It will definitely lead to higher prices for physical gold. Imagine if you could buy on COMEX and OTC gold at a much lower price and still have the option to sell it in Asia for a much higher price; this would kill the old paper scams immediately. Therefore, I would guess that both could come up with new restrictions that only cash settlements will be allowed to avoid this. We know for example that even today 99.96 percent of COMEX gold futures are settled in cash,” Grass wrote.

The final battle: Gold vs. US dollar

The analyst recollected the Heartland Theory of Halford Mackinder, a British geostrategist at the beginning of the 20th century who influenced the likes of Kissinger and Brzezinski. Following the theory, we will soon face a war between physical gold and the US dollar.

“As per my understanding, we are moving into the final phase, the battle between currencies – one that will be backed by a hard asset which was real money since time immemorial until 1971 and the other one, backed by promises that future generations will pay through debt, inflation and ever-rising taxation,” he said.

Getting away from fiat currencies will be good for gold

“I would like to conclude with a final thought from my friend Jayant Bandari: the combination of negative yields, massive political risks around the world, and any attempt to move away from traditional currencies will be positive for gold and will take it to the next level. Investing is very much linked with geopolitics – once you understand the big picture, it becomes apparent what you should invest in,” Grass told RT.

 

http://yournewswire.com/putin-russia-china-gold-standard-death-dollar/

  • Upvote 2
Link to comment
Share on other sites

Gold Will Soar... As China Kneecaps The Dollar

 
 
Tyler Durden's picture
Dec 13, 2017 8:50 PM
10
SHARES
TwitterFacebookReddit
 

Authored by Nick Giambruno via InternationalMan.com,

 I recently spoke with my friend and colleague Chris Lowe about China’s new alternative financial system - and how it could mortally wound the US dollar. It was such an important discussion that I had to pass it along.

20171213_gold11.jpg

Chris is the editor of Bonner & Partners’ Inner Circle. His publication shares insights from Bill Bonner’s personal global network of analysts and investment experts.

 
 

Using force to compel people to accept money without real value can only work in the short run. It ultimately leads to economic dislocation, both domestic and international, and always ends with a price to be paid.

– Former U.S. Congressman Ron Paul

 

He who holds the gold makes the rules.

– Old saying

Chris Lowe: Why did you start researching the petrodollar system and its potential unraveling?

Nick Giambruno: This has been on my radar since 2006. That’s when Ron Paul, then a Republican congressman, spoke to Congress about the collapse of the dollar-based global monetary system.

As I recently told my Crisis Investing readers, I think it’s his most important speech ever. It’s called “The End of Dollar Hegemony.”

During the speech, Dr. Paul lays out why a global monetary order built around a fiat currency is doomed to fail.

Crucially, he pointed out the one thing that would precipitate the US dollar’s collapse—the end of the petrodollar system.

I recommend reading the speech in full...

 

 

 

But this is the most important part:

The economic law that honest exchange demands only things of real value as currency cannot be repealed. The chaos that one day will ensue from our 35-year experiment with worldwide fiat money will require a return to money of real value. We will know that day is approaching when oil-producing countries demand gold, or its equivalent, for their oil rather than dollars or Euros.

I discussed this with Dr. Paul at a past Casey Research conference. He told me he stood by his assessment.

In a nutshell, he’s saying we’ll know the dollar-centric monetary system is on its way out when countries start trading oil for gold instead of dollars.

That’s already starting to happen.

Chris Lowe: To catch up real quick, why is the petrodollar at risk?

Nick Giambruno: Under the current petrodollar system, all global oil sales are made in dollars. However, the Chinese government recently announced a new mechanism that will allow oil producers anywhere in the world to trade oil for gold.

China’s new mechanism will totally bypass the US dollar and the US financial system… along with any restrictions, regulations, or sanctions from Washington. So for many oil producers, it will be much more attractive than the petrodollar system.

I call it China’s “golden alternative” to the petrodollar. Whatever you call it, though, it will allow for the large-scale trade of oil for gold, instead of dollars.

Here’s how it will work. The Shanghai International Energy Exchange is launching a crude-oil futures contract denominated in yuan, China’s currency. This will allow oil producers around the world to sell their oil for yuan.

Of course, the yuan is a fiat currency, just like the dollar. And most oil producers don’t want large stashes of yuan. The Chinese government knows this. That’s why it’s linked the crude-oil futures contract with the option to efficiently convert yuan into physical gold through gold exchanges in Shanghai and Hong Kong.

Chris Lowe: How soon will this new system be up and running?

Nick Giambruno: I spoke with officials at the Shanghai International Energy Exchange. They told me they plan to go live with it before the end of the year, or shortly thereafter.

Chris Lowe: But isn’t that a good thing? Isn’t gold, as a currency, more reliable than the dollar?

Nick Giambruno: I think it’s high time gold played a more central role in the global monetary system. The problem is ditching the petrodollar would negatively affect the US economy.

Think about it. If Italy wants to buy oil from Kuwait… or Argentina wants to buy oil from Brazil… they have to buy dollars on the foreign exchange market first.

This creates a huge artificial market for dollars.

It means the US can simply print dollars and exchange them for real things like French wine, Italian cars, Korean electronics, or Chinese manufactured goods.

It also helps create a deeper, more liquid market for US Treasury bonds. This pushes up prices… and pushes down yields… which allows the US federal government to finance enormous and permanent deficits.

The petrodollar has allowed Washington to spend astronomical amounts of money on welfare and other benefits for over half the population. This gives Americans a much higher standard of living than they would have otherwise. Most of them don’t know this or understand how it affects their everyday lives.

Thanks to the petrodollar, Washington can also sanction or exclude virtually any country from the dollar-based global financial system at the flip of a switch. By extension, it can also cut off any country from the vast majority of international trade.

Chris Lowe: Others have argued that this has led the US Deep State into military actions against anyone who threatens the petrodollar system. Is the Deep State that scared about the effects this could have on the economy and on its position as the world’s top power?

Nick Giambruno: Let’s put it this way, world leaders who have challenged the petrodollar system have ended up dead. Saddam Hussein and Muammar Gaddafi are prime examples.

In October 2000, Saddam started to sell Iraqi oil in euro only. He said Iraq would no longer accept dollars for oil because it did not want to deal in the “currency of the enemy.”

A little over two years later, the US invaded Iraq. After Baghdad fell to US forces, all Iraqi oil sales were switched back to dollars.

And thanks to WikiLeaks’ release of Hillarious Clinton’s emails, we know that protecting the petrodollar—not humanitarian concerns—was the main reason for America’s involvement in the ousting and killing of Libyan leader Muammar Gaddafi.

According to the leaked emails, the US—along with France—feared Gaddafi would use Libya’s vast gold reserves to back a pan-African currency. This gold-backed currency would have been used to buy and sell oil in global markets. It would have likely displaced the CFA franc—a version of the euro used in 14 central and west African nations.

As I’m sure you recall, the US and France backed a rebellion that overthrew Gaddafi in 2011. After his death, plans for the gold-backed currency—along with Libya’s 4.6 million ounces of gold—vanished.

Chris Lowe: What’s Russia’s role in all of this?

Nick Giambruno: The dollar is not just a currency. It’s a political weapon… and Washington is not shy about using it.

Most recently, it tried to punish Russia for its actions in Ukraine by imposing economic sanctions. This made it harder for Russia to access the dollar-based financial system. So it’s no surprise that Russia struck a deal to sell oil and gas to China for yuan afterward.

Chris Lowe: How big a deal is it that Russia is working with China on bypassing the dollar?

Nick Giambruno: Russia is one of the world’s largest energy producers. And China is the world’s largest energy importer. Historically, they would trade with each other exclusively in US dollars.

But the Shanghai International Energy Exchange futures contract will streamline and solidify the process of selling oil to China for yuan—or effectively for gold.

When two of the biggest players in the global energy market totally bypass the petrodollar system, it’s a very big deal.

And it’s not just Russia and China. Other countries want to sidestep the US financial system and US economic sanctions, too. China’s “golden alternative” will give them the option to do just that. This will make the US dollar a much less effective political weapon.

Take Iran, for example. It’s the world’s fifth-largest oil producer. And it’s now accepting yuan as payment for its oil. So is Venezuela, which has the world’s largest proven oil reserves. I think others will soon follow.

This all makes perfect economic sense. Oil-producing nations can continue with the petrodollar system and sell their oil for dollars. But there’s not much financial incentive to do that anymore. The Fed has deliberately pushed down US Treasury yields to “stimulate” economic growth. Plus, the system exposes US rivals to the whims of Washington.

Now oil producers have a second option. Through China’s “golden alternative,” they can sell their oil for yuan, then quickly and easily convert it to gold.

Unlike the dollar, gold is an international form of money with no political risk. From the perspective of an overseas oil producer—especially one with a poor relationship with the US—this is a no-brainer.

Chris Lowe: Russia may be one of the world’s largest oil producers. But Saudi Arabia is still the world’s largest oil exporter. And a lot of that oil goes to China, the world’s largest oil importer. The Saudis were also America’s partner in the petrodollar agreement back in 1974. Can’t the House of Saud use this influence to protect the petrodollar system?

Nick Giambruno: For now, the Saudis are refusing to participate in China’s “golden alternative.” That’s because selling oil for anything but dollars would break the petrodollar deal they made with the US back in 1974. Remember, the Saudis agreed to sell their oil exclusively in dollars in return for US arms and military protection.

Last year, on the campaign trail, Donald Trump said, “If Saudi Arabia was without the cloak of American protection, I don’t think it would be around.” He’s absolutely correct. If the Saudis started selling oil for yuan, they would immediately lose American diplomatic and military protection.

But Saudi Arabia is already looking for alternatives to American protection.

Chris Lowe: Who is it turning to?

Nick Giambruno: This is where the story gets really interesting. Russia and Saudi Arabia have been enemies for decades. The Saudis, along with the US, supported the Afghan mujahideen that drove the Soviet Army out of Afghanistan. The Saudis also supported a number of Chechen rebellions against Russia. And more recently, the Saudis and Russians have been on opposite sides of the Syrian Civil War.

But recently, the Saudi king—along with 1,500 members of his royal entourage—visited Moscow. It was the first official visit by a Saudi king to Russia. The trip coincided with a $10 billion Saudi investment in Russian energy projects and a $3 billion arms deal.

As part of that deal, the Saudis will buy Russia’s S-400 missile system. It’s arguably the most capable air defense system in the world. It’s a powerful deterrent to even US fighter jets.

Chris Lowe: I didn’t know the Saudis bought Russian weapons systems.

Nick Giambruno: They didn’t… up until now. Ever since the birth of the petrodollar, the Saudis have depended on American military protection. After all, it’s what they get in return for pricing their oil in dollars.

Chris Lowe: So why would the Saudis enter into an arms deal with Russia?

Nick Giambruno: The Saudis are hedging their bets. First, they’re not buying an American-made air-defense system. Second, they’re buying a Russian air-defense system that’s capable of deterring an American attack. The House of Saud is making significant moves, in other words, to give itself alternatives to American protection.

Chris Lowe: Is there any other evidence that Saudi Arabia is moving away from the US?

Nick Giambruno: Last August, Saudi Arabia announced it was willing to issue “Panda bonds” to finance its government spending deficit. These are yuan-denominated bonds from non-Chinese issuers that are sold in China.

This is remarkable. The Saudi currency, the riyal, is pegged to the dollar. Up until this point, Saudi Arabia has exclusively used US dollars for all of its major financial initiatives. Issuing debt in yuan is a significant move. It means that financially, Saudi Arabia is drifting closer to China.

Chris Lowe: Why does Saudi Arabia need to hedge its bets like this?

Nick Giambruno: A few years ago, Saudi oil made up over 25% of Chinese oil imports. They were Beijing’s No. 1 supplier. Today, the Saudis’ market share has dropped below 15%.

The Saudis are losing massive market share and getting pushed out of the biggest oil market in the world—mainly because they refuse to sell oil to China in yuan.

China has made itself clear. It’s willing to expand business with anyone who will accept yuan as payment.

Chris Lowe: If the Saudis bow to Chinese pressure, where does all that leave the petrodollar system?

Nick Giambruno: The Saudis haven’t made a clean break with the US and the petrodollar—yet. But they are drifting toward China financially and Russia militarily. These moves are already sidelining the petrodollar. The Saudis are clearly setting up the option to dump the petrodollar.

If the Saudis start to sell oil to China in yuan, it would kill the petrodollar overnight.

Short of that, things still look very dire for the petrodollar. What is baked into the cake—thanks, in large part, to China’s “golden alternative”—is the petrodollar’s significant erosion.

Chris Lowe: What specific advice do you have based on this prognosis?

Nick Giambruno: The increased demand for gold from China’s “golden alternative” to the petrodollar is going to shock the gold market. And this demand shock clearly hasn’t been priced into the gold market yet. As many of your readers will be aware, gold is still down significantly from its 2011 peak.

That’s why I am so bullish on gold right now. As the petrodollar dies, gold is going to replace it as the go-to currency for the oil trade. That makes the yellow metal the single best way to profit from this major shift in our monetary order.

I started warning about the end of the petrodollar late last year. That’s when I told Crisis Investing readers that the death of the petrodollar would be the No. 1 black swan event of 2017.

20171213_gold12.jpg

Eventually, people will look back and see China’s “golden alternative” as the catalyst that made it happen.

*  * *

Few people appreciate how unstable America’s monetary system is. Our colleague and financial world legend Bill Bonner has an unparalleled track record for making spot-on political and economic predictions... and he says we’re teetering on the edge of a full-fledged economic shutdown. Click here for more straight from Bill.

 

http://www.zerohedge.com/news/2017-12-13/gold-will-soar-china-kneecaps-dollar

Link to comment
Share on other sites

Russia is moving to adopt the national currency in its dealings with Iran and Turkey

15/12/2017 01:18 | Number of readings:
font size: Decrease font Enlarge font
Russia is moving to adopt the national currency in its dealings with Iran and Turkey

Trend Press / Agencies

Russian Foreign Minister Sergei Lavrov said his country is moving towards adopting the national currency in its dealings with Iran and Turkey.

Addressing the Russian Federation's council on Friday, Lavrov said: "Our economic relationship with Turkey and Iran will take a form that depends on the national currency with bodies that are not controlled or controlled by the United States"He said.

On Russia's handling of e-visas to facilitate tourism and increase its revenues, Lavrov added: "We are highly valued, moving to the visa system, but in Russia, we do not make this decision individually, such as the Foreign Ministry, but also in agreement with the security services, intelligence and border controls. To visit Russia, especially those countries that have granted our citizens visa-free entry, such as Latin American and other countries"He said.

Lavrov said that "Russia has considered since 2013 the signing of an agreement with the European Union to work for entry without visas, but Brussels stopped these discussions after the wave of large migration to Europe, as well as the pretext of Western sanctions associated with the Ukrainian crisis and claimed that we have a hand"He said.

According to the minister, Moscow wanted to activate such an agreement to facilitate the movement of citizens, businessmen and athletes, and trade exchange between Russia and the European Union.

 

MT

http://aletejahtv.org/permalink/196567.html

  • Upvote 1
Link to comment
Share on other sites

China Regulators Complete Final 'Drill' In Preparation For Petro-Yuan Futures Trading

 

 
Tyler Durden's picture
Dec 13, 2017 7:30 PM
56
SHARES
TwitterFacebookReddit
 

Amid all the chatter of Venezuela and Russia potentially creating oil-backed cryptocurrencies, the "huge news" of China's launch of the Petro-Yuan has fallen off the front page... until now.

This week saw the Shanghai Futures Exchange complete its fifth yuan-back oil futures contract trading drill successfully...

 
 

As Bloomberg reports149 members of Shanghai International Energy Exchange traded 647,930 lots in the drill with total value of 268.2b yuan, according to a statement from the exchange, which added that the system basically met the listing requirements of crude futures after the drill.

While this was a success, it's not all plain-saling...

As Bloomberg notes, as the world’s largest energy consumer and an increasing source of investment capital for oil-producing nations, China has an interest in using its own currency rather than that of a geopolitical competitor.

RELATED VIDEO
Chinese rush to get money out of the country

One hurdle for setting up a rival to Brent or West Texas Intermediate: Overseas oil producers and traders would need to swallow China’s capital controls and penchant for occasional market interventions.

Similar hurdles have kept foreign investors as bit players in China’s giant mainland stock and bond markets, and the share of payments in Yuan in the Global SWIFT system has fallen...

20171213_eod14_0.jpg

 
 

"This contract has the potential to greatly help China’s push for yuan internationalization," said Yao Wei, chief China economist at Societe Generale SA in Paris.

 

"But its success will hinge critically on the degree of freedom allowed for the capital flows related to the contract," she said.

 

"It is not unreasonable to envision a world in which the overwhelming share of commodity contracts, especially for oil, are no longer denominated just in dollars," said Eswar Prasad, a former China division chief at the IMF.

 

But "the yuan’s role in global finance will ultimately be determined by the degree of commitment of Xi Jinping’s government to economic and financial market reforms."

But, as we detailed previously, the writing is on the wall for dollar hegemony, and we suspect teh decline in global yuan trade volumes is another reason for China to push ahead sooner.

20120103_JPM_reserve_0.png

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.”

 
Trending Articles
 
 

Deconstructing The Almighty Russian Hackers Myth

Sometimes things can be made more complicated than they really are.

 
 
 
 

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 it just became one step closer to reality, as Bloomberg reportsChina’s government State Council has officially approved the listing of a crude futures contract in Shanghai, according to people familiar with the matter.

While the date of launch will be determined by China Securities Regulatory Commission and Shanghai Futures Exchange, it would appear we are within weeks of it becoming a reality as China prepares to roll out a yuan-denominated oil contract...

 
 

"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.

 

http://www.zerohedge.com/news/2017-12-13/china-regulators-complete-final-drill-preparation-petro-yuan-futures-trading

  • Upvote 1
Link to comment
Share on other sites

China about to knock out petrodollar by trading oil in yuan

Published time: 14 Dec, 2017 10:20
China about to knock out petrodollar by trading oil in yuan
John Ryder knocks out Patrick Nielsen © Andrew Couldridge / Reuters
16.8K32
As one of the world’s top energy importers, China has successfully completed its fifth dry run in yuan-backed oil futures contract trading. The step has been already called Beijing’s challenge to the US dollar.

According to Bloomberg, which cited a statement from the exchange, 149 members of Shanghai International Energy Exchange traded 647,930 lots in the rehearsal with a total value of 268.2 billion yuan. The system met the listing requirements of crude futures after the exercise, it added.

“This contract has the potential to greatly help China’s push for yuan internationalization,” said Yao Wei, chief China economist at Societe Generale in Paris.

She added, however, “its success will hinge critically on the degree of freedom allowed for the capital flows related to the contract.”

A former China division chief at the International Monetary Fund, Eswar Prasad said: “It is not unreasonable to envision a world in which the overwhelming share of commodity contracts, especially for oil, are no longer denominated just in dollars.”

But “the yuan’s role in global finance will ultimately be determined by the degree of commitment of Xi Jinping’s government to economic and financial market reforms.”

Since the 1970s, the global oil trade has almost entirely been conducted in US dollars. The largest energy consumer, China, is interested in having oil contracts in yuan. Beijing plans to introduce its own oil benchmark which will rival Brent or West Texas Intermediate. Analysts say Chinese authorities will need to first convince large oil producers and consumers to use the yuan and invest in the Shanghai benchmark.

The Chinese government announced plans to start a crude oil futures contract priced in yuan and convertible into gold earlier this year. 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.

In September, Venezuela ditched the greenback for oil payments. Caracas has ordered oil traders to convert crude oil contracts into euro and not to pay or be paid in US dollars anymore. The measure followed the rolling out of sanctions by the United States against the country.

 

https://www.rt.com/business/413107-petro-yuan-futures-trading/

  • Upvote 1
Link to comment
Share on other sites

Trump to accuse China of 'economic aggression': Financial Times

  • "The national security strategy is likely to define China as a competitor in every realm," a person familiar with the matter told the Financial Times.
  • The administration will roll out its national security strategy on Monday.
Published 11:31 AM ET Sat, 16 Dec 2017  Updated 11 Hours AgoCNBC.com
     
     
     
     
     
President Donald Trump and Chinese President Xi Jinping (R) arrive prior to a meeting on the sidelines of the G20 Summit in Hamburg, Germany, July 8, 2017.
Saul Loeb | AFP | Getty Images
President Donald Trump and Chinese President Xi Jinping (R) arrive prior to a meeting on the sidelines of the G20 Summit in Hamburg, Germany, July 8, 2017.

President Donald Trump will accuse China, America's largest trade partner, of "economic aggression" when his administration rolls out its national security strategy on Monday, according to a report by the Financial Times.

However, a White House official told CNBC that the Financial Times report is "not accurate."

"The phrase is not specifically linked to China," the official said.

 

Several people familiar with the matter told the Financial Times that Trump would propose a much tougher stance on China than past administrations.

Trump repeatedly slammed China on the campaign trail over trade, but he softened his stance after meeting with President Xi Jinping at his Mar-a-Lago resort earlier this year, as Washington sought Beijing's assistance in dealing with North Korea.

Since taking office, Trump has said he doesn't blame Beijing for the U.S. trade deficit with China, and he has declined to label China a currency manipulator.

 

 

I don’t blame China, I blame the incompetence of past Admins for allowing China to take advantage of the U.S. on trade leading up to a point where the U.S. is losing $100's of billions. How can you blame China for taking advantage of people that had no clue? I would've done same!

 
 

 

 

 

Why would I call China a currency manipulator when they are working with us on the North Korean problem? We will see what happens!

 
 

 

But Trump has grown frustrated with what he views as a lack of progress in convincing China to help reduce the trade deficit and reign in North Korea, a person familiar with the matter indicated to the Financial Times.

"The national security strategy is likely to define China as a competitor in every realm," the person said. "Not just a competitor but a threat, and therefore, in the view of many in this administration, an adversary."

"This is not something that they just cooked up," the person said. "Mar-a-Lago interrupted the campaign rhetoric, and Xi Jinping took a little gamble and came here and embraced Trump. Trump said 'fine, do something on North Korea and on trade', but that didn't work out so well."

China's U.S. embassy was not immediately available for comment.

 

https://www.cnbc.com/2017/12/16/trump-to-accuse-china-of-economic-aggression-financial-times.html

  • Upvote 1
Link to comment
Share on other sites

TRUMP STARTS NEW WAR AGAINST CHINA OVER 'ECONOMIC AGGRESSION'

BY MARIA PEREZ ON 12/16/17 AT 2:11 PM
SHARE

President Donald Trump will accuse China of engaging in “economic aggression” on Monday during the release of his national security strategy.

The accusation is a strong sign that Trump and China’s President Xi Jinping have hit a rocky bump in their relationship. This is because Trump has become frustrated with Jinping for being unable to use their good rapport to get Beijing to address Trump's trade concerns, the Financial Times reported.

The national security strategy is a formal document produced by every U.S. president since Ronald Reagan. Trump would propose a much stronger stance on China than the previous administrations. The unveiling of the document comes just a month after Trump and Jinping met in China, and eight months after the two had met at Trump’s Mar-a-Lago resort.

 

 

872113908US President Donald Trump (L) and China's President Xi Jinping shake hands at a press conference following their meeting at the Great Hall of the People in Beijing in November. Trump will accuse China of engaging in "economic aggression" on Monday.PHOTO BY ARTYOM IVANOVTASS VIA GETTY IMAGES

Trump severely reprimanded China repeatedly on the campaign trail but has taken a less aggressive stance since his trip to Mar-a-Lago with Jinping. This is partly because the U.S thinks China could put pressure on North Korea to fix the nuclear war crisis.

But, Trump has become a lot less patient in the past few months and has become more irritated on the lack of progress on the U.S. trade deficit with China. 

“The national security strategy is the starting gun for a series of economic measures against the Chinese,” Michael Allen, a former Bush administration official at Beacon Global Strategies told the Financial Times. “It is sort of the Rosetta Stone for translating campaign themes into a coherent governing document.”

Those familiar with the strategy fear this could be the most aggressive economic response since the U.S supported China’s entry into the World Trade Organization in 2001. Critics worry that if the U.S. pushes too hard, it could start a trade war that could have severe consequences for U.S. business and the global economy. Accusing China of economic aggression could also lead to retaliation by Beijing, with U.S. companies dealing with consequences of any response.

“The concern about Chinese economic policy and practices is serious and real but the question is how you deal with it,” Evan Medeiros, a former Asia adviser to Barack Obama now at Eurasia Group told the Financial Times. “Unilateral trade enforcement mechanisms are not going to do it. You need systemic tools that shape the economic environment around China in order to reshape their incentives.”

The Trump administration has also put pressure on Beijing to take more assertive action towards Pyongyang to convince Kim Jong Un to abandon his nuclear weapons program. The administration is also considering on imposing sanctions on big Chinese banks that they believe are facilitating North Korean trade and financial flows, but has only sanctioned one small Chinese bank.

 

http://www.newsweek.com/trump-starts-new-war-against-china-over-economic-aggression-750502

  • Upvote 2
Link to comment
Share on other sites

 

Nightmare before Christmas for petrodollar as yuan-priced crude futures due to launch

Published time: 18 Dec, 2017 10:25
Nightmare before Christmas for petrodollar as yuan-priced crude futures due to launch
The Nightmare Before Christmas © Touchstone Pictures / Global Look Press
965
China has successfully completed its fifth round of yuan-backed oil futures testing may officially begin the contract by the end of this year. It seeks to challenge the dominance of the petrodollar.

 

Last week the Shanghai International Energy Exchange said the system has met all the listing requirements after rehearsals for futures trading denominated in the Chinese currency.

“An official launch during Christmas would be appropriate. The Western market would be quiet and allow the Shanghai exchange as well as Chinese investors to adjust in the early days,” Chinese trader Yuan Quwei told Bloomberg.

According to Wang Xiao, an oil analyst at Guotai Junan Futures “The Chinese oil industry wants to have a local hedging tool while institutional investors look at Shanghai crude futures as an important product in their portfolios.”

“Shanghai oil will be the first Chinese product that allows foreign investors to trade directly and such involvement will surely bring more volumes,” said Wang.

As the largest energy consumer China is interested in having oil contracts in yuan. Beijing plans to introduce its own oil benchmark which will rival Brent or West Texas Intermediate. Experts say Chinese authorities will need to first convince large oil producers and consumers to use the yuan and invest in the Shanghai benchmark.

The Chinese government announced plans to start a crude oil futures contract priced in yuan and convertible into gold earlier this year. The contract enables 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 rise of the petro-yuan: China is aiming to overthrow US dollar as currency of choice for oil markethttps://on.rt.com/8nbd 

 
 

It has the potential to help China’s push for yuan internationalization significantly, analysts claim. Beijing plans to promote the use of its currency in the global commodity markets, according to Pan Hongsheng, the deputy secretary general of the People’s Bank of China’s monetary policy committee.

He said the countries within the Belt and Road initiative, which are exporting a significant amount of commodity products to China, should start using yuan-denominated crude oil futures as a benchmark for pricing.

The official added China will push forward the formation of pricing systems for yuan-denominated commodity products and encourage local commercial banks to launch innovative financial services to support these developments.

 

https://www.rt.com/business/413502-yuan-crude-futures-christmas/

  • Upvote 1
Link to comment
Share on other sites

  • 2 weeks later...

Pepe Escobar On China's Petro-Yuan Bombshell

Profile picture for user Tyler Durden
Wed, 12/27/2017 - 22:50

Authored by The Asia Times' Pepe Escobar viaThe Saker blog,

The new 55-page “America First” National Security Strategy  (NSS), drafted over the course of 2017, defines Russia and China as “revisionist” powers, “rivals”, and for all practical purposes strategic competitors of the United States.

20171227_petro_0.jpg

The NSS stops short of defining Russia and China as enemies, allowing for an “attempt to build a great partnership with those and other countries”. Still, Beijing qualified it as “reckless” and “irrational.” The Kremlin noted its “imperialist character” and “disregard for a multipolar world”. Iran, predictably, is described by the NSS as “the world’s most significant state sponsor of terrorism.”

Russia, China and Iran happen to be the three key movers and shakers in the ongoing geopolitical and geoeconomic process of Eurasia integration.

The NSS can certainly be regarded as a response to what happened at the BRICS summit in Xiamen last September. Then, Russian President Vladimir Putin insisted on “the BRIC 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”, and stressed the need to “overcome the excessive domination of a limited number of reserve currencies”.

That was a clear reference to the US dollar, which accounts for nearly two thirds of total reserve currency around the world and remains the benchmark determining the price of energy and strategic raw materials.

And that brings us to the unnamed secret at the heart of the NSS; the Russia-China “threat” to the US dollar.

The CIPS/SWIFT face-off

The website of the China Foreign Exchange Trade System (CFETS) recently announced the establishment of a yuan-ruble payment system, hinting that similar systems regarding other currencies participating in the New Silk Roads, a.k.a. Belt and Road Initiative (BRI) will also be in place in the near future.

Crucially, this is not about reducing currency risk; after all Russia and China have increasingly traded bilaterally in their own currencies since the 2014 US-imposed sanctions on Russia. This is about the implementation of a huge, new alternative reserve currency zone, bypassing the US dollar.

The decision follows the establishment by Beijing, in October 2015, of the China International Payments System (CIPS). CIPS has a cooperation agreement with the private, Belgium-based SWIFT international bank clearing system, through which virtually every global transaction must transit.

What matters in this case is that Beijing – as well as Moscow – clearly read the writing on the wall when, in 2012, Washington applied pressure on SWIFT; blocked international clearing for every Iranian bank; and froze $100 billion in Iranian assets overseas as well as Tehran’s potential to export oil. In the event Washington might decide to slap sanctions on China, bank clearing though CIPS works as a de facto sanctions-evading mechanism.

Last March, Russia’s central bank opened its first office in Beijing. Moscow is launching its first $1 billion yuan-denominated government bond sale. Moscow has made it very clear it is committed to a long term strategy to stop using the US dollar as their primary currency in global trade, moving alongside Beijing towards what could be dubbed a post-Bretton Woods exchange system.

Gold is essential in this strategy. Russia, China, India, Brazil & South Africa are all either large producers or consumers of gold – or both. Following what has been extensively discussed in their summits since the early 2010s, the BRICS are bound to focus on trading physical gold.

Markets such as COMEX actually trade derivatives on gold, and are backed by an insignificant amount of physical gold. Major BRICS gold producers – especially the Russia-China partnership – plan to be able to exercise extra influence in setting up global gold prices.

The ultimate politically charged dossier

Intractable questions referring to the US dollar as top reserve currency have been discussed at the highest levels of JP Morgan for at least five years now. There cannot be a more politically charged dossier. The NSS duly sidestepped it.

The current state of play is still all about the petrodollar system; since last year what used to be a key, “secret” informal deal between the US and the House of Saud is firmly in the public domain.

Even warriors in the Hindu Kush may now be aware of how oil and virtually all commodities must be traded in US dollars, and how these petrodollars are recycled into US Treasuries. Through this mechanism Washington has accumulated an astonishing $20 trillion in debt – and counting.

Vast populations all across MENA (Middle East-Northern Africa) also learned what happened when Iraq’s Saddam Hussein decided to sell oil in euros, or when Muammar Gaddafi planned to issue a pan-African gold dinar.

But now it’s China who’s entering the fray, following on plans set up way back in 2012. And the name of the game is oil-futures trading priced in yuan, with the yuan fully convertible into gold on the Shanghai and Hong Kong foreign exchange markets.

The Shanghai Futures Exchange and its subsidiary, the Shanghai International Energy Exchange (INE) have already run four production environment tests for crude oil futures. Operations were supposed to start at the end of 2017; but even if they start sometime in early 2018 the fundamentals are clear; this triple win (oil/yuan/gold) completely bypasses the US dollar.

The era of the petro-yuan is at hand.

Of course there are questions on how Beijing will technically manage to set up a rival mark to Brent and WTI, or whether China’s capital controls will influence it. Beijing has been quite discreet on the triple win; the petro-yuan was not even mentioned in National Development and Reform Commission documents following the 19th CCP Congress last October.

What’s certain is that the BRICS supported the petro-yuan move at their summit in Xiamen, as diplomats confirmed to Asia Times. Venezuela is also on board. It’s crucial to remember that Russia is number two and Venezuela is number seven among the world’s Top Ten oil producers. Considering the pull of China’s economy, they may soon be joined by other producers.

Yao Wei, chief China economist at Societe Generale in Paris, goes straight to the point, remarking how “this contract has the potential to greatly help China’s push for yuan internationalization.”

The hidden riches of “belt” and “road”

An extensive report by DBS in Singapore hits most of the right notes linking the internationalization of the yuan with the expansion of BRI.

In 2018, six major BRI projects will be on overdrive; the Jakarta-Bandung high-speed railway, the China-Laos railway, the Addis Ababa-Djibouti railway, the Hungary-Serbia railway, the Melaka Gateway project in Malaysia, and the upgrading of Gwadar port in Pakistan.

HSBC estimates that BRI as a whole will generate no less than an additional, game-changing $2.5 trillion worth of new trade a year.

It’s important to keep in mind that the “belt” in BRI should be seen as a series of corridors connecting Eastern China with oil/gas rich regions in Central Asia and the Middle East, while the “roads” soon to be plied by high-speed rail traverse regions filled with – what else – un-mined gold.

A key determinant of the future of the petro-yuan is what the House of Saud will do about it. Should Crown Prince – and inevitable future king – MBS opt to follow Russia’s lead, to dub it as a paradigm shift would be the understatement of the century.

Yuan-denominated gold contracts will be traded not only in Shanghai and Hong Kong but also in Dubai. Saudi Arabia is also considering to issue so-called Panda bonds, after the Emirate of Sharjah is set to take the lead in the Middle East for Chinese interbank bonds.

Of course the prelude to D-Day will be when the House of Saud officially announces it accepts yuan for at least part of its exports to China. A follower of the Austrian school of economics correctly asserts that for oil-producing nations, higher oil price in US dollars is not as important as market share; “They are increasingly able to choose in which currencies they want to trade.”

What’s clear is that the House of Saud simply cannot alienate China as one of its top customers; it’s Beijing who will dictate future terms. That may include extra pressure for Chinese participation in Aramco’s IPO. In parallel, Washington would see Riyadh embracing the petro-yuan as the ultimate red line.

An independent European report points to what may be the Chinese trump card; “an authorization to issue treasury bills in yuan by Saudi Arabia”; the creation of a Saudi investment fund; and the acquisition of a 5% share of Aramco.

Nations under US sanctions such as Russia, Iran and Venezuela will be among the first to embrace the petro-yuan. Smaller producers such as Angola and Nigeria are already selling oil/gas to China in yuan.

And if you don’t export oil but is part of BRI, such as Pakistan, the least you can do is replace the US dollar in bilateral trade, as Interior Minister Ahsan Iqbal is currently evaluating.

A key feature of the geoconomic heart of the world moving from the West to Asia is that by the start of the next decade the petro-yuan and trade bypassing the US dollar will be certified facts on the ground across Eurasia.

The NSS for its part promises to preserve “peace through strength”. As Washington currently deploys no less than 291,000 troops in 183 countries and has sent Special Ops to no less than 149 nations in 2017 alone, it’s hard to argue the US is at “peace” – especially when the NSS seeks to channel even more resources to the industrial-military complex.

“Revisionist” Russia-China have committed an unpardonable sin; they have concluded that pumping the US military budget by buying US bonds that allow the US Treasury to finance a multi-trillion dollar deficit without raising interest rates is an unsustainable proposition for the Global South. Their “threat” – under the framework of the BRICS as well as the SCO, which includes prospective members Iran and Turkey – is to increasingly settle bilateral and multilateral trade bypassing the US dollar.

It ain’t over till the fat (golden) lady sings. When the beginning of the end of the petrodollar system – established by Kissinger in tandem with the House of Saud way back in 1974 – becomes a fact on the ground, all eyes will be focused on the NSS counterpunch.

 

https://www.zerohedge.com/news/2017-12-27/pepe-escobar-chinas-petro-yuan-bombshell

  • Upvote 1
Link to comment
Share on other sites

Join the conversation

You can post now and register later. If you have an account, sign in now to post with your account.
Note: Your post will require moderator approval before it will be visible.

Guest
Reply to this topic...

×   Pasted as rich text.   Paste as plain text instead

  Only 75 emoji are allowed.

×   Your link has been automatically embedded.   Display as a link instead

×   Your previous content has been restored.   Clear editor

×   You cannot paste images directly. Upload or insert images from URL.

Loading...
 Share

  • Recently Browsing   0 members

    • No registered users viewing this page.
×
×
  • Create New...

Important Information

By using this site, you agree to our Terms of Use.