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

[Butifldrm]

"We Understand The Chinese Government Has Halted Purchases Of US Treasuries": SGH

by Tyler Durden

Mon, 04/09/2018 - 12:31

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On Friday, we reported that among the five "nuclear" options available to Beijing to retaliate against Trump's latest $100BN in proposed import tariffs, was the choice whether to sell US Treasuries. But what if Beijing did not want to unleash a full-blown market nuke, and instead was hoping for a targeted, EMP hit?

Then it would simply stop buying US paper, instead of dumping it outright; in the process it wouldn't hurt the US too much - avoiding a furious ***-for-tat response - but would still send a clear signal to the White House, whose fiscal spending plan will more than double net Treasury issuance this year from under $500BN to over $1 trillion, and which needs every possible marginal buyer of US paper, both domestic and foreign. 

Which is precisely what a new report by SGH Macro Advisors claims.

According to the consultancy, a long-time favorite of macro hedge funds, Beijing has twice threatened deliberately targeted ***-for-tat punitive measures against the US to date: "first, in response to the Trump Administration’s threat of steel and aluminum tariffs, and second, in response to broader measures aimed at $50 billion of products that lie directly at the heart of Chinese technology transfers, intellectual property violations, and strategic, “Made in China 2025” plan."

But even as US cabinet officials lined up yesterday to calm jittery equity markets, SGH says in a note released over the weekend that "China had already signaled an aggressive and potentially more ominous escalation in the developing trade wars to the White House":

From what we understand, the Chinese government has halted its purchases of US Treasuries. Despite the direct encouragement, according to Chinese sources, by US Treasury Secretary Steve Mnuchin for China to "stay put,” Beijing has apparently discontinued purchases of US Treasuries “for the past few weeks.”

Some more details from the note:

Chinese officials hold out hope that “equal-footing consultations and negotiations” could be held on specific trade issues, with results potentially by mid-June. But that timing was envisioned before President Trump's formal statement calling for US Trade Representative Robert Lighthizer to consider an additional $100 billion worth of Chinese goods that could fall under a US tariff regime.
 
Furthermore, there have been no discussions to date yet of substance, at a high level, on what an agreement might hold. Within Beijing, concessions under consideration remain focused on opening some “newly emerging industries,” as well as financial industries, to the US, and broad assurances that China might keep the growth rate of US imports to at least 15% this year. And on the currency front, Chinese officials consider the Renminbi, which has remained relatively strong, to be at a “broadly reasonable” level, and hold out that if bilateral trade disputes are finally settled through negotiations, it could continue to rise steadily this year.

But those are all small, and insufficient, steps, and more significant tensions loom.

Beijing, and President Xi Jinping, remain focused on extracting concessions from the US on high-tech export restrictions to China. But Beijing remains on its back heels in continuously underestimating the imperative for the Trump Administration to “deliver” – in a material fashion – on the President’s campaign promises to bring an "unchecked China" to heel.
 
That includes, in the background, discrete by significant proposals that are under active consideration by the White House and Congress to add teeth to the CFIUS (Committee on Foreign Investment in the United States) approval process of vetting mergers and the acquisition of sensitive technologies by foreign firms.
 
A hard line on China remains, along with immigration, on the top of the Trump political agenda before the critical November mid-term elections that loom, ominously, ahead.
 
A (Very Precise) ***-for-Tat
 
The measures announced on Wednesday by China in response to the formal release by the White House of US Trade Representative Robert Lighthizer’s list of potential targets subject to an additional tariff was a direct *** for tat in magnitude, as well as in timing, of the threat of 25% tariffs covering $50 billion worth of exports from China.
 
It was, furthermore, intended as a “precision blow,” targeted at the heart of President Trump’s political base.
 
In an executive meeting chaired by Premier Li Keqiang on Wednesday morning, Beijing time, China’s State Council decided to threaten actions with China’s own list of 106 products in 14 categories of American products worth $50 billion, including automobiles, aircraft, chemical products, soybean, corn, sorghum, and cotton.
 
At the meeting, and in subsequent statements to the public, participants stressed that the aim of the trade retaliation was to make Trump feel real political pain, and to warn him against launching a head-on “trade war” with China. And, as we had expected, the main targets of trade retaliation were, by design, geographically aimed at the Rust Belt and agricultural states that strongly supported Trump in the 2016 elections.
 
Premier Li, from what we understand, is said to have characterized these measures as “a precision blow” to punish Trump, but he furthermore went on to add that the objective is not to engage in a trade war with the US, but rather to force the Trump Administration to conduct “equal-footing consultations and negotiations” with China on bilateral trade disputes.

Beijing's Eye on November, and 2020
 
Beijing has studied closely the US political landscape and aimed its latest measures directly at American farmers and workers who they believe, correctly or not, are Trump’s main source of support. It has not gone unnoticed in Beijing that the American farm and agricultural sector and workers are already feeling the heat, and running advertisements on TV in opposition of a “trade war.”
 
The Rust Belt vote could swing either way, but without the support of the farm and agricultural demographic, Chinese sources believe, Trump would struggle to win the 2020 presidential elections. At least that is the desired effect – if all goes wrong for China.
 
But, at least as of last night, Chinese officials were also heartened to hear what they thought was a softening in tone from senior Administration economic officials, including NEC Director Larry Kudlow, Secretary of Commerce Wilbur Ross, and the architect of the harshest of administration trade policies, the White House trade adviser, Peter Navarro.
 
That conciliatory response was welcomed by Beijing, but not without some chest thumping in public, including a crowing, victorious editorial in the China Daily.
 
That tone may have been premature, and seen by the White House as ill-advised, as well as the continued insistence by Beijing on some semblance of “equivalence” in these escalating trade tensions with the US.

While the report has not made it into the public arena, it is worth noting that 10Y nominal yields have barely moved on the news, rising from a session low of 2.78% to 2.80%, and are currently trading back with a 2.79% handle. Of course, should China proceed to announce that it is now a matter of official policy not to buy US paper, the adverse reaction will be far more aggressive.

As for FX impacts, the rolloff of TSY purchases would be superficially positive for the Yuan, hardly what exporters China wants, although Beijing has an effective way of fixing that: just devalue the currency, something which Bloomberg reported overnight China is now actively contemplating.

https://www.zerohedge.com/news/2018-04-09/we-understand-chinese-government-has-halted-purchases-us-treasuries-sgh

[Butifldrm]

China, holding Treasuries, keeps 'nuclear option' in U.S. trade war

 

Trevor Hunnicutt, Kate Duguid

5 MIN READ

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•  

 

NEW YORK (Reuters) - It took China just 11 hours to retaliate against the United States for proposing tariffs on some 1,300 Chinese products, but Chinese officials are holding back on taking aim at their largest American import: government debt.

In a ***-for-tat response to the Trump administration’s plan for 25 percent duties on $50 billion of Chinese imports, China hit back with its own list of similar duties on key American imports including soybeans, planes, cars, beef and chemicals. But officials signaled no interest for now in bringing their vast holdings of U.S. Treasuries to the fight.

China held around $1.17 trillion of Treasuries as of the end of January, making it the largest of America's foreign creditors and the No. 2 overall owner of U.S. government bonds after the Federal Reserve. Any move by China to chop its Treasury portfolio could inflict significant harm on U.S. finances and global investors, driving bond yields higher and making it more costly to finance the federal government.(Graphic: Top U.S. trade partners & foreign holders of Treasuries - reut.rs/2CUqQB0)

Jeffrey Gundlach, the chief executive of DoubleLine Capital LP, said China can use its Treasury holdings as leverage, but only if they keep holding them.

“It is more effective as a threat. If they sell, they have no threat,” said Gundlach, known as Wall Street’s Bond King.

 

“It would only escalate the situation and eliminate their leverage.”

Prices on benchmark 10-year U.S. Treasury notes slipped on Wednesday, giving back earlier gains on the trade news. Their yield edged up to about 2.81 percent Wednesday afternoon.

China’s Treasury holdings have dipped in recent months, declining by about $30 billion from $1.20 trillion last August, and they are down about 11 percent from their record high above $1.3 trillion in late 2013, according to U.S government data. In all, foreign governments own $4 trillion, or more than a quarter, of the $14.7 trillion in Treasury securities outstanding.

Asked by a reporter on Wednesday if China would reduce its U.S. Treasury holdings in retaliation, Vice Finance Minister Zhu Guangyao reiterated China’s long-standing policy regarding its foreign exchange reserves, saying it is a responsible investor and that it will safeguard their value.

 

China’s foreign exchange reserves, the world’s largest, stood at about $3.13 trillion at the end of February, with roughly a third of it held in Treasuries.

“If they wanted to pull the nuclear switch, if they committed to dumping Treasuries, it would have an immediate and temporary impact on money markets in the United States,” said Jeff Klingelhofer, a portfolio manager who oversees more than $6 billion at Thornburg Investment Management Inc. “But I think it is a bigger hit to the sustainability of what they’re trying to accomplish.”

Brad Setser, senior fellow for international economics at the Council on Foreign Relations in New York, said China can sell Treasuries and buy lower-yielding European or Japanese debt.

But the effect would likely be to strengthen the yuan against the dollar, weakening the relative desirability of its exports, analysts said. The sale could also tank the value of the Treasuries China retains, with nothing to show for the aggression.

More likely, if China wanted to turn up the heat it would let the yuan depreciate against the U.S. dollar, according to CFR’s Setser, a move that could kneecap the Trump administration’s goal of jump-starting U.S. manufacturing. The yuan weakened by about 0.25 percent on Wednesday but remains near its strongest in two and a half years.

Even if the likelihood of a change in Chinese policy regarding its Treasuries portfolio remains low, investors are sensitive to the risk any big shift would pose to world financial markets, where Treasuries are a global benchmark asset.

 

A January report that China might halt its purchases of Treasuries forced yields higher, but China disputed the news and said it was only diversifying its foreign exchange reserves to safeguard their value.

Reporting by Kate Duguid and Trevor Hunnicutt; Additional reporting by Jennifer Ablan; Editing by Dan Burns and James Dalgleish

Our Standards:The Thomson Reuters Trust Principles.

https://www.reuters.com/article/us-usa-trade-china-treasuries/china-holding-treasuries-keeps-nuclear-option-in-u-s-trade-war-idUSKCN1HB34M

[ChuckFinley]

Would be nice to see us get out from under China's control.  

[ChuckFinley]

Thanks Bitifldrm.  

[Pitcher]

The big story is China exports 500bn to the US and we export about 100 Bn back to them.   It’s not because we don’t want to export more.  China puts tariffs on our products and dump their state run products to gain market share. Do the math, another 10-20 years of this and they will own us..  The US is still the biggest economy in the world but China will over take us if we allow them to continue to rip us off. 

China doesn’t want a trade war with us.  I hope Trump keeps pushing on them, they are thieves, cheats, liars, and they need to be made to open their markets to free and FAIR trade policies!!!

[skeetdog]

47 minutes ago, Pitcher said:

The big story is China exports 500bn to the US and we export about 100 Bn back to them.   It’s not because we don’t want to export more.  China puts tariffs on our products and dump their state run products to gain market share. Do the math, another 10-20 years of this and they will own us..  The US is still the biggest economy in the world but China will over take us if we allow them to continue to rip us off. 

China doesn’t want a trade war with us.  I hope Trump keeps pushing on them, they are thieves, cheats, liars, and they need to be made to open their markets to free and FAIR trade policies!!!

....China has had the initial 'benefit of the doubt' in their trade policies since the building of their empire....China had as many people killed during the Vietnam War as both sides tallied...This generation of works are gone and China is facing crowding, environmental pollution, social growth and demands....that are becoming a national crisis...China can't avert attention away...like they did in Vietnam ...and wipe out the problem makers...There's a reason everyday politicians can climb all the way to the top of the "Hill"....only to find out just how much it takes to be bought out....Look at all the politician that became a multi millionaire on a 6 digit salary....

[Pitcher]

I had another thought about China and the US.  President Trump has gotten NATO to pay their fair share, got the Republicans to pass a tax bill, signed  new trade agreements with South Korea, close to getting a better NAFTA trade agreement with Mexico and Canada, and he’s pushing hard on China to get a better trade agreement.  There are other deals in the works and I believe President Trump is setting up the US for a resurgence, maybe because he knows what is about to happen!!!!!!!  I just hope China will play ball on better trade agreements or we might have to wait a bit longer. If the Iraq RV is part of a global reset you can bet your bottom dollar ALL ducks will be lined up in a row and the US will be a large beneficiary of that reset!!!!

[Butifldrm]

 

 

Petro-Yuan Challenges The Dollar: Good For Gold

Apr. 9, 2018 2:39 PM ET 

|

 Includes: GLD, GOLD, GOLDX

Scot Macdonald

 

Research analyst, gold & precious metals, commodities, ETF investing

EMA2 Trade Live Signals

 

(499 followers)

Summary

China is continuing its long-running assault on the US dollar as the world’s global reserve currency.

The PetroDollar is backed by US Treasuries, which helps fuel US government deficit spending. Take that support away and the US dollar is in serious trouble. It looks like that.

Gold closing this coming week above $1337 is going to activate the price momentum into a bullish camp that is indicating targets at $1352 and $1367.

China is continuing its long-running assault on the US dollar as the world’s global reserve currency. The focus recently has been the world’s oil markets. China is the largest crude oil consumer, which gives it great influence over the oil markets. That influence was highlighted on March 26, 2018, when China launched trading of the Petro-Yuan to challenge the US Dollar and the PetroDollar. The South China Morning Post reported that the PetroYuan started trading on the Shanghai International Energy Exchange at 440.20 Yuan or $69.67 per barrel. PetroYuan futures traded more than 10 billion notional trades in the first hour, with than 23,000 contracts in the first hour, which signaled significant demand.

Graticule Asset Management Asia’s Adam Levinson, managing partner, said the shift to the PetroYuan will be “a wakeup call” to those investors who have not been paying attention. It could deal a major blow to the already weakening US dollar.

The Yuan is already among the world’s five most used currencies and the Chinese have been actively promoting the Yuan globally to replace the dollar. In 2015, in the first of a number of strikes against the dollar, Gazprom Neft, Russia's third largest oil producer, started using the renminbi for trade settlement instead of the dollar. Iran soon followed suit by dropping the dollar for trade settlement. Iran started using the Yuan and other foreign currencies for trade. China in 2015 also began to develop their new Silk Road, which could boost trade with Europe, further supplanting the dollar as the world’s reserve currency, while increasing use of the Yuan and Euro.

https://seekingalpha.com/article/4161908-petro-yuan-challenges-dollar-good-gold

[Butifldrm]

 

Experts: Chinese Petro-Yuan to Threaten US Petrodollar Dominance

 

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  A Chinese yuan is positioned in front of a U.S. dollar. | Photo: Reuters

• Previous
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Published 7 April 2018

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China has recently overtaken the United States as the world's number one oil buyer.

Financial experts are predicting China's Petro-Yuan may soon threaten the U.S. dollar's dominance in the crude oil market.

RELATED: 
China's Petroyuan Seeks to Challenge US Petrodollar

“The question number one is whether China will be able to make the oil market its demand market, and not the oil supply market traded in dollars, which it is now,” Vladimir Rozhankovsky, an analyst at Global FX Investment analyst, told RT

He added: “The question number two is trade wars. If the world trade enters into a death spiral of reciprocal economic sanctions, keeping oil trade in dollars will be a matter of strategic importance or a matter of survival for the US.”

China has recently overtaken the United States as the world's number one oil buyer, according to market data.

However, Chinese stock is susceptible to attacks by the United States, in effect, undermining the potential of the Petro-Yuan, as well as devaluating the Yuan's base value. Rozhankovsky stressed that if the United States embarks on this path, it will make Chinese oil futures less attractive.

“The trade war between the U.S. and China has already begun. China has plans to promote the renminbi as a reserve currency, and there is no better move than to purchase raw materials in its national currency. It can save money on the currency conversion and become less dependent on the US dollar,” said Stanislav Werner, head of the analytical department of Dominion.

Last year, the Chinese government announced plans to start crude oil futures contracts, enabling China to buy oil with gold or to convert yuan into gold without needing to turn it into U.S. dollars.

Last month, the Asian country, which is the second largest economy in the world and largest oil importer, launched its yuan-denominated crude oil futures contract, also known as the Petro-Yuan, on the Shanghai International Energy Exchange (INE) after the State Council approved the mechanism.

https://www.telesurtv.net/english/news/Experts-Chinese-Petro-Yuan-to-Threaten-US-Petrodollar-Dominance-20180407-0010.html

[Butifldrm]

Why China Will Win the Trade War

Trump thinks he has a strong hand. In fact, Washington is far more vulnerable than Beijing.

BY PHILIPPE LEGRAIN

 | APRIL 13, 2018, 10:00 AM

Employees build a Boeing 777 airplane cockpit at a plant in Wichita, Kansas, on Aug. 18, 2004. (Larry W. Smith/Getty Images) 

“When you’re already $500 Billion DOWN, you can’t lose!” U.S. President Donald Trump tweeted on April 4. He seems to believe that because the United States has a huge trade deficit with China — actually $337 billion in 2017, not $500 billion — he is bound to win the impending trade war between the two countries. But even though China sells more to America than it buys in return, Beijing’s position is actually much stronger, both economically and politically, than that crude calculus suggests.

Economically, both the United States and China would lose from a trade war. Punitive tariffs would push up import prices, dent exports, cost jobs, and crimp economic growth, so both sides would do best to avoid an outbreak of hostilities. But now that the Trump administration is threatening to impose 25 percent tariffs on $46 billion of U.S. imports from China and China has responded in kind, a trade war looms. Trump has since raised the stakes by threatening tariffs on a further $100 billion of imports (so far unspecified), which Beijing promptly said it would match. Trump’s calculation appears to be that China has more to lose and so will back down. He is wrong.

Trump’s calculation appears to be that China has more to lose and so will back down. He is wrong.

Headline statistics greatly overstate China’s economic vulnerability — and understate America’s. Focusing on trade in goods, as most observers do, U.S. imports from China last year totaled $506 billion, nearly four times its exports in the other direction ($131 billion). But the United States also sold $38 billion more in services to China than it bought in return, its biggest bilateral surplus. And whereas U.S. goods exports to China are mostly agricultural produce and finished products consisting of mostly American content and sold by U.S. firms, China’s exports to the United States are typically Chinese-assembled goods that contain many foreign parts and components — and are often American-branded to boot. A further 37 percent of U.S. imports from China consist of parts and components on which U.S.-based manufacturers rely.

Take Apple’s iPhone. When iPhones are shipped from Chinese factories to the United States, the full import cost is attributed to China. Yet these phones include a Samsung display from South Korea, a Toshiba memory chip from Japan, and many other foreign components. According to one estimate, assembly in China accounts for only 3-6 percent of the $370 manufacturing cost of an iPhone X. Since that smartphone retails for $999, the bulk of the value added is American: Apple’s margin and that of U.S. retailers.

Admittedly, that is an extreme example, and Trump isn’t yet targeting iPhone imports. So, consider instead the $46 billion in imports that Trump is threatening, of which $26 billion are electronic goods. Ostensibly designed to stymie the Chinese government’s Made in China 2025 drive to develop its own high-tech products, his tariffs would mainly affect lower-tech products that China actually exports to America right now. And according to estimates by the Organization for Economic Cooperation and Development (OECD), nearly half of the content of Chinese exports of computer, electronic, and optical equipment to United States is foreign. (The latest data is from 2011, so that proportion may have shifted somewhat since.) Even if the proposed tariffs were to slash China’s exports of these products by a quarter, the direct hit to China would be $6.5 billion — roughly 0.05 percent of the country’s GDP. For an economy growing at 6.8 percent per year, that would be a pin prick.

Even a blanket U.S. tariff on all Chinese goods exports — iPhones and all — would be bearable for China. The OECD reckons that around a third of the content of U.S. imports from China is actually of foreign origin. So the Chinese value added of its exports to the United States is perhaps $329 billion — some 2.7 percent of China’s $12 trillion economy. So even if a blanket Trump tariff slashed China’s exports to the United States by 25 percent, the direct hit to GDP would be 0.7 percent. That would hurt. But it would still leave the Chinese economy growing at 6.1 percent a year.

It is very unlikely to come to that, precisely because the United States is much more vulnerable to a trade war than Trump thinks. Imagine the consumer uproar if Trump slapped a tariff on iPhones! Indeed, because so many U.S. firms outsource production to China, they are acutely vulnerable to dirty Chinese tricks

Indeed, because so many U.S. firms outsource production to China, they are acutely vulnerable to dirty Chinese tricks

, such as halting production for a while on spurious regulatory grounds.

The threat isn’t just to American-branded products that American consumers love. A trade war also poses a threat to U.S.-based manufacturers that rely on Chinese parts and components to be globally competitive. Trump’s $46 billion list already targets aircraft propellers, machine tools, and other intermediate goods. Pushing up their costs would threaten manufacturing jobs in America’s heartland. And while those tariffs avoid consumer staples such as clothing and footwear, they will inflate the prices of some consumer goods, such as televisions and dishwashers.

In contrast, China’s potential retaliation is much better targeted. First in line is $16 billion of U.S. civilian aircraft exports. Boeing’s share price slumped when the Chinese move was announced. But Chinese airlines are expanding so fast that Boeing may be willing to slash prices to hang on to sales there, in which case none of the cost of the tariffs would fall on China. And if push comes to shove, the Chinese already have a reliable alternative supplier: Europe’s Airbus.

Second in line is $12.8 billion of U.S. soybean exports. China accounts for more than half of American soybean exports, giving it market power. Indeed, as talk of a trade war heated up, the hit to U.S. farmers was immediate: Soybean prices plunged. Here, too, China has an alternative supplier: Brazil.

In short, the United States’ trade deficit with China — which is actually perhaps only $200 billion in value-added terms — scarcely gives it an advantage.

China also has much more scope to mitigate any economic damage than the Trump administration does. Unlike the U.S. Federal Reserve, China’s central bank is not independent, so the People’s Bank of China can be ordered to cut interest rates to boost domestic demand if necessary. State-owned banks can likewise be told to extend more credit. And while China has allowed its currency to appreciate against the dollar considerably since Trump took office, it could nudge the renminbi down instead, making Chinese exports more competitive.

The Chinese government also has a much healthier fiscal position and is free to compensate any industries harmed by a trade war. By contrast, the U.S. government is facing a large budget deficit of some 4 percent of GDP that is set to rise in the next few years. Any further spending would require congressional approval, which may not be forthcoming.

Finally, the Chinese government can absorb the political costs of a trade war much more easily than the Trump administration can. Every time Trump lashes out at China, U.S. stock markets plunge. That is particularly problematic for a president who treats the Dow Jones industrial average as his personal approval rating, especially because the single biggest constituent of the Dow is Boeing. Because the president has tied himself to the Dow, every time stocks fall, the Trump administration feels compelled to reassure markets that it is seeking a negotiated solution to the trade conflict, a move that undercuts its leverage.

With midterm elections coming up in November, the Republicans are particularly vulnerable politically. China is capitalizing on that by targeting products such as soybeans that are mostly produced in Trump-supporting states in the Midwest. It is no coincidence that China also plans to retaliate against U.S. whiskey exports, which come mostly from Kentucky, the home state of Senate Majority Leader Mitch McConnell.

On top of all that, Trump doesn’t seem to have a strategy. An international alliance would be more effective in pressuring China to open its markets and respect foreign intellectual property rights than going it alone. Last year, the United States, the European Union, and Japan agreed to make common cause on this. But Trump has now alienated those allies by slapping tariffs on Japan’s steel and aluminum exports on bogus national security grounds and threatening to do the same to EU allies. Since his threatened tariffs against China would also hit its foreign suppliers, notably in Asia, that further undermines any potential for a united front.

Trump has made matters worse by acting unilaterally against China in a way that would appear to breach World Trade Organization rules. Indeed, potential allies find Trump’s America First rhetoric repulsive. All this has given China the political high ground — “China doesn’t want a trade war, but we’re not afraid to fight a trade war” has become Beijing’s official line.

For all his bragging about his negotiating skills, Trump is a bungling amateur.

For all his bragging about his negotiating skills, Trump is a bungling amateur.

 He has opted for a solo fight against a smarter, more patient, and more resilient adversary. So far, this is mostly political theater. But since Trump is overestimating his leverage and underestimating Chinese resolve, there is a real danger that the conflict will escalate.

Since Chinese officials are smarter than Trump, they will also doubtless offer him cosmetic concessions that they would be happy to give anyway. An obvious win-win would be to buy more U.S. liquefied natural gas. Judging by his response on Twitter, Trump was fooled by the so-called concessions announced by Chinese President Xi Jinping at the Boao Forum for Asia on April 10 that consisted of previous economic reform announcements repackaged for Trump’s ears. With luck, that will allow Trump to climb down while claiming victory.

In any case, China can afford to play for time. Voters may elect a Democratic Congress that will clip Trump’s wings next year; they could also vote him out of office in 2020. Xi isn’t worried about re-election.

http://foreignpolicy.com/2018/04/13/why-china-will-win-the-trade-war/

[bostonangler]

Oh some here will not like the tone of this story.... I think China can take a long tough stand. Their president doesn't have to run for office and can you imagine the meltdown in America if suddenly people couldn't get their electronic devices and video games? I think the Chinese people would handle suffering much better than the average American... JMHO

 

 

B/A

[Butifldrm]

On 4/13/2018 at 4:39 PM, bostonangler said:

Oh some here will not like the tone of this story.... I think China can take a long tough stand. Their president doesn't have to run for office and can you imagine the meltdown in America if suddenly people couldn't get their electronic devices and video games? I think the Chinese people would handle suffering much better than the average American... JMHO

 

 

B/A

 

B/A, I saw this today in Iraqi News.  It's a bit telling!

 

 

World debt crash record

Economie

 Since 2018-04-18 at 19:31 (Baghdad time)

 Follow-up of Mawazine News

The International Monetary Fund (IMF) warned Tuesday that world debt levels are higher than before the financial crisis in 2009, raising concerns about a number of major economies.

According to Fiscal Monitor 2018, total public and private debt in the world is rising to $ 164 trillion, representing 225 percent of world output.

Figures show that the current level of debt is higher than in the days of the financial crisis, about 12 percent, which will increase pressure on decision makers around the world and will push them to cut spending plans.

The International Monetary Fund (IMF) analysis predicts that public debt in the United States will rise significantly, given the approval of the Trump tax scheme, which provides a high level of borrowing, in the coming years.

The International Monetary Fund (IMF) said the deficit and high public debt are worrying, as countries whose debt is worsening find themselves facing difficult fiscal options and their economy is in real danger.

 

http://www.mawazin.net/ديون-العالم-تحطم-الرقم-القياسي

[bostonangler]

14 hours ago, Butifldrm said:

 

B/A, I saw this today in Iraqi News.  It's a bit telling!

 

 

World debt crash record

Economie

 Since 2018-04-18 at 19:31 (Baghdad time)

 Follow-up of Mawazine News

The International Monetary Fund (IMF) warned Tuesday that world debt levels are higher than before the financial crisis in 2009, raising concerns about a number of major economies.

According to Fiscal Monitor 2018, total public and private debt in the world is rising to $ 164 trillion, representing 225 percent of world output.

Figures show that the current level of debt is higher than in the days of the financial crisis, about 12 percent, which will increase pressure on decision makers around the world and will push them to cut spending plans.

The International Monetary Fund (IMF) analysis predicts that public debt in the United States will rise significantly, given the approval of the Trump tax scheme, which provides a high level of borrowing, in the coming years.

The International Monetary Fund (IMF) said the deficit and high public debt are worrying, as countries whose debt is worsening find themselves facing difficult fiscal options and their economy is in real danger.

 

http://www.mawazin.net/ديون-العالم-تحطم-الرقم-القياسي

 

Yes I have seen stories on the rising debt... After the huge crash and downturn we went through you would think people would learn. But as I have said many times, "Welcome to the United States of Amnesia". It seems people only live for today. As for our government debt, well huge tax breaks are a reduction in revenue, plus increasing our spending equals more debt, much more debt. It is amazing that most people cannot do the simple math to see our country's spending is sinking us quicker than ever.

 

Thanks for continuing to update this ongoing story. I find it very interesting.

 

B/A

[Butifldrm]

Reuters: Arab states finalize regional payment and settlement system

22 April 2018 | 11:07 | FOCUS News Agency

Picture: AFP

Abu Dhabi. Arab countries have finalised plans to create an independent, regional cross-border payments system after current arrangements were hit by a rise in compliance costs and downsizing by some international banks, reported by Reuters.
At present, many cross-border payments and settlements among Arab countries are carried out by correspondent banks, which act as agents for foreign financial institutions that do not have a local presence in a given country. 
A tightening of anti-money laundering rules by U.S. and European banks in the last several years has added to the cost of this practice, while some banks have quit the market to focus on more lucrative areas. 
The board of the Arab Monetary Fund (AMF), which has 22 member countries ranging from Gulf states to Sudan and Morocco, approved the creation of an independent regional body to clear and settle payments among them, the AMF said on Sunday. 
It did not specify when the system would go live, but AMF officials said earlier that they expected the system to be in operation by 2020. 
The new body, supported by Arab central banks, will have capital of $100 million and be owned by the AMF. 
“The aim of the entity is to promote the use of local currencies in intra-Arab payments clearing and settlement transactions, alongside main international currencies,” the AMF said.

http://www.focus-fen.net/news/2018/04/22/429662/reuters-arab-states-finalize-regional-payment-and-settlement-system.html

[Butifldrm]

Arab states end regional payment settlement mechanism

 

Arab and international

Economy News _ Baghdad  Arab countries have finalized plans to set up an independent payment system across the region after high compliance costs and global banks have reduced their activities to undermine existing arrangements. Correspondent banks currently make the most payments and settlements among Arab countries and act as agents for foreign institutions that have no actual presence in a country. US and European banks' tightening in recent years has increased the cost of anti-money laundering, while some banks have moved out of the market to focus on more profitable sectors. The Arab Monetary Fund (AMF) said on Sunday its board had approved the creation of an independent regional entity to settle payments among the 22 member states. The fund did not specify when the new mechanism would start, but Bank officials had earlier expected it to start operating in 2020. The capital of the new entity, which is supported by Arab banks, will be $ 100 million and owned by the Arab Monetary Fund. The new entity aims to support the use of local currencies in the settlement process between Arab countries as well as major international currencies, the IMF said.

Views 218   Date Added 22/04/2018   http://economy-news.net/content.php?id=12029

[Butifldrm]

Oil Exporters Ditching Dollar, Switching to Other Currencies

 

11:14 24.04.2018(updated 11:16 24.04.2018)

 

Iran has decided to replace the dollar with the euro in foreign trade, thus joining an informal club of states, seeking to reduce reliance on the US currency in the oil industry.

Iranian government bodies and companies are being encouraged to use the euro as the main currency in their reports, statistics, publications and financial data.

“The dollar in Iran has no place in our transactions today, with traders preferring alternative currencies for their transactions. There’s no longer any need to continue using dollar-based invoices,” said Mehdi Kasraeipour, the Central Bank’s Director of Foreign Exchange Rules and Policies Affairs.

Tehran has responded to the US’ and its allies’ decision to extend anti-Iranian sanctions in March, which the Islamic Republic describes as “US-led economic collusion.”

“This is a politically motivated decision. Transactions in dollars go through American banks, which pose certain risks to Iran. There are no such risks in transactions in euros,“ said Alexander Razuvaev, director of the analytical department at Alpari.

CC0

 

Iran Inching Closer to Bidding Farewell to US Dollar

Iran remains the largest manufacturer and exporter of hydrocarbon raw materials in the world, with EU member-states and China being its major beneficiaries. According to the Organization of Petroleum Exporting Countries, Tehran reaps some $70 billion dollars annually from sales of oil. The American dollar is often indicated as the deal currency between the country-exporter and the buyer, with reference oil being rated high even at stock exchanges in London and New York, which makes the dollar so special, granting it the status of the world’s most popular

reserve currency.

Experts believe that the US should sound the alarm as Iran has shifted to the euro in its oil dealings; many oil exporters and importers are dissatisfied with the heavy dependence on the American currency. The world is trending to a so-called de-dollarization of the world energy market: such countries as Russia, China, Venezuela, and now Iran, are already on the list.

Since 2016, the St. Petersburg International Mercantile Exchange has been trading for Russian crude in rubles, Venezuela stopped accepting dollars for oil transactions last year, demanding the euro instead, while the Shanghai Exchange launched China’s first yuan-based crude oil futures last month.

 

READ MORE: Sudan Invites Russia to Take Part in Country's Oil, Gas Projects — Ministry

Alexey Kalachev, analyst at the company Finama investment, stated that there were no restrictions in bilateral trade transactions in national currencies, which would become a means for Russia, Iran and Venezuela to bypass the risks of dollar transactions being blocked.

“A national currency must be easily convertible and be on the list of reserve currencies in order to become an alternative to dollar in energy transactions globally. China, which has launched yuan-based oil futures contracts, is the closest to the goal,” Kalachev said.

Last week, Iran’s Supreme Leader Ayatollah Ali Khamenei held “foreign intelligence” accountable for the “recent issues on the currency market,” asking the country’s secret services to “defuse the plots against the Islamic Republic.”

 

READ MORE: Iran Warns Trump: If Nuclear Deal Betrayed, There'll Be Severe Consequences

The Iranian rial has weakened as US President Donald Trump’s administration approaches a May 12 deadline to stay in or unilaterally pull out of the 2015 nuclear deal that eased the lion’s share of sanctions on Tehran. Despite the implementation of the accord, the risk of further restrictions and penalties has forced multiple companies to avoid or strictly limit their trade and investment in Iran.

The views expressed in this article are solely those of the speakers and do not necessarily reflect the official position of Sputnik.

https://sputniknews.com/business/201804241063850677-oil-exporters-ditch-dollar/

[Pitcher]

The US dollar has reigned supreme for decades as the primary currency for oil trade. From time to time there have been attempts to dethrone it, usually by enemies of the US such as former Libyan leader Muammar Qaddafi, but with no real impact. Now, however, a more plausible alternative petrocurrency may be emerging, in the shape of the Chinese yuan. Last month's successful launch of yuan-denominated crude future contracts on the Shanghai International Energy Exchange appears to have opened the door for the "petroyuan," but significant impediments remain for its widespread adoption.

In recent decades, as the US and its allies have increasingly used economic sanctions against their opponents, including at various times major oil exporters like Iraq, Iran, Libya and Russia, there have been increasing efforts to break away from the US dollar's hegemony in oil trade, and in global finance more generally. The US dollar's position as the main currency for international oil trade has been central to the effectiveness of US-led economic sanctions, such as those imposed earlier this decade to force Iran to suspend its nuclear program. And trading oil in alternative currencies, or simply arranging bilateral currency swaps, has similarly had a major nullifying effect on such sanctions by enabling countries to bypass US claims of legal jurisdiction over US dollar-denominated transactions.

Enter the yuan. Near the end of March, China successfully launched a yuan-based crude futures contract on the Shanghai International Energy Exchange, with widespread if rather premature talk of it becoming a new major crude benchmark alongside US dollar-based ICE Brent and Nymex West Texas Intermediate. At the same time, it was reported that China is planning to start paying for imported crude in yuan on a limited basis beginning in the second half of this year. Two of China's biggest suppliers, Russia and Angola, are likely to be the source of the crude for this pilot program, with both keen to break the dollar’s grip on global oil trade.

The potential rise of the petroyuan supports Beijing's efforts to internationalize the yuan to make it a more prominent reserve currency, since oil is the world's most traded commodity, with an annual value of roughly $14 trillion -- equivalent in size to China's economy. But despite a ready potential market for the petroyuan, at least among countries interested in sidestepping US sanctions, its adoption is unlikely to be anything more than gradual for three reasons -- the continuing lack of sophistication of Chinese future markets, the yuan's restricted convertibility, and Saudi Arabia's continued support of the petrodollar.

The Shanghai exchange is presently offering 15 future contracts for medium, sour crude -- in contrast to the light, sweet crude futures contract run by ICE and Nymex -- for delivery between September of this year and March 2021. But Shanghai does not offer the other fundamental building block for commodity markets, options trading, and this makes hedging operations far more difficult. As things stand, the only Chinese commodity with options trading is soymeal, on the Dalian exchange.

In addition, the yuan is not yet a fully convertible currency -- despite supposedly moving to a managed float exchange system in August 2015 -- and is unlikely to become fully convertible for a number of years at least. Recent exchange rate reforms have made Chinese authorities gun-shy, since they led to an exodus of trapped Chinese capital seeking higher returns abroad, and a surprise depreciation of the yuan. This forced Beijing to adopt a wide range of capital controls, which they have only recently begun to reverse after the yuan rebounded last year.

President Xi Jinping made no mention of further exchange rate reform at the 19thChinese Communist Party Congress in October, despite full convertibility being a prerequisite for the yuan becoming a major reserve currency -- the yuan presently represents a mere 1.1% of global foreign exchange reserves. Restrictions on moving money in and out of China make foreigners hesitant to invest in the country's markets, as can be seen by the marginal role they currently play in its giant stock and bond markets.

Lastly, adoption of the yuan as a petrocurrency would require the support of Opec kingpin Saudi Arabia, which has a long history of support for the dollar as the currency of choice for oil trade, and which is highly unlikely to withdraw that support in the foreseeable future, for geopolitical reasons alone.

Despite cozying up to China and Russia in recent years, Saudi Arabia's security remains dependent on the US, especially with its archnemesis, Iran, firmly aligned with Moscow and Beijing. Saudi Arabia and the US have had a tumultuous relationship over the decades, but relations currently appear the best in years, with US President Donald Trump and Saudi Arabia's powerful and influential Crown Prince Mohammad bin Salman seeing eye to eye on regional issues, especially the threat Iranian expansionism poses to the kingdom and the Mideast as a whole. That creates arguably the biggest medium-term obstacle to any shift in oil trade away from the dollar and toward the yuan.

That is not to say, of course, that the yuan will not become more prevalent in global oil trade. While the US remains the world's biggest oil consumer, China is now its biggest oil importer, and that kind of market power brings with it influence. Producers keen to consolidate or expand market share in China -- and Russia has been noticeably increasing exports over the past year and has cemented itself as the country's top supplier -- may well have to play by Beijing's rules. This could mean that, even if it cannot make the more challenging leap to true petrocurrency status, the decades ahead will still see a sizable chunk of global oil trade shifting to the yuan,

 

http://beta.energyintel.com/world-energy-opinion/enter-the-yuan/

 

[yota691]

To consolidate the presence of its currency globally

China seeks to buy oil in yuan instead of dollar

Ship to China (Archive)

Date of publication: Saturday 28 April 2018

China has taken its first steps towards paying imported oil in its local currency, the yuan, rather than the dollar, in an effort to consolidate its currency position globally. China may have launched its pilot program in the second half of this year, bearing in mind that the transformation of part of the world's oil trade into yuan is undoubtedly a giant enterprise.

Oil is the most heavily traded commodity, with an annual turnover of about $ 14 trillion, close to China's GDP last year. China, the world's second-largest oil consumer last year, overtook America as the world's largest importer of crude oil and its demand is the benchmark for global oil prices.

As the world's largest oil buyer, it is natural for China to put pressure on the yuan to pay its financial obligations. It will also improve the yuan's liquidity in the global market. "Besides giving China more strength in terms of world oil prices, this also helps the Chinese government in its efforts to transform its currency into a global one," says Sushant Gupta, director of research at Wood Mackenzie Consulting.

 

Under the plan discussed, China could start buying oil from Russia and Angola, which also want to abandon the link to the dollar and break its global hegemony. The two countries, China's largest supplier of oil, are Saudi Arabia.

 

The plans coincide with China's first launch of the Shanghai Futures Crude Oil Index, which many expect to become the third global price index, alongside the Brent and the WTI.

 

Unipec, the commercial arm of Sinopec, Asia's largest refiner, signed the first deal to import crude oil from the Middle East according to the Shanghai index.

 

The decision is a major step toward reviving the use of the world's second-largest economy after America. If successful, this may be followed by steps for other commodities traded in yuan, such as metals and raw materials.

In a note sent to customers during the first week of April, US Goldman Sachs confirmed that the success of the Shanghai Futures Index would indirectly contribute to boosting the use of the Chinese currency.

Quoting: Oil Price and CNBC

[yota691]

Why is it difficult to replace dollar trading in any other global currency?

30/4/2018 12:00 am  Sabah al-Hashemi  Many citizens wonder about the possibility of replacing the dollar in monetary transactions and "Is it possible to dispense with the green card in the global monetary system?" Global reports and expert opinions indicate that it is difficult to replace the dollar in any other currency because this would create imbalances In the global currency market as well as 85 percent of world trade based on the dollar, as well as issuing 39 percent of global debt using the US currency.   For several years, the US dollar is the strongest currency in the world, and is officially approved by the central banks in their cash reserves, along with the gold metal finally denominated in dollars.  The green paper's acquisition of that position for years without a real competitor made it difficult to have a strong alternative, although the US dollar reserves fell to a four-year low in the fourth quarter of last year. The academic economist d. Issam Mohammed described in an earlier statement to "Sabah" linking Iraqi foreign trade to the dollar as a matter of benefit to the economy and achieve stability as it is consistent with the global trend in general.  And "the difficulty of replacing foreign trade in another currency because it will create imbalance in the global currency market in terms of increased demand for a particular currency without others."  "The dollar culture of the region in general makes it difficult to deal with the euro rather than the dollar," said Abdel-Zahra Mohammed, an economist.  "Among these reasons is that the US currency is global and long-standing and has been dealt with for a long time, which highlights the dominance of the dollar on the rest of the other currencies, such as euros, for example, although it is a recognized global currency, but it is a modern currency." How does the dollar prevail? The dependence on the dollar does not come as the main reserve currency in the countries of the world due to the status of the American economy of the global economy, because in this perspective the US currency will lose in competition; because since the Second World War, the US share in global GDP declined from About 30 percent to 18 percent, surpassing China's share by only 2 percent, and the share of emerging markets in global GDP rose from 40 to 60 percent.  Despite all that, the global financial policy has not changed in line with these developments and the dollar has maintained its status because of Bretton Woods. Bretton Woods and Bretton Woods is a historic agreement on cash exchange rate management, and the name of the agreement was attributed to the place where it was held in 1944, whereby the US dollar became the currency of the world's cash reserve and linked to the price of gold. Under the agreement, central banks will maintain fixed exchange rates between their currencies and the dollar, while the US will replace the US dollar with gold on demand.  The system continued until August 15, 1971, when US President Richard Nixon declared a halt to the replacement of the dollar with gold, the most important element of the Bretton Woods system.  Then, in 1973, foreign governments allowed the currency to float, putting an end to the Bretton Woods system.  Until the 1970s, about two-thirds of world GDP was based on the dollar, and the rest was largely divided between the British pound and the Soviet ruble. The reason for the dollar's strength Several reasons have led the dollar to remain on the list of the most powerful currency of the year, apart from the size and strength of the US economy, including that more than a third of the world's GDP comes from countries that link their currencies to the green card.  In the foreign exchange market more than 85 percent of that trade is based on the dollar, and 39 percent of the world's debt is issued using the US currency.  Iqbal countries to keep the dollar in their reserves and acquisition of the first place in this regard, evidence of the strength of the US currency, as well as its use in international transactions.  Most of the world commodity contracts are denominated in US dollars, especially oil and gold, which are the most important global commodities, making the transactions of these commodities using green paper.  The US currency has always been able to overcome its pitfalls during the 1970s and 1980s, and from 1991 to 1993.  Although everyone was betting on the collapse of the dollar, many governments thought to end the peg in the US currency, Stronger than the first. Are there competitors? In March 2009, China and Russia called for a new global currency that would become the currency of the world's reserve currency, independent and non-volatile, as well as removing the shortcomings resulting from the use of national currencies linked to credit. China has already called on the International Monetary Fund (IMF) to do so as a result of concerns that its trillions in US currency would become less valuable as a result of the US spending deficit and the issuance of US Treasury bonds to support debt. Some countries have also tended to keep currencies other than the dollar in their cash reserves, with yen holding in state reserves rising to the highest level since 2002 at 4.89 percent in the fourth quarter of last year.  The Chinese yuan was also included in the reserve currencies of the countries in the fourth quarter of 2016, and the total holdings of countries from the Chinese currency to 1.23 percent in the fourth quarter of 2017, compared to 1.12 percent in the previous quarter.  As the yuan entered the IMF's Special Drawing Rights (SDR) currencies, many said it could replace the dollar as the world's top currency, but the fact that it has been less frequent in Chinese trade and rules on exchange has played down that belief.  The Central Bank of China rules to set a reference rate for the yuan daily and only allows a margin of rise or fall of 2 percent of this level.

[Butifldrm]

UBS: "The Petroyuan Will Undermine America's Dominant Role And Create A Sea Change In Global Markets"

by Tyler Durden

Sun, 04/29/2018 - 21:30

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From Hayden Briscoe, head of Fixed Income, Asia Pacific at UBS

RMB-denominated oil contracts began trading for the first time in Shanghai on March 26. We believe that in the long term this will ultimately change how oil is traded globally, create a Petroyuan currency flow, increase the role of the RMB as a global trading currency, and compel investors to up their allocations to Chinese financial assets.

Why now?

From March 26, seven oil grades will be tradeable on the Shanghai International Energy Exchange (INE), allowing Chinese buyers to buy forward in RMB. Since INE is based in Shanghai's Free Trade Zone (FTZ), foreign traders will be allowed to trade in the market.

China passed the US as the world's largest oil consumer in 2016. Accordingly, China wants to pay for its huge import bill in its own currency (RMB) rather than USD.

More importantly, however, China wants the new oil trading plan to promote RMB internationalization, i.e. forcing wider adoption of the RMB as a global trading currency, and switching to RMB payments for major imports is part of this process.

The emergence of Petroyuan - RMB-denominated revenues collected by the world's largest oil producers - is a natural development from this process

Will this new system change the way oil is traded globally?

Probably not in the short term. Traders can't move RMB freely in and out of the Shanghai commodity exchanges yet. That said, it's unclear how much of a roadblock this is given that INE will be based in the Shanghai FTZ.

Also, even with exchange convertibility, international investors and resource trading companies need to build up enough confidence in the INE as a trading hub. That requires time and, crucially, the tried, tested, and extensive  data infrastructure to support the market, which China doesn't have right now.

That said, in the longer term, we believe that RMB oil trading will shift the structure of the global oil market, provided two things happen.

Firstly, China will have to remove, or substantially reduce, capital controls for RMB-priced oil trading to take off and allow global commodity trading houses access to the INE.

We think this is already in process, although happening gradually, based on recent policies to make the RMB more market-determined and ease rules on foreign banks' RMB businesses.

China's other landmark changes, like giving institutional investors direct access to the Chinese bond market, expanding access via the Bond Connect program in 2017, and launching the Shanghai and Shenzhen Stock Connect links with Hong Kong, show the government is intent on the necessary reforms to open the economy to international investors.

Secondly, China's oil trading partners, like Saudi Arabia, Russia, and Iran, will have to agree to accept RMB for their oil exports to China. This is also taking shape because Russia already accepts RMB for oil exports, as does Iran, and we expect Saudi Arabia to soon begin invoicing China in RMB.

The Petroyuan – why it really matters

Oil trading in RMB is as much about politics as practicality.

The 2008 Global Financial Crisis (GFC) taught the world and China that an over-reliance on key commodities priced in USD can be risky. When USD prices of key commodities rose following the GFC, higher food and energy import bills risked supply security, something a country like China can't afford.

As well as protecting food and energy security, China wants a more active role in global politics and the global economy. As the world's second largest economy, it wants global systems, like oil trading, to reflect China's status.

Historically the US has been the dominant oil consumer, and oil trading reflects this because it is priced in USD. In the 1970s, Saudi Arabia and the US bilaterally negotiated oil trade settlement in USD and this gave birth to the Petrodollar world we still live in today.

This way of trading has given the US what's been described as an 'exorbitant privilege' – where oil exporters recycle their dollar receipts back into US financial markets, keeping US interest rates low and supporting persistent current account deficits.

But that's about to change – especially now that China has become the largest global oil consumer. China's role is only expected to increase, since BP forecasts annual demand will grow 30.6% to 753 million tons per year in 2040, while the US will likely reduce their reliance on oil imports by developing domestic shale oil capacity.

As the dominant customer, particularly for major oil exporters like Russia, Venezuela, Iraq, Iran, and Saudi Arabia, China's market means leverage, and many of these suppliers have either already agreed to price their sales to China in RMB, or are actively considering it.

If, or rather when, China's total oil import bill gets priced in RMB, that's going to create large piles of RMB reserves in oil exporting countries that will either be spent on Chinese exports, or recycled into China's financial markets, giving China much more heft in the global economy.

This will have two principal effects: increased demand for RMB assets and a switch out of the USD for trading purposes, which will likely undermine the United States' dominant role in the global economy and create a sea change in global asset allocation to China's financial markets.

And that's why the launch of oil trading contracts in RMB really matters.

https://www.zerohedge.com/news/2018-04-29/ubs-petroyuan-will-undermine-americas-dominant-role-and-create-sea-change-global#comment-11591226

[bostonangler]

9 hours ago, Butifldrm said:

and we expect Saudi Arabia to soon begin invoicing China in RMB.

 

If they move to this agreement, the USD and all of us are going to feel some real pain. JMHO

 

B/A

[blueskyline]

I like others have been following the rise of the RMB and what might be its effects on the USD for awhile now . Not only China's actions but other countries around the world that are moving away from the dollar . What has not been known or in the discussion  is Iraq's "Super Abundant Wealth" as they sometimes put it  , the IQD and the United States close bond with them . How this will all play out will probably have the greatest world wide  monetary effect in modern history and we are at the center of it . Very interesting , some what nerve racking . Iraq success seems to be vital to our national security ... '

[Butifldrm]

UBS: Petroyuan Will Undermine U.S. Market Dominance

By ZeroHedge - Apr 30, 2018, 11:00 AM CDT

RMB-denominated oil contracts began trading for the first time in Shanghai on March 26. We believe that in the long term this will ultimately change how oil is traded globally, create a Petroyuan currency flow, increase the role of the RMB as a global trading currency, and compel investors to up their allocations to Chinese financial assets.

Why now?

From March 26, seven oil grades will be tradeable on the Shanghai International Energy Exchange (INE), allowing Chinese buyers to buy forward in RMB. Since INE is based in Shanghai's Free Trade Zone (FTZ), foreign traders will be allowed to trade in the market.

China passed the U.S. as the world's largest oil consumer in 2016. Accordingly, China wants to pay for its huge import bill in its own currency (RMB) rather than USD.

More importantly, however, China wants the new oil trading plan to promote RMB internationalization, i.e. forcing wider adoption of the RMB as a global trading currency, and switching to RMB payments for major imports is part of this process.

The emergence of Petroyuan - RMB-denominated revenues collected by the world's largest oil producers - is a natural development from this process

(Click to enlarge)

Will this new system change the way oil is traded globally?

Probably not in the short term. Traders can't move RMB freely in and out of the Shanghai commodity exchanges yet. That said, it's unclear how much of a roadblock this is given that INE will be based in the Shanghai FTZ.Related: U.S. Oil Exports Are Only Heading Higher

Also, even with exchange convertibility, international investors and resource trading companies need to build up enough confidence in the INE as a trading hub. That requires time and, crucially, the tried, tested, and extensive data infrastructure to support the market, which China doesn't have right now.

(Click to enlarge)

That said, in the longer term, we believe that RMB oil trading will shift the structure of the global oil market, provided two things happen.

Firstly, China will have to remove, or substantially reduce, capital controls for RMB-priced oil trading to take off and allow global commodity trading houses access to the INE.

We think this is already in process, although happening gradually, based on recent policies to make the RMB more market-determined and ease rules on foreign banks' RMB businesses.

(Click to enlarge)

China's other landmark changes, like giving institutional investors direct access to the Chinese bond market, expanding access via the Bond Connect program in 2017, and launching the Shanghai and Shenzhen Stock Connect links with Hong Kong, show the government is intent on the necessary reforms to open the economy to international investors.

Secondly, China's oil trading partners, like Saudi Arabia, Russia, and Iran, will have to agree to accept RMB for their oil exports to China. This is also taking shape because Russia already accepts RMB for oil exports, as does Iran, and we expect Saudi Arabia to soon begin invoicing China in RMB.

The Petroyuan – why it really matters

(Click to enlarge)

Oil trading in RMB is as much about politics as practicality.

The 2008 Global Financial Crisis (GFC) taught the world and China that an over-reliance on key commodities priced in USD can be risky. When USD prices of key commodities rose following the GFC, higher food and energy import bills risked supply security, something a country like China can't afford.

As well as protecting food and energy security, China wants a more active role in global politics and the global economy. As the world's second largest economy, it wants global systems, like oil trading, to reflect China's status.

Historically the U.S. has been the dominant oil consumer, and oil trading reflects this because it is priced in USD. In the 1970s, Saudi Arabia and the U.S. bilaterally negotiated oil trade settlement in USD and this gave birth to the Petrodollar world we still live in today.Related: The Top Natural Gas Players In 2018

This way of trading has given the U.S. what's been described as an 'exorbitant privilege' – where oil exporters recycle their dollar receipts back into U.S. financial markets, keeping US interest rates low and supporting persistent current account deficits.

But that's about to change – especially now that China has become the largest global oil consumer. China's role is only expected to increase, since BP forecasts annual demand will grow 30.6 percent to 753 million tons per year in 2040, while the U.S. will likely reduce their reliance on oil imports by developing domestic shale oil capacity.

As the dominant customer, particularly for major oil exporters like Russia, Venezuela, Iraq, Iran, and Saudi Arabia, China's market means leverage, and many of these suppliers have either already agreed to price their sales to China in RMB, or are actively considering it.

If, or rather when, China's total oil import bill gets priced in RMB, that's going to create large piles of RMB reserves in oil exporting countries that will either be spent on Chinese exports, or recycled into China's financial markets, giving China much more heft in the global economy.

This will have two principal effects: increased demand for RMB assets and a switch out of the USD for trading purposes, which will likely undermine the United States' dominant role in the global economy and create a sea change in global asset allocation to China's financial markets.

And that's why the launch of oil trading contracts in RMB really matters.

By Hayden Briscoe via Zerohedge.com

https://oilprice.com/Energy/Energy-General/UBS-Petroyuan-Will-Undermine-US-Market-Dominance.html

[Butifldrm]

MAY 3, 2018 / 3:21 AM / 7 DAYS AGO

China signs 15 billion yuan currency swap agreement with Nigeria

 

Reuters Staff

1 MIN READ

•  
•  

 

BEIJING (Reuters) - China’s central bank said on Thursday it has signed a three-year bilateral currency swap agreement with Nigeria worth 15 billion yuan ($2.36 billion).

The People’s Bank of China (PBOC) said on its website the swap deal will facilitate trade and investment, and safeguard stability of financial markets of both countries.

($1 = 6.3556 Chinese yuan renminbi)

https://www.reuters.com/article/us-china-nigeria-swap/china-signs-15-billion-yuan-currency-swap-agreement-with-nigeria-idUSKBN1I40PI

[Butifldrm]

Another Step Towards Collapse Of The Petrodollar

by Tyler Durden

Wed, 05/09/2018 - 23:45

110

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Authored by Rory Hall via The Daily Coin,

For the past year and half a major topic throughout the alternative press has been the new Chinese oil futures contract settled/priced in yuan. The fact that China is directly challenging the Federal Reserve Note, U.S. dollar, is quite a significant change. For those that have been paying attention this new futures oil contract is nothing more than the next step in China moving completely away from the Federal Reserve Note, and the “world reserve currency” system and towards a multi-polar world with several currencies being used for international trade.

Ken Schortgen, Jr., The Daily Economist, recently penned an article about Nigeria approving a currency swap agreement with China, stating,

It has been a little more than a month since China officially began offering oil futures contracts denominated in the Yuan currency, but early results continue to be positive for this contract to over time take more and more market share from the West and the Petrodollar.  And with Iran, Qatar, and even Venezuela having already agreed to buy and sell their oil in currencies other than the dollar, a new currency swap agreement signed on May 3 between Nigeria and China could mean that a fourth OPEC nation could also soon be leaving the Petrodollar.

The Central Bank of Nigeria (CBN) has signed a currency swap deal worth about $2.5 billion with the People’s Bank of China to provide adequate local currency liquidity for transactions between national businesses, The Punch newspaper reported on Thursday, citing a high-ranking official from the Central Bank of Nigeria (CBN). Sputnik News

The Daily Economist

While China pursued currency swaps as far back as 1997, during the “Asian financial crisis”, none of the agreements were ever activated. That all changed with the global financial meltdown in 2008. China began actively pursuing, and instituting, direct currency swapsand even went so far as to open “Renminbi Clearing Centers” around the world including Canada, the backyard of the U.S..

Beyond the moderate progress in Asian regional financial cooperation, China has signed swap agreements with approximately 30 countries since 2008 (see Table 1). The People’s Bank of China (PBOC) stated that those swap agreements were intended not only to “stabilize the international financial market,” but also to “facilitate bilateral trade and investment.”

CogitAsia

The chart above, from CogitAsia, was produced in 2015 and does include Japan, Nigeria or France all of which are conducting direct currency swaps with China. All three nations bring something unique, economically speaking, to the table that will prove beneficial for both sides of the trade.

China now has direct currency swaps with more than 30 nations, including some of the largest economies in the world, like Japan, France, Australia to name but a few. This is all part and parcel to circumventing the world reserve currency system which punishes other nations, while at the same time strengthens the U.S. economy. What’s terrible for the rest of the world is awesome for the U.S..

China, along with a great many other nations, are ready for this system to change and balance the economic scale. When you announce to the world that your currency is someone else’s problem, the people that have the problem usually find a way to mend the problem and eliminate the situation creating the problem.

Even the gloomiest pessimists accept that a steep dollar depreciation would inflict more suffering on China and other Asian economies than on the United States. John Snow’s counterpart in the Nixon administration once told his European counterparts that “the dollar is our currency, but your problem.”

Snow could say the same to Asians today. If the dollar fell by a third against the renminbi, according to Nouriel Roubini, an economist at New York University, the People’s Bank of China could suffer a capital loss equivalent to 10 percent of China’s gross domestic product. For that reason alone, the P.B.O.C. has every reason to carry on printing renminbi in order to buy dollars. 

NY Times

This is exactly where we stand today.

China, along with Russia, understand this scenario all too well. These two nations, along with 30+ other nations, are making moves to be rid of the problem known as the Federal Reserve Note, U.S. dollar.

Once this “problem” is corrected the U.S. economy will change dramatically. Inflation, and according to some economist like John Williams of Shadow Stats, hyperinflation will reign down on the U.S. economy like the world has never seen or experienced before. At this juncture we can only hope cooler heads prevail and a major war doesn’t manifest to announce the coming change in our global monetary system.

https://www.zerohedge.com/news/2018-05-09/another-step-towards-collapse-petrodollar