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
Butifldrm

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

Recommended Posts

China rolls out petro-yuan, shaking up oil futures market

images.jpg
 

BEIJING – China has launched the highly anticipated yuan-backed crude oil futures in Shanghai, eyeing on rival benchmarks Brent and WTI as well as the U.S. currency (Dollar).

Trading of the new oil futures contracts for September settlement started on the Shanghai International Energy Exchange at 440.20 yuan ($69.70) per barrel, reports Chinese daily the South China Morning Post. Some 18,540 lots have reportedly been sold and purchased so far.

Glencore, Trafigura, and Freepoint Commodities were among the first to buy the new contract, Reuters reports. Within minutes of the launch, the price had gone up to almost US$70.85 (447 yuan) per barrel. The overall price jump for the short trading session came in at 3.92 percent.

3GRQ9pjO-300x157.jpg

The long-awaited step evoked a surge in global prices for oil with Brent Crude soaring to $71 a barrel for the first time since 2015. U.S. crude benchmark West Texas Intermediate (WTI) reached the highest level in three years at $66.55 per barrel, before retreating to $65.53.

Experts see China’s yuan-dominated contracts as historic as the new futures symbolize the first time that foreign investors can access a Chinese commodity market. The launch ends years of setbacks and delays since the country’s first attempt at listing the securities in 1993.

 

At the same time, the petro-yuan launch is seen as a blow to the U.S. dollar that has been weakening in recent months. The U.S. dollar is the predominant settlement currency for oil futures contracts. On Monday, the greenback slipped to a 16-month low against the Japanese yen, but remained steady against a basket of six major currencies.

Last year, the country outpaced the United States as the world’s number one importer of oil.

http://santiagotimes.cl/2018/03/26/china-rolls-out-petro-yuan-shaking-up-oil-futures-market/

  • Thanks 1

Share this post


Link to post
Share on other sites

Bank of China allowed to operate in Chile

 

Bank-of-China-678x381.jpg

 

SANTIAGO – Chilean banking regulator SBIF has authorized Bank of China Limited, one of China’s largest banks, to operate in the South American country.

The move will boost use of China’s yuan currency in Latin America

Bank of China, which operates in 51 countries, has become the second Chinese-owned bank with a presence in Chile, after China Construction Bank was approved to operate in May 2016

 

Earlier this year, Beijing invited Latin American and Caribbean countries to join its “One Belt, One Road” infrastructure initiative, opening the door to billions of dollars in infrastructure investment and testing U.S. dominance in the region.

China accounts for over 20 percent of Chile’s exports, mostly of copper but also lithium, wood pulp, wine, salmon and other products.

http://santiagotimes.cl/2018/03/14/bank-of-china-allowed-to-operate-in-chile/

  • Upvote 1

Share this post


Link to post
Share on other sites

Russia Stockpiles Gold, But Why?

Profile picture for user Tyler Durden
Tue, 03/27/2018 - 07:02

Authored by Tom Lewis via GoldTelegraph.com,

The US’s overhang of debt and looming trade war is worrisome on many levels as the value of the dollar keeps decreasing and the national debt spiraling. So, what should we make of the fact that the Central Bank of Russia has been steadily amassing vast gold reserves since 2015? By the end of 2017, its total gold reserves rose to 1,828.56 tons, usurping China’s place as the country with the fifth largest gold reserves.

russia%20%281%29.jpg

Russia has been aggressively increasing its gold reserves for a reason. It has seen the US dollar dominate as a global currency and is working with China to end the US/Western currency supremacy. Their strategy appears to be working. Russia and China are in the midst of rumors of introducing gold-backed futures to circumvent the U.S dollar. 

Screen-Shot-2018-03-25-at-2.00.46-AM-690x400.png

Screen-Shot-2018-03-25-at-2.00.46-AM-690

The US dollar has had no gold-backing since 1933, nor has the US increased its gold reserves for a decade. See chart below.

Screen-Shot-2018-03-25-at-2.07.56-AM-717x400.png

Screen-Shot-2018-03-25-at-2.07.56-AM-717

With  speculation of Russia and China working on a gold-backed currency, a shift in monetary power from the West to the East seems to be their ambitions. The situation between East and West is exacerbated by recent tensions between Russia and the UK, since the alleged Kremlin poisoning of former spy Sergei Skripal and his daughter. British Prime Minister Theresa May has ousted 23 Russian diplomats from Great Britain. Geopolitical tension is once again, high.

It seems Russian may have tossed aside Das Kapital as its economic guidebook. Not only is creating a gold-backed currency appearing more likely month over month, but Russia has also brought inflation way down over the past decade. More importantly, Russia continues to lower their national debt, while the US has been increasing its debt to a record $21 trillion.

Screen-Shot-2018-03-25-at-2.20.31-AM-715x400.png

Screen-Shot-2018-03-25-at-2.20.31-AM-715

Russia’s financial strategy is making the country less vulnerable to volatile geopolitics. Not only is it a significant player in gold, but it is also the world’s third-largest gold producer, with the Central Bank of Russia buying up its supplies. During the past decade, Russian has mined more than 2,000 tons of gold, with tonnage expected to increase by 400 tons annually by 2030.

Russia and China understand the value of real, physical gold, a lesson that the US has forgotten while reveling in worthless paper currency.

If Russia and China establish a 100 percent gold-backed currency, it inevitably changes the game in the West. The dollar will continue to devalue against gold at a rapid rate.

Screen-Shot-2018-03-25-at-2.25.04-AM-604x400.png

Screen-Shot-2018-03-25-at-2.25.04-AM-604

Ultimately, the battle will not be Eastern vs. Western dominance. The real battle long term will be between the US dollar (fiat) and gold.

But remember:

Screen-Shot-2018-03-25-at-2.32.03-AM-800

  • Thanks 1
  • Upvote 1

Share this post


Link to post
Share on other sites

Petro-yuan helps Russia & China dump US dollar in oil trade

Published time: 27 Mar, 2018 13:50Edited time: 28 Mar, 2018 12:06
Petro-yuan helps Russia & China dump US dollar in oil trade
FILE PHOTO: A valve is seen at the Kozmino oil-loading port in the bay of Kozmino, about 100 km (62 miles) east of Russia's far eastern city of Vladivostok © Yuri Maltsev / Reuters
 
China is the world's biggest crude consumer and buys most of its oil from Russia. However, most settlements are still in US dollars. The launch of the petro-yuan now allows Moscow and Beijing to use national currencies instead.

China and Russia are actively reducing dependence on the dollar in bilateral trade. In October 2017, Beijing launched a payment system for transactions in yuan and Russian rubles. This means that settlements for Russian oil deliveries to China, which have reached 60 million tons per year, can be done without using the dollar.

After Monday's launch of the yuan-backed oil futures in Shanghai, there have been negotiation between Russia and China on mutual promotion of oil futures in national currencies, RIA Novosti reported. In 2016, the St. Petersburg exchange in Russia launched Urals oil futures in the Russian ruble, and support from China could prop up Russian crude futures.

China's new oil benchmark had a hugely successful debut. On the first day of trading in Shanghai, 62,500 contracts with more than 62 million barrels of crude traded for a notional value of nearly 27 billion yuan ($4 billion), Zerohedge reported. Glencore, Trafigura, Freepoint Commodities and other huge oil-trading corporations took part.

Russia held its position as China's largest crude oil supplier in February. Russia supplied 5.052 million tons, or 1.32 million barrels per day (bpd) last month, up 17.8 percent from a year earlier, according to Reuters, quoting the Chinese General Administration of Customs.

The increase in volume happened as a result of a second Sino-Russian oil pipeline, which began operations on January 1. It doubled China’s capacity to pump oil from the East Siberia-Pacific Ocean (ESPO) system. ESPO connects Russia and China with a direct pipeline.

https://www.rt.com/business/422472-russia-china-petro-yuan/

  • Upvote 2

Share this post


Link to post
Share on other sites

China taking the long road to solve the petro-yuan puzzle

A number of pieces have to fall into place before the petrodollar moves into second place

By PEPE ESCOBAR MARCH 28, 2018 4:03 PM (UTC+8)
  •  
  •  
  •  
  •  
  •  
  • 178
  • 5
The rise of the petro-yuan may depend on China's domination of the gold market. Photo illustration: iStock
The rise of the petro-yuan may depend on China's domination of the gold market. Photo illustration: iStock

Few geoeconomic game-changers are more spectacular than yuan-denominated future crude oil contracts – especially when set up by the largest importer of crude on the planet.

And yet Beijing’s media strategy seems to have consisted in substantially play down the official launch of the petro-yuan at the Shanghai International Energy Exchange.

 
Must-reads from across Asia - directly to your inbox
 

Still, some euphoria was in order. Brent Crude soared to $71 a barrel for the first time since 2015. West Texas Intermediate (WTI) reached the highest level in three years at $66.55 a barrel; then retreated to $65.53.

A series of petro-yuan “firsts” include the first time overseas investors are able to access a Chinese commodity market. Significantly, US dollars will be accepted as deposit and for settlement. In the near future, a basket of currencies will also be accepted as deposit.

Does the launch of the petro-yuan represent the ultimate deathblow to the petrodollar – and the birth of a completely new set of rules? Not so fast. That may take years, and depends on many variables, the most important of which will be China’s capacity to bend, tweak and ultimately rule the global oil market.

As the yuan progressively reaches full consolidation in trade settlement, the petro-yuan threat to the US dollar, inscribed in a complex, long-term process, will disseminate the Holy Grail: crude oil futures contracts priced in yuan fully convertible into gold.

That means China’s vast array of trade partners will be able to convert yuan into gold without having to keep funds in Chinese assets or turn them into US dollars. Exporters facing the wrath of Washington, such as Russia, Iran or Venezuela, may then avoid US sanctions by trading oil in yuan convertible to gold. Iran and Venezuela, for instance, would have no problems redirecting tankers to China in order to sell directly in the Chinese market – if that’s what it takes.

How to bypass the US dollar

In the short- to medium-term the petro-yuan will surely boost the appeal of the Belt and Road Initiative (BRI), especially when it comes to the House of Saud.

It’s still unclear in what capacity Beijing will be part of the Aramco IPO, but that will be a decisive step towards the fateful historic moment when Beijing will tell – or compel – Riyadh to start accepting payment for oil in yuan.

Only then the petrodollar may be at serious risk – along with the US dollar as the global reserve currency.

I have stressed before how, at the 2017 BRICS summit, Russian President Vladimir Putin went no holds barred supporting the petro-yuan, specifically challenging the “unfairness” of the US dollar’s unipolar dominance.

How to bypass the US dollar, as well as the petrodollar, has been discussed at BRICS summits for years now. Russia is now China’s largest crude oil supplier (1.32 million barrels a day last month, up 17.8% from a year earlier.) Moscow and Beijing have been forcefully bypassing the US dollar in bilateral trade. In October last year, China launched a payment system in both currencies – the yuan and the ruble. And that will apply to Russian oil bought by China.

Still, the whole petrodollar edifice lies on OPEC – and the House of Saud– pricing oil in US dollars; as everyone needs greenbacks to buy oil, everyone needs to buy (spiraling) US debt. Beijing is set to break the system – as long as it takes.

The petro-yuan as it stands does not provide access to Chinese oil markets. It starts as a great deal especially for Chinese companies who need to buy oil but would rather avoid the oscillations of foreign exchange. Nothing changes for the rest of the US dollar-dominated commodity planet – at least for now.

The game will really start to change when other nations realize they have found a real credible alternative to the petrodollar, and switching to the yuan en masse will certainly spark a US dollar crisis.

What the petro-yuan may be able to provoke in the short term is an acceleration of the next crises in treasuries and bond markets, which will inevitably spill out in the form of a crisis in global currency markets.

That pan-Eurasian resource basket

The game-changing aspect, for now, mostly has to do with the exquisite timing. Beijing has crafted an ultra-long-term plan and yet chose to launch the petro-yuan smack in the middle of a period of sharp deterioration in trade relations with Washington.

The answer to the geoeconomic riddle is bound to be The Golden Moment. Eventually gold will rise to a level where Beijing – by then totally in control over physical gold markets – feels ready to set a conversion rate.

The – Arabian – ‘petro’ side of the petrodollar equation should have been replaced long ago by a priceless, captured pan-Eurasian resource basket. That was what **** Cheney dreamed of – centering his dreams on the energy wealth of Central Asia and Russia.

That did not happen. What we have instead is shrieking, manic Russophobia – more like a graphic indication of how precarious is the position of Western banking elites. On top of it, with the petro-yuan, China deploys the key weapon, incorporated into BRI, capable of accelerating the end of the unipolar moment.

Yet this is just the initial step in an ultra-high-stakes game. One should keep one’s eyes firmly focused on the interpolations between trade connectivity and technological breakthroughs. The petrodollar may be in danger but is far from finished.

http://www.atimes.com/article/china-taking-long-road-solve-petro-yuan-puzzle/

Share this post


Link to post
Share on other sites

Why petro-yuan may become biggest game-changer of all time in capital markets

Published time: 28 Mar, 2018 11:44Edited time: 28 Mar, 2018 12:04
Why petro-yuan may become biggest game-changer of all time in capital markets
Chinese professional basketball player Yao Ming (11) with his Houston Rockets teammates © Danny Moloshok / Reuters
  • 1604
  •  
  • 1
  •  
  •  
  •  
  •  
The historic launch of the long-awaited trading of Chinese crude futures this week has stirred up a heated debate among analysts as to whether the new commodity product will prosper or flop.

 

Some market analysts expressed doubts over the success of the petro-yuan, citing Beijing’s yearning for total control over trading as one of the key reasons for a potential bust. “The government has been eager to encourage liquidity and paper trading, but of course the issue with paper trading is speculative trading that the government wants to keep at bay,” Michal Meidan, an analyst at energy market consultancy Energy Aspects, told Bloomberg prior to the launch.

Meanwhile, the high costs of oil storage for delivery into the Shanghai Futures Exchange may scare potential investors away from the new contracts, according to industry analysts. “Storage plays a crucial role in linking cash and futures markets. Many speculators, such as proprietary traders and hedge funds, may be scared away,” said Jian Yang, a research director at the JP Morgan Center for Commodities in the University of Colorado Denver, as quoted by the agency.

However, China's yuan-backed oil futures managed to make a strong debut on Monday with overnight trade volumes initially outstripping transactions of internationally recognized benchmark Brent. Some 62,500 contracts reportedly changed hands during the first session, as domestic and international oil investors joined the trading.

The impressive start gives deeper cause for optimism about the newcomer with some analysts qualifying oil futures denominated in China’s currency as a game-changer in the world of financial trading. “This is the single biggest change in capital markets, maybe of all time,” said Hayden Briscoe, APAC head of fixed income at UBS Asset Management, as quoted by Reuters.

 
DZNHvgkXcAAwYIf?format=jpg&name=small
H4_uLagc_normal.jpg
 
 

Death of US dollar? China launches petro-yuan to challenge greenback’s dominance https://on.rt.com/91uy 

 
 

According to the analyst, the move to trade oil in yuan will diminish the role of the greenback in global financial markets. If market participants, including US corporations, opt to trade yuan-backed contracts, this could easily strengthen the Chinese currency and, at the same time, weaken the dollar.

“This helps cement the exchange’s viability and challenges the petro-dollar system, in which oil deals are executed in dollars. This would decrease demand for the greenback and boost US inflation,” Briscoe said.

With crude oil becoming a great chunk of modern international commerce, the potential impact of the new product on oil market dynamics and on global monetary and financial systems could be correspondingly great.

 

https://www.rt.com/business/422561-petroyuan-gold-biggest-change-markets/

Share this post


Link to post
Share on other sites

China Takes First Step for Petro-Yuan to Break Global Dominance of Dollar

US bank Goldman Sachs said in a note to clients this week that the success of Shanghai's crude futures was "indirectly promoting the use of the Chinese currency."

Reuters

Updated:March 29, 2018, 5:07 PM IST
facebookTwittergoogleskype
 
US Dollar and China Yuan notes are seen in this picture illustration June 2, 2017. (REUTERS/Thomas White/Illustration/File Photo)
 
Hong Kong/Beijing: China is taking its first steps towards paying for imported crude oil in yuan instead of the US dollar, three people with knowledge of the matter told Reuters, a key development in Beijing's efforts to establish its currency internationally.

Shifting just part of global oil trade into the yuan is potentially huge. Oil is the world's most traded commodity, with an annual trade value of around $14 trillion, roughly equivalent to China's gross domestic product last year. A pilot programme for yuan payment could be launched as early as the second half of this year, two of the people said.
 
 

Regulators have informally asked a handful of financial institutions to prepare for pricing China's crude imports in the yuan, said the three sources at some of the financial firms. "Being the biggest buyer of oil, it's only natural for China to push for the usage of yuan for payment settlement. This will also improve the yuan liquidity in the global market," said one of the people briefed on the matter by Chinese authorities.
 
 
China is the world's second-largest oil consumer and in 2017 overtook the United States as the biggest importer of crude oil. Its demand is a key determinant of global oil prices. Under the plan being discussed, Beijing could possibly start with purchases from Russia and Angola, one of the people said, although the source had no details of anything in the works.
 
 

Both Russia and Angola, like China, are keen to break the dollar's global dominance. They are also two of the top suppliers of crude oil to China, along with Saudi Arabia. The move would mark a major step in reviving usage of the currency of the world's second-largest economy for offshore payments after several years of on-again, off-again measures.

If successful, it could also trigger shifting other product payments to the yuan, including metals and mining raw materials. All three sources, who spoke to Reuters on the condition that they not be named, said the plans were at early stages. Officials at some of China's state oil companies said they had not heard of such plans.

CRUDE FUTURES

The plans coincide with this week's launch of the first Chinese crude oil futures in Shanghai, which many expect to become a third global price benchmark alongside Brent and West Texas Intermediate crude. Shanghai's new crude contract is traded in yuan.

Besides the potential of giving China more power over global oil prices, "this will help the Chinese government in its efforts to internationalise renminbi (yuan)," said Sushant Gupta, research director at energy consultancy Wood Mackenzie. Unipec, trading arm of Asia's largest refiner Sinopec, has already inked a first deal to import Middle East crude priced against the newly-launched Shanghai crude futures contract.

US bank Goldman Sachs said in a note to clients this week that the success of Shanghai's crude futures was "indirectly promoting the use of the Chinese currency." People's Bank of China (PBOC), the country's central bank, did not respond to a Reuters request for comment on the plan. The Ministry of Commerce (MOFCOM) also declined to comment.

INTERNATIONALIZATION

China's plan to use yuan to pay for oil comes amid a more than year-long gradual strengthening of the currency, which looks set to post a fifth straight quarterly gain, its longest winning streak since 2013. The yuan retained its No.5 ranking as a domestic and global payment currency in January this year, unmoved from a year ago, but its share among other currencies fell to 1.7 percent from 2.5 percent, according to industry tracker SWIFT.

A slew of measures put in place in the last 1-1/2 years to rein in capital flowing out of the country amid a slide in yuan value has taken off some its shine as a global payment currency. But the yuan has now appreciated 3.4 percent against the dollar so far this year, with solid gains in recent sessions.

"For PBOC and other regulators, internationalization of the yuan is clearly one of the priorities now, and if this plan goes off smoothly then they can start thinking about replicating this model for other commodities purchases," said the person briefed on the matter. It would not be easy, however, for China to shift the bulk of its commodity purchases to the yuan because of the currency's illiquidity in forex markets.

Nearly 90 percent of all transactions in the $5 trillion-a-day currency markets involve the dollar on one side of a trade, while only 4 percent use the yuan, as per a triennial forex survey by the Bank for International Settlements.

 

https://www.news18.com/news/world/china-takes-first-step-for-petro-yuan-to-break-global-dominance-of-dollar-1703219.html

  • Thanks 1

Share this post


Link to post
Share on other sites
1 hour ago, Butifldrm said:

Nearly 90 percent of all transactions in the $5 trillion-a-day currency markets involve the dollar on one side of a trade, while only 4 percent use the yuan, as per a triennial forex survey by the Bank for International Settlements.

 

It will be interesting to see how these numbers change in the next 5 years.

 

B/A

  • Thanks 1
  • Upvote 1

Share this post


Link to post
Share on other sites
21 hours ago, bostonangler said:

 

It will be interesting to see how these numbers change in the next 5 years.

 

B/A

 

We agree on this one.......biggest story in a decade in my mind.......

  • Thanks 2

Share this post


Link to post
Share on other sites
Just now, coorslite21 said:

 

We agree on this one.......biggest story in a decade in my mind.......

 

I think if the petrodollar loses it's standing we are in big big trouble... I'm no economic expert by any means, but the petrodollar has apparently kept us afloat.... JMHO

 

B/A

  • Upvote 3

Share this post


Link to post
Share on other sites

Make no mistake, China is no one's friend. They want to dominate the world and have the patience to wait until things fall into place to their advantage. Which it appears may be about to happen.

  • Upvote 3

Share this post


Link to post
Share on other sites

On The Yuan-Oil Futures Contract & Gold

Profile picture for user Tyler Durden
Fri, 03/30/2018 - 11:19

Authored by Alasdair Macleod via GoldMoney.com,

"There can be little doubt that the introduction of the yuan-denominated oil future has been a major strategic step for China."

images_2.jpg

Regular readers will be aware that we were among the first to alert western financial markets that China would introduce a new oil futures contract priced in yuan, months before it was officially admitted that the plans for the contract were being finalised and a date for trading was being planned.

Trading in the new Shanghai oil future commenced last Monday, and on the first three days trading there were 151,804 contracts traded with a turnover value of 65bn yuan. It is the first futures contract listed on China’s mainland available to overseas users, putting them on the same footing as domestic investors. There are 15 benchmark contracts for different delivery dates between September next and March 2019.

There is little doubt that the Chinese government views this contract as an important development, with international commodity trading houses, such as Glencore and Trafigura, encouraged to participate. Furthermore, state-owned banks would have been on hand to ensure the necessary currency and financial liquidity is available.

The Chinese are likely to ensure trading liquidity continues to build in its new oil contracts before its oil suppliers routinely use them against physical oil deliveries. Presumably, this is one reason the first delivery date is in September, while actual shipment is never more than a month or so.

This contract goes head-to-head against the petrodollar and is the first serious challenge to it since its inception in the mid-1970s. The petrodollar was born out of the monetary chaos that led to the end of the Bretton Woods Agreement, when excess dollars in foreign hands were redeemed for gold. In that sense, being the first significant threat to the petrodollar, this contract could mark the end of a monetary era.

China does not intend to replace the petrodollar with its own currency, other than for her own energy and commodity imports. To put it into context, China imports about 8 million barrels of oil per day, mostly from the Eurasian continent, which compares with global daily demand of roughly 100 million barrels. China also produces her own oil to the tune of about 3.7 mbd, so if all China’s suppliers take yuan in payment, it leaves about 88% of global demand still being priced in dollars.

Therefore, there is for the moment little alarm in Western financial markets about this development. However, at the same time, US oil production is rising, and her imports declining, so even though the energy world is dominated by dollars, the relative importance between the US and China with respect to the international oil trade is rapidly shifting away from America.

Currency factors and the Triffin dilemma.

The undermining of the petrodollar’s status, even though it is initially only at the margin, provides a weak background for the dollar. China’s trade surplus, coupled with the US trade deficit can also be expected to continue to put downward pressure on the dollar relative to the yuan. To an extent, this relative dollar weakness is expected to be offset by China’s selling of yuan for dollars in order to keep a lid on the exchange rate.

At this juncture it is worth noting that the often-quoted Triffin dilemma is likely to backfire badly on the dollar. Briefly, Robert Triffin held that the country which issues a reserve currency has to run trade deficits to ensure there is a satisfactory supply of the reserve currency for it to function as such. There is a complacent assumption that this is a continuing process, which will always ensure demand for the reserve currency. Not so: as Professor Triffin pointed out, it is a short-term expedient that creates a longer-term problem. That is the dilemma.

At some point in the future, there will be sufficient currency in foreign hands to discharge all reserve currency requirements. This could come about because enough currency has been exported for trade settlement needs. Alternatively, if the global economy goes into a trade recession, or a rival currency for trade settlement emerges, there will be a surplus of the reserve currency. The country issuing the reserve currency must then bring its trade deficit back into balance, or even into surplus, if the currency is to preserve its purchasing power.

Now we turn to the circumstance faced by the dollar. Just at the moment when the role of the petrodollar is being undermined by the new yuan contract, and the non-American world is still awash with dollars following the last financial crisis, President Trump is increasing the budget deficit, and consequently we can expect the trade deficit to increase further as well.

There can only be one result, and that is substantial and sustained selling of the dollar on the exchanges. It is reminiscent of the situation in the mid to late 1960s, when returning dollars led to three distinct failures: a failed attempt to absorb dollar sales for gold by setting up the London gold pool, a failed devaluation of the dollar from $35 to $42.22, and finally the collapse of the Bretton Woods Agreement in August 1971. That was the last great Triffin unwind, and now the next one is in prospect.

Foreign holders of dollars, including China, will wake up to the threat, if they have not already done so. So far, China has been reluctant to undermine the dollar by threatening its reserve status. She is, after all, a very large holder of both dollars and US Treasuries. But China’s priorities are now changing, and the outlook for the dollar has suddenly become a less urgent priority.

The nettle that China must grasp is that her mercantilist plans for the Asian continent are leading to the decline of American influence. There comes a point where she cannot pursue her own objectives without undermining the dollar, and with the introduction of the yuan-settled oil future, that Rubicon has now been crossed.

That is one consideration. China also plans to increase her imports of industrial commodities for domestic and Asia-wide infrastructure development. Following oil, she has no alternative but to develop liquid yuan futures contracts available to both domestic and international players in a range of these raw materials. The level of displacement for the dollar will increase as a result, and dollar prices of commodities are bound to rise, due to both China’s demand for commodities and the falling purchasing power of the dollar in more general terms. From China’s point of view, she will want to offset these price rises by allowing the yuan to rise against the dollar.

The priority for China, as she steers her economy away from her past export dependency, will be to manage domestic price inflation. It seems likely she will pursue a balanced approach, with rises in the yuan against the dollar moderated through currency intervention, along with modest increases in yuan interest rates. But there is a significant risk that selling of both the dollar and US Treasuries by the wider international community will accelerate at a time when the Americans are increasing their budget and trade deficits.

There can be little doubt that the introduction of the yuan-denominated oil future has been a major strategic step for China. China will have been worried about undermining the dollar and global financial markets. It is not her style to act in bovine fashion in a porcelain factory. For the Chinese state, the priority is control of outcomes, but at some stage she had to begin to develop her own financial markets for them to be an effective alternative to the dollar. The intent was always there, but timing of developments was never fully under her control.


Consequences for gold

This nettle has now been grasped, and a trade hullabaloo, undoubtedly connected, with America has followed. A new era for the dollar is in prospect and the price of the dollar measured in real money, gold, seems set to decline. It is put that way here, rather than the conventional approach of regarding gold priced in dollars rising, because that is the way the Chinese and the Russians will look at it. And it accords with the theory and economic history of sound money.

The initial source of the dollar’s decline measured in gold seems likely to be an acceleration of central bank demand for physical metal from the oil-exporting nations dealing with China. Some nations will be content to build their yuan reserves, or maybe sell some of them for other currencies, including the dollar. But others, particularly Russia, Iran, and possibly Qatar can be expected to increase their physical gold holdings by selling some of their yuan.

The introduction of the oil-for-yuan futures contract gives these nations the opportunity to match a sale of oil for yuan with a matching purchase of gold for yuan on two exchanges, Hong Kong and Dubai. Officially, the Chinese government has stood to one side with respect to this issue, but Hong Kong’s gold exchange is in talks with Singapore, Dubai and Myanmar to establish an enhanced gold dealing, delivery and storage facility, with vaulting storage in the Qianhai free trade zone on the Chinese mainland.

Agreement from the Chinese government can be assumed to have been a precondition for these talks to have proceeded, even though it is a private sector matter, because it involves gold, gold markets, vaulting on the mainland and foreign regulators. It is anticipated that the vaulting facility will be available in two or three months’ time, well before the first delivery date for the oil contract.

Therefore, there can be little doubt that the gold exchanges in the region are of the opinion that the new oil future will lead to demand for deliverable futures contracts out of Hong Kong and Dubai. This will represent a new source of physical demand, for which not only the East Asian exchanges are preparing, but for which bullion banks around the world must begin to accommodate.

Therefore, physical gold prices appear at the least to be firmly underwritten, because major bullion banks can be expected to accumulate bullion to deliver into this new gold corridor. But the real fun and games are likely to start when the dollar begins to lose its exorbitant privilege, the other unmentionable side of the Triffin dilemma. The potential hit on the dollar’s purchasing power, measured in grains of gold can only be guessed at this stage. But the diligent analyst might like to rake over the history of monetary chaos the last time this happened, between the 1960s and the early 1970s, for clues as to its potential scale.

 

https://www.zerohedge.com/news/2018-03-30/yuan-oil-futures-contract-gold

Share this post


Link to post
Share on other sites

China’s Gold Backed Petro-Yuan Challenges US Dollar Hegemony

Global Research, March 29, 2018
china-oil-400x185.jpg

Its introduction poses the first ever challenge to petro-dollar dominance.

China is the world’s largest oil importing/consuming nation. Gold-backed petro-yuan futures trading began Monday on the Shanghai International Energy Exchange, part of the Shanghai Futures Exchange – letting Chinese and foreign traders buy oil in yuan instead of dollars.

For the first time, petro-yuan trading challenges the Wall Street/London-dominated oil petro-dollar futures market longer-term.

According to OilPrice.com, Monday trading in Shanghai began “with a bang,” demand high “with 15.4 million barrels of crude for delivery in September” transacted in two-and-a-half hours, the length of first-day trading.

US-sanctioned nations Russia, Iran and Venezuela can benefit by avoiding oil trading in dollars.

Russia and China already conduct bilateral trade in their national currencies. Last September, Venezuela began selling oil contracts in euros. Now it can trade in yuan as well.

Over time, US sanctions could be neutralized, its attempt to dominate other nations economically and financially weakened, perhaps bypassed by targeted countries, avoiding dollar trade entirely.

Oil analyst Li Li said China-introduced petro-yuan futures contacts “is an innovative way to fill in the void of a voice representing buyers in Asia. With this launch, the market will pay more attention to China’s demand story.”

It’s shaking up the oil futures market. According to financial analyst Hayden Briscoe, “(t)his is the single biggest change in capital markets, maybe of all time” – enhancing oil trading in yuan at the expense of the dollar.

Economist Carl Weinberg believes Beijing will likely “compel” Saudi Arabia to abandon the petrodollar for the yuan in oil sales to China – a move he said will likely push the oil market in the same direction, a major development if he’s right.

In 2016, Russia’s St. Petersburg exchange began Urals oil futures trading in rubles. Moscow and Beijing promote bilateral trade in their national currencies.

Russia is China’s largest supplier of crude, facilitated by two Sino/Russian oil pipelines. The second one began operating in January.

At least 19 foreign brokers registered to trade oil contracts on the Shanghai exchange, more likely to follow, increasing volume – at the expense of dominant dollar oil trading.

Hedge fund manager Adam Levinson called the petro-yuan a “huge story,” increasing the importance of the Chinese currency in commodity trading.

Post-WW II, dollar transactions dominated international trade – because it’s a freely convertible liquid currency.

Nations trading more in their national currencies, along with the petro-yuan’s introduction, could prove a game-changer longer-term.

For now, the dollar as the world’s reserve currency remains dominant.

Competition from the yuan and other currencies could considerably weaken its dominance in the years ahead.

Stephen Lendman is a Research Associate of the CRG, Correspondent of Global Research based in Chicago.

My newest book as editor and contributor is titled “Flashpoint in Ukraine: How the US Drive for Hegemony Risks WW III.”

Share this post


Link to post
Share on other sites
 
Saturday, 15 Rajab 1439 - March 31, 2018
cef7daec-ba0d-4ce2-b3e5-0b01947592db_16x
  •  
Arabic.Net

Data from the International Monetary Fund showed that the share of the US dollar in world currency reserves fell in the last quarter of 2017 to its lowest level in four years, while other currencies' shares rose in reserves.

The US dollar fell in the fourth quarter to 62.7% from 63.5% in the third quarter of 2017.

According to data # Sndouk_anakd , this is the smallest share of the US dollar in global reserves of foreign exchange since it stood at 61.24% in the fourth quarter of 2013, according to a "Reuters".

Data also showed that the euro's share in world currency reserves was the largest since the fourth quarter of 2014, and that the yen's share reached its highest level since the fourth quarter of 2002, while the Chinese yuan's share continued to grow for the second straight quarter.

  • Upvote 1

Share this post


Link to post
Share on other sites

China's currency gains a "difference" against the dollar

31-03-2018 12:01 PM
Readers
image.php?token=2193649f38d2b18acc29c91f41df6ca7&size=
 

Baghdad News -

 

 

The yuan rose against the dollar on Friday, heading for its biggest quarterly gain in 10 years, as the country attracted capital inflows and US trade boosted expectations of a rising Chinese currency. 

The Chinese currency opened at 6.2870 yuan to the dollar on the spot market and traded at 6.2695 to the dollar in mid-trade. 

A sharp drop in the Chinese currency during the session is likely to push the yuan to its highest closing level since Aug. 10, 2015, making quarterly gains for the fifth time in a row, after rising 3.7 percent in the quarter to March. 

The yuan's biggest gain since early 2008 comes amid growing signs of stability in the Chinese economy, prompting foreign demand for Chinese assets.

China's top five banks on Thursday evening reported strong performance and expected continued improvement this year as Beijing's structural reforms pay off. 

The Thomson Reuters / HKEX Global CINH Index, which tracks the yuan in foreign markets against a basket of currencies on a daily basis, was 97.9, up from the previous day's record of 97.78. 

The global index of the dollar fell to 90.012, compared to the previous close at 90.151. 

The yuan traded in foreign markets by 0.10 percent from the spot price in the domestic market, and recorded 6.2635 dollars.

  • Upvote 2

Share this post


Link to post
Share on other sites

In Unprecedented Move, China Plans To Pay For Oil Imports With Yuan Instead Of Dollars

Profile picture for user Tyler Durden
Sat, 03/31/2018 - 12:40

Just days after Beijing officially launched  Yuan-denominated crude oil futures (with a bang, as shown in the chart below, surpassing Brent trading volume) which are expected to quickly become the third global price benchmark along Brent and WTI, China took the next major step in the challenging the Dollar's supremacy as global reserve currency (and internationalizing the Yuan) when on Thursday Reuters reported that China took the first steps to paying for crude oil imports in its own currency instead of the US Dollars.

2018-03-26_5-47-22.jpg

A pilot program for yuan payment could be launched as soon as the second half of the year and regulators have already asked some financial institutions to "prepare for pricing crude imports in the yuan", Reuters sourcesreveal.

According to the proposed plan, Beijing would start with purchases from Russia and Angola, two nations which, like China, are keen to break the dollar’s global dominance. They are also two of the top suppliers of crude oil to China, along with Saudi Arabia.

A change in the default crude oil transactional currency - which for decades has been the "Petrodollar", blessing the US with global reserve currency status - would have monumental consequences for capital allocations and trade flows, not to mention geopolitics: as Reuters notes, a shift in just a small part of global oil trade into the yuan is potentially huge. "Oil is the world’s most traded commodity, with an annual trade value of around $14 trillion, roughly equivalent to China’s gross domestic product last year." Currently, virtually all global crude oil trading is in dollars, barring an estimated 1 per cent in other currencies. This is the basis of US dominance in the world economy.

However, as shown in the chart below which follows the first few days of Chinese oil futures trading, this status quo may be changing fast.

china%20oil%20trading.jpg

Superficially, for China it would be a matter of nationalistic pride to see oil trade transact in Yuan: "Being the biggest buyer of oil, it’s only natural for China to push for the usage of yuan for payment settlement. This will also improve the yuan liquidity in the global market,” said one of the people briefed on the matter by Chinese authorities.

There are other considerations behind the launch of the Yuan-denominated oil contract as Goldman explains:

  • A commercial benchmark and hedging tool. Until now, Chinese oil imports were based on FOB benchmarks, with long-term procurement contracts settling off Platts Oman/Dubai or Dated Brent. The INE contract has therefore the potential to become the pricing reference for CIF China crude oil, enabling corporate financial hedging. Its warehouse structure is however likely to limit its use for physical crude delivery and may in fact at times reduce its hedge efficiency.
  • A new investment vehicle for onshore investors. The majority of China commodity futures trading volumes are from retail investors, yet these had until now little ability to trade oil futures. China’s capital control was the main bottleneck  to trading contracts like Brent as authorities only allow $50,000 outflow a year per person. While several petrochemical and bitumen contracts already trade in China, INE will be the first contract for crude oil, likely drawing significant interest.
  • Direct access to China’s commodity markets for offshore investors. China offers deep and liquid commodity markets to its onshore investors. Due to China’s tight capital controls, however, foreign investors have so far only been able to trade these through qualified onshore subsidiaries. The INE contract opens up the first channel for offshore investors to trade in its onshore commodity market, with both the USD deposit and capital gains transferable back to offshore accounts. The government further announced last week that it would waive income taxes for foreign investors trading these new contracts for the first three years. The obligation to trade in Yuan will also add a currency risk exposure to offshore investors. We illustrate in Exhibit 6 a likely template (amongst others) of how overseas investors will be able to access INE liquidity.

China%20petrodollar%20gs%201.jpg

The danger, of course, is that such a shift would also boost the value of the Yuan, hardly what China needs considering it was just two a half years ago that Beijing launched a controversial Yuan devaluation to boost its exports and economy.

Still, in light of the relative global economic stability, Beijing may be willing to take the gamble on a stronger Yuan if it means greater geopolitical clout and further acceptance of the renminbi.

China%20oil%20imports%20gs.jpg

Which is why restructuring oil fund flows may be the best first step: as of this moment, China is the world’s second-largest oil consumer and in 2017 overtook the United States as the biggest importer of crude oil; its demand is a key determinant of global oil prices.

petroyuan-1024x587_0.png

If China's plan to push the Petroyuan's acceptance proves successful, it will result in greater momentum across all commodities, and could trigger the shift of other product payments to the yuan, including metals and mining raw materials.

Besides the potential of giving China more power over global oil prices, "this will help the Chinese government in its efforts to internationalize yuan," said Sushant Gupta, research director at energy consultancy Wood Mackenzie. In a Wednesday note, Goldman Sachs said that the success of Shanghai’s crude futures was “indirectly promoting the use of the Chinese currency (which, however as noted above, has negative trade offs as it would also result in a stronger Yuan, something the PBOC may not be too excited about).

Meanwhile, China is wasting no time, and Unipec, the trading arm of Asia’s largest refiner Sinopec already signed a deal to import Middle East crude priced against the newly-launched Shanghai crude futures contractwhich incidentally is traded in Yuan.

The bottom line here is whether Beijing is indeed prepared and ready to challenge the US Dollar for the title of global currency hegemon. As Rueters notes, China’s plan to use yuan to pay for oil comes amid a more than year-long gradual strengthening of the currency, which looks set to post a fifth straight quarterly gain, its longest winning streak since 2013.

In a sign that China's recent Draconian capital control crackdowns have sapped market confidence in a freely-traded Yuan, the currency retained its No.5 ranking as a domestic and global payment currency in January this year, unmoved from a year ago, but its share among other currencies fell to 1.7 percent from 2.5 percent, according to industry tracker SWIFT.

A slew of measures put in place in the last 1-1/2 years to rein in capital flowing out of the country amid a slide in yuan value has taken off some its shine as a global payment currency.

But the yuan has now appreciated 3.4 percent against the dollar so far this year, with solid gains in recent sessions.

“For PBOC and other regulators, internationalization of the yuan is clearly one of the priorities now, and if this plan goes off smoothly then they can start thinking about replicating this model for other commodities purchases,” said a Reuters source.

Still, it will be a long and difficult climb before the Yuan can challenge the dollar and for Beijing to shift the bulk of its commodity purchases to the yuan because of the currency’s illiquidity in forex markets. According to the latest BIS Triennial Survey, nearly 90% of all transactions in the $5 trillion-a-day FX markets involved the dollar on one side of a trade, while only 4% use the yuan.

* * *

Still, not everyone is convinced that the new Yuan-denominated contract will create a "petro-yuan" as the following take from Goldman highlights:

The launch of the INE contract is not just about oil, as it will also be the first Yuan denominated commodity contract tradable by offshore investors. Such a set-up meets the PBOC’s monetary policy committee goal to raise the profile of its currency in the pricing of commodities. It has raised however the question of whether the INE contract is an incremental step in achieving the currency reserve status for the Yuan. We do not believe so.

While the INE launch does represent an additional step in the CNY internationalization, the CNY denomination of the INE contract does not in itself imply CNY investments. The INE contract does not represent an opening of China’s capital accounts since foreign deposits operate in a closed circuit, deposited in designated accounts and not to be used to purchase other domestic assets. In practice, the collateral deposit and any capital gains can be transferred back to offshore accounts. The potential for greater foreign ownership of Chinese assets is therefore not impacted by CNY oil invoicing and would require instead oil exporters to recycle their proceeds in local assets, for example. The incentive to do this has not changed with the introduction of the INE contracts. In particular, most Middle East oil producers still have currencies pegged to the dollar and limited ability to hedge CNY exposure.

Whether or not Goldman is right remains to be seen, however it is undeniable that a monumental change is afoot in global capital flows, where the US - whether Beijing wants to or not - will soon be forced to defend its currency status as oil exporters (and investors in this highly financialized market) will now have a choice: go with US hegemony, or start accepting Yuan in exchange for the world's most important commodity.

 

https://www.zerohedge.com/news/2018-03-31/china-plans-pay-oil-imports-yuan-instead-dollars

Share this post


Link to post
Share on other sites

China's State Owned Media Proclaims Petroyuan Will "Shake People's Confidence In The US Dollar"

Profile picture for user Tyler Durden
Mon, 04/02/2018 - 18:45

Just days after initiating its 'petroyuan' futures contract, and hours after an unprecedented announcement that China will pay for oil in yuanThe Global Times, the unofficial mouthpiece of the Chinese government, printed a remarkable story from 'one of its editors' highlighting the 'petroyuan' and its potential to topple the US Dollar as global reserve currency.

smash.jpg

The Shanghai debut of China's first yuan-denominated crude futures trading market on Monday proved a great success, with major domestic and foreign traders displaying active interest. Total turnover amounted to 18.3 billion yuan ($2.9 billion) on the first trading day.

The market's better-than-expected performance is believed to have significantly contributed to the recent strength of the yuan on global currency markets.

As China largely depends on crude imports, price volatility in the commodity market is a major impediment. It launched the crude futures market to address the problem and also to gain more pricing power over the crucial commodity.

An important move by Beijing to open up its financial sector, the new crude benchmark has garnered increasing attention, because it challenges the current dollar-dominated pricing scheme of crude oil markets - commonly known as the petrodollar system - which helps underpin the dollar's status as the major international reserve currency.

Once the yuan-denominated crude futures market is established as a major oil benchmark with active trading volume and significant domestic and global investor participation, the acceptance of the Chinese yuan as a mode of global transaction will rise.

Analysts expect sufficient demand for crude futures contracts from both industrial and financial clients, as they need a tool to manage risk and hedge against inflation. The market offers companies in the real economy a hedging tool that can better reflect market conditions in Asia.

The evident enthusiasm for the new yuan-denominated crude contracts in the past few days will have pleased the Shanghai International Energy Exchange (INE) and China's regulators. They aim to establish a third global crude benchmark in the country.

There is no reason why the INE contract should not take its place alongside the UK's Brent and the US' West Texas Intermediate (WTI). It is a far more useful marker for China and for the rest of the economically fast-growing Asia, given that the seven grades of crude accepted for delivery on the INE are heavier and more sour than the light grades that make up Brent and the WTI.

Some have warned that the growing clout of China's currency in international financial markets could gradually erode the primacy of the US dollar. But at the current stage, nobody knows for sure what impact China's new benchmark will pose to the oil hegemony the dollar has held since the 1970s.

With few exceptions, any country wishing to purchase oil must first obtain US dollars, creating a significant demand for the currency in international financial markets. As a result, the petrodollar mechanism has played a critical role in generating global confidence in the greenback, which has benefited the US economy a great deal. 

The widespread pricing and trading of crude oil in the yuan, or the "petroyuan," is likely to shake people's confidence in the US dollar, and theoretically back up the value of China's yuan in the global market place.

One clear objective for China's regulators is to seek ways to internationalize its currency to boost its own economic prominence and reduce its longstanding reliance on the dollar.

As the world's largest crude oil importer, China would naturally benefit from using its own currency over that of an economic rival and strategic competitor.

At the same time, China's Belt and Road initiative, which seeks to create trade networks across the Eurasian continent, the Middle East and Africa, will almost certainly invigorate the yuan's march toward wider usage and the currency's globalization.

However, the dollar will not cede its present dominance in oil markets any time soon. Instead, China is likely to build confidence in the yuan gradually, through steady measures of reform and opening-up, more robust economic growth, proactive foreign engagement and liberalization of its monetary policy.

https://www.zerohedge.com/news/2018-04-01/chinas-unofficial-mouthpiece-proclaims-petroyuan-propel-currency

  • Thanks 1
  • Upvote 1

Share this post


Link to post
Share on other sites

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

 

5 MIN READ

  •  
  •  
 

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)

 

Reuters Graphic

 

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.

Shares recoil as China fires back in U.S. trade war

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.

 

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

  • Upvote 1

Share this post


Link to post
Share on other sites

This is all bluster and posturing.  No one wants a trade war.  They need us as much as we need them.  The current trade agreement was made during the Clinton Administration.  Like any agreement things change and so should the trade agreements change.

 

The Trump Administration has already renegotiated better terms with NATO, and South Korea.  They are hoping to announce a new trade agreement this week on NAFTA.  I suspect in the coming weeks we will have a new trade agreement with China, one that is more fair to the US interests. 

  • Upvote 1

Share this post


Link to post
Share on other sites

Petro-yuan to launch renminbi as global currency & kneecap petro-dollar

Published time: 7 Apr, 2018 06:43Edited time: 7 Apr, 2018 08:57
Petro-yuan to launch renminbi as global currency & kneecap petro-dollar
© Thomas White / Reuters
  • 1611
  •  
  •  
  •  
  •  
  •  
  •  
Yuan-backed oil futures can shatter the US dollar dominance on the crude market, according to experts polled by RT. However, the greenback will not give up the top spot easily.

“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, Global FX Investment analyst, told RT. China has recently overtaken the US as the world's number one oil buyer.

“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,” the analyst added.

As a result, Washington can deliberately undermine the image of the petro-yuan by attacking Chinese stock, which could result in the devaluation of the yuan, making Chinese oil futures less attractive, Rozhankovsky said.

However, the US has obvious disadvantages which the petro-yuan can capitalize on. First, the US dollar is still too strong, making domestic oil production very expensive. Second, the United States does not have transatlantic pipelines, and tankers are costly and highly risky, the analyst added.

“The trade war between the US 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,” Stanislav Werner, head of the analytical department of Dominion, told RT.

The analyst notes that the oil market is worth $14 trillion at the moment, and is bigger than the Chinese economy. “The first trading sessions were volatile, but this is a typical story for new financial instruments. The US has a serious reason to get nervous, because in many ways the hegemony of the US dollar came from oil trading in dollars,” he said.

https://www.rt.com/business/423461-petro-yuan-us-dollar-oil/

 

  • Thanks 1
  • Upvote 1

Share this post


Link to post
Share on other sites

Gaddfi was going to quit the petrodollar... We saw what happened to him. Saddam was going to quit the petro dollar we saw what happened to him.... Does anyone believe we can take out China for the same reason???? I don't see it... JMHO

 

B/A

  • Thanks 1

Share this post


Link to post
Share on other sites

AMERICA

Can the Petro-Yuan Dethrone the Greenback?

 
 
a9fbb44277-bpfull.png

 8 min read / April 9, 2018

Coined in the 1970s, the term petrodollar is used to describe capital gained from the sale of oil and perfectly encapsulates the close relationship which oil and the US dollar hold. In response to the oil crisis of the mid-1970s and the rapidly rising oil prices it caused, all oil prices were denoted in US dollars in an attempt to bring stability to the market. This paved the way for the US dollar to become the international reserve currency. Not only did this mean that factors which affect the value of the dollar, such as US interest rates and inflation, also had an effect on the purchasing power of other nations, but it also resulted in many nations, particularly those in the Middle East whose economic performance depends greatly on the exportation of oil, pegging their currency to that of the US. The last several decades have seen the United States’ dominance over global oil markets rapidly increase, however all this may now change due to events which have failed to gain attention from the mainstream media, the emergence of the so-called Petro-Yuan.

China’s journey to becoming the world’s second-largest economy and the exponential growth which it has displayed as a result have been well documented. In the process, the nation has shaped the world in numerous ways – by shifting a considerable proportion of its population from primary to secondary sector industries, it has opened up vast amounts of relatively cheap labour to the rest of the world. The growth of China’s middle class and the demands which accompany this new found wealth have had a significant effect on consumer goods markets. As expected, the growth of China’s economic activity has led to an equally large increase in its demand for commodities, particularly oil. After years of volatility in its oil consumption, China has now cemented its position as the world’s largest oil importer and consumer and with leverage on this scale the plan to disrupt the ‘traditional’ PetroDollar system appears to be increasingly attainable.

 

 China-overtakes-US-in-buying-crude-oil.png

After many years of planning and having to overcome several delays, China has finally opened up a domestic market which offers the trading of oil futures contracts. Futures are contracts which obligate the buyer and seller to maintain their side of the transaction at some predetermined date and price. These contracts are listed in the local currency, the Yuan, which (as was common last century) is supposedly backed by gold. Although this claim of the currency being backed by gold has been labelled as absurd by many, there is clear evidence that over the last several years China has been importing huge amounts of gold, with estimates exceeding 1,000 tonnes in 2017 alone.  The aim of the Petro-Yuan is two-fold: to reduce its dependency on the US dollar when dealing with oil, a lifeblood of most economies, by attempting to shift transactions which must currently be undertaken using the dollar to the use of the Yuan, and further internationalise the Yuan and promote its use in global trade. Currently, any desire to purchase oil requires the purchaser to first buy US dollars, which are then be used to settle the trade. Many believe that this requirement to purchase several commodities such as oil exclusively using dollars is the only thing propping up the US dollar.

Political Advantages

Some of the major players in the oil markets have welcomed the change and openly accepted the use of the Yuan for oil transactions. Unsurprisingly, due to the historical tensions with the United States, Russia, the largest petroleum producer in the world, has welcomed the move away from the greenback with Gazprom, the 3rd largest oil producer in Russia, having already made the switch from the US dollar to the Yuan and other Asian currencies. This may be a sign of the complete abandonment of the nation’s long-standing attempts to integrate with the Western world. The universal adoption of the Petro-Yuan will greatly benefit Russia politically. If the Petro-Yuan were able to replace the role currently held by the PetroDollar, it would allow Russia to further reduce its dependency on the United States. Bryan MacDonald, who is a journalist currently based in Russia, explained: “The biggest winners may well be in Moscow. Because any decline in the dollar’s status severely dilutes Washington’s ability to wage economic war against Russia, via sanctions.”

The political effects of a successful implementation and adoption will not only be seen in Russia but may instead cause a global disruption. A weakening of the US dollar due to the Petro-Yuan may weaken the United States’ current dominant position over North Korea and as a result, nations such as Japan and South Korea may attempt to seek stronger security in the form of collusion with China and may accept the Yuan over the dollar in order to achieve this.

Repercussions of the Petro-Yuan for the United States

The US dollar has been gradually weakening for some time now. A greater amount of nations now look to settle foreign transactions through the use of bilateral trade agreements. This trend is expected to become more common as nations attempt to circumnavigate the US dollar in trade deals due to the ever-increasing number of sanctions the United States is placing on nations. As a direct result of this, the previously huge (yet artificial) demand for US dollars has begun to fall and the knock-on effects which may be seen in the country, as a result, will be substantial. The PetroDollar indirectly helps to fuel the United States’ spending as it is backed by Treasuries. Therefore, a fall in the use of the PetroDollar will result in a reduction in one key driver of economic growth; government spending. The United States can currently ill afford an economic slowdown due to the increasing threat of a recession coming in the near future. In addition to the impact on economic performance, the dollar’s value greatly depends on its use as the global oil trade currency. Remove this demand and a strong decline in the dollar’s value will be seen. It is safe to assume that this will increase the rate at which nations turn their back on the dollar, instead preferring the Yuan.

Problems Facing the Petro-Yuan’s Implementation

There are various issues which will need to be resolved for the Petro-Yuan to knock the PetroDollar off its perch. Major changes will need to be made, not only with regards to the finer details of the future contracts but also the country’s public image and its business practices to instil potential investors with sufficient confidence to move away from the well-known petrodollar and adopt the PetroYuan, which is still in its infancy stage.

Another issue which may be much more difficult to overcome is the current exchange policy in place in China. In 1994 the Chinese Yuan was pegged to the Dollar at a value of 8.28 to the dollar, and it was only in 2005 that the country shifted to a ‘managed float’ system and was allowed to appreciate. It now moves in accordance with a basket of major foreign currencies. The government attempts to keep the Yuan undervalued as it promotes the country’s exports, something which has been the leading factor in the nation’s strong economic growth. It is argued that to achieve the investor confidence necessary for the success of the Petro-Yuan and for the nation to be able to sustain the even greater capital inflows associated with its success, the entire country’s exchange rate policy may have to be altered.

Gold

Interesting times lie ahead. It will be the first time since the abandonment of the gold standard in 1971 that gold will play an important role in the global monetary system. With other nations potentially following suit due to the global attractiveness of a currency which has tangible assets behind it, it may be good news for gold investors. Many believe that gold prices have been manipulated by central banks as well as the Bank for International Settlements (BIS) and, due to the influence gold prices have on interest rates and bond prices, they have been used to stimulate the ‘dying’ US economy. The gold price has been trading in a solid range for the entirety of 2018 and the recent occurrences may just be the catalyst that provides the required momentum to break the resistance level around $1,340-$1,350. This could lead to much higher prices being seen in the near future.

 

 

Gold-price-chart-2018-1.png

Source: Sharps Pixley

Conclusion

Those investors that have the view that a major economic slowdown will occur in the near future, and as such have been accumulating gold, may very well be rewarded in the not too distant future. Those who have not done so as of yet may want to capitalise on the current price while it continues to trade in its current range. If nothing else, owning one of the most sought-after metals in the world does has a certain novelty appeal.

 

https://themarketmogul.com/petro-yuan/

  • Upvote 1

Share this post


Link to post
Share on other sites

Will petro-yuan’s day come?

opinion April 09, 2018 01:00

By Suwichai Songwanich 
CEO, bangkok bank (China)

 

 

China, the world’s largest oil importer, has launched its first ever yuan-denominated oil futures on the Shanghai International Energy Exchange – a first in Chinese commodities. This is an extremely important development with many implications for both China and global markets.

 

One short-term benefit of the new benchmark is that it will reflect the grades of oil that are consumed by local refineries, so it will be more closely tailored to China’s needs than existing Western contracts. Moreover, it will be welcomed by investors both in China and outside as they will have new investment opportunities.

In the longer term the new futures market will encourage the trading of oil in yuan, rather than dollars. Already, Unipec, the trading arm of Asia’s largest refiner Sinopec, has signed a deal to import Middle East crude priced against the newly-launched Shanghai crude futures contract. Chinese regulators have also advised financial institutions to prepare for pricing China’s crude imports in yuan later this year.

Oil is the most world’s most traded commodity with an annual trade value of around $14 trillion (Bt437 trillion). Currently, almost all global crude oil trading is in dollars. If oil starts being sold for yuan in a big way, this would have a major impact on yuan liquidity in the market.

 

So far China has established agreements with countries such as Russia and Angola to buy their oil in yuan and it is seeking to encourage other countries to do the same. While countries such as Iran and Venezuela are likely to follow, there has also been speculation over whether Saudi Arabia might one day sell its oil for yuan. China is the biggest market for Saudi oil and China is also looking to invest in Saudi Aramco, the world’s largest oil-producing company.

The debut of the yuan oil futures on the Shanghai Exchange was hugely successful. On the first day of trading prices jumped, and contracts were made for 15.4 million barrels of crude for delivery in September. However the next few days were hectic with a sharp price drop on the second day then extreme volatility.

If China succeeds in establishing a yuan-priced oil market this will set a precedent for paying for other commodities in yuan and help China achieve its long-term goal of promoting the use of China’s currency in global trade which is currently less than 2 per cent. Indeed, in the past year the use of the yuan in global trade fell from 2.5 per cent of global payments to 1.7 percent. 

This was partly in response to China’s tougher capital controls and partly due to lack of liquidity. The oil for yuan futures contract and other related moves will help address both these issues. 

It will also strengthen the yuan and perhaps in anticipation of this the currency has been rising.

It is still too early to say whether traders will embrace the new futures contract. While there is speculative interest, many potential buyers are watching developments from the sidelines. It will be some years before the petro-yuan becomes a reality but if it does come – it will certainly have an impact.

For more columns in this series please visit bangkokbank.com

http://www.nationmultimedia.com/detail/opinion/30342767

  • Upvote 1

Share this post


Link to post
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...

  • 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.