China will 'compel' Saudi Arabia to trade oil in yuan — and that's going to affect the US dollar

[TMA]

US wealth is built upon US dollar dominance, take away that, US is nothing.

Perhaps that is why BRICS is such a threat (more like RC is such a threat).

 

[nang2]

US wealth is built upon US dollar dominance, take away that, US is nothing.

not true. US wealth is built upon what Americans produce. nobody wants US dollar unless it can be turned into something useful.

 

[Verve]

Add this to the news of China offering Gold-backed Yuan, it will undo any exchange back to Riyal with USD in the equation.

We are heading back to (a new version of) Gold standard.

 

[xyxmt]

You failed to see the problem.

Even if OPEC trade in Yuan or any given currency, it won't touch the USD, because for a simple fact, Saudi Arabia did not use Yuan as their standard currency, they use Riyal as their currency, which mean even if Saudi (or any country in OPEC in this sense) uses Yuan to settle Oil payment, they will have to exchange it back to Riyal to be able for the Saudi to use it, which mean you will have to exchange the Yuan to USD, then from USD to Riyal because Saudi Arabia did not hold Yuan as a reserve currency, they hold USD. Along with the world, USD have 68% dominance in world reserve currency, which mean even if any country settle with Yuan, it won't do much to USD, in fact, it would help USD because the more currency change hand, the more fee bank is going to able to charge them, which mean a transaction using RMB - USD - SAR would incur more fee than USD - SAR direct (because you will need to first do RMB to USD first, then USD to SAR, which mean you can double charge the exchange rate, instead of a single charge of USD to SAR)

Now, ask yourself this, would Saudi Arabia do that? I can see Russia or Iran or Venezuela do that because of their hatred to the US, but would Saudi Arabia choose to double charge their exchange rate just to satisfy the Chinese government when Saudi Arabia is on good term with the US, in fact, an allied? In a pure Business Standpoint, they won't, because it would just be shooting themselves in the foot with nothing to show for.

But hey, everything is possible.

First of all no one will need to convert RMB into local currency because China has surplus trade with almost every country in the world, meaning every country imports more than they export.
Saudis wont do it for the love China but if the world largest oil importer force them to

 

[nang2]

Add this to the news of China offering Gold-backed Yuan, it will undo any exchange back to Riyal with USD in the equation.

We are heading back to (a new version of) Gold standard.

I wish it would happen but I seriously doubt. Gold standard means fiscal discipline. the government cannot print money as it wishes. I doubt Chinese government wants to give up that anytime soon.

 

[Verve]

I wish it would happen but I seriously doubt. Gold standard means fiscal discipline. the government cannot print money as it wishes. I doubt Chinese government wants to give up that anytime soon.

Let's see. China flexes her muscles in a different way than USA.

 

[TaiShang]

China has already reduced, proportionally to its growing consumption, Saudi's share in its import. Russia has taken the top spot over the past year now and Angola seems to be taking the second place.

This is a serious challenge for KSA. The reason of their falling status may be China's soft pressure on them to do trade in Yuan.

China cannot dictate their trade with others. But can dictate the bilateral means of exchange.

Can Saudis tolerate further their slip in the world's largest oil importing and second largest consuming nation ?

If they can, Russia will happily take the share.

 

[jhungary]

First of all no one will need to convert RMB into local currency because China has surplus trade with almost every country in the world, meaning every country imports more than they export.
Saudis wont do it for the love China but if the world largest oil importer force them to

You do understand how this "Purported" deal is done.

Saudi sell oil to China, China pay with RMB in a term that's worth 600-800 billions per year.

Now, 2 problems.

1.) China have a Trade Surplus with Saudi Arabia, yes, but not in the level of 600-800 billions, not even 100 billions not even 50 billions, so where can you supposedly Saudi can use the RMB that' left behind?

2.) How did China get that amount of RMB to pay for Oil purchased from Saudi Arabia?

If they are not ever going to convert to USD, then either Saudi will load up excessive RMB they cannot use or wanted, or China will have to give out excessive amount of RMB they cannot afford or wanted. Which mean unless Saudi started using RMB as official currency for EVERYTHING and dump the SAR, RMB will have a value of next to shit in a few year as they have accumulated enough and as you said, cannot convert it to USD.

And if China did not sell their USD reserve to convert for RMB, where do you suppose China to obtain multi billions nearly trillions worth of Yuan per year? Printing it like the US? It will basically collapse the whole Chinese economy.

If they do this, they need to convert the currency into USD, no matter what.

Add this to the news of China offering Gold-backed Yuan, it will undo any exchange back to Riyal with USD in the equation.

We are heading back to (a new version of) Gold standard.

Actually, we are not.

We ditch the Gold Standard because it inhibit the growth of any country, that's because you only have a certain amount of gold (334000 tons) in the world and either you need to minimize the development you have so your country can have enough gold to cycle thru the payment cycle between each project, which mean if you do that, you will have a slow development cycle. Or you have to distribute gold by minutes, so each once of gold would worth so little that you can finance a lot of project at once, which mean if you do that, the inflation rate will be skyrocketing.

Another problem is that people are holding appoxiamtely 40% of gold in private, which include your mother's jewellery or your mobile phone (Yes, you have gold in your mobile phone) and if you are following the trend of eating gold flake, you will also have some gold in your body. What that mean then?

Either you confiscate people mobile phone, private gold jewellery, and have that private ownership in a very low number, otherwise, if Gold standard actually restart, it will be the first currency standard that did not anchor in any government, but by the people themselves, because the Gold mine is privately own, and majority of the gold are privately own, which mean if there are something called gold standard, then that standard, will also be privately owned.

 

[nang2]

If they do this, they need to convert the currency into USD, no matter what.

there is no fundamental difference between CNY and USD. both are printed money by governments. they are only useful when they can be converted to services or goods. if Saudi would like to diversify their investments, holding some part of their sovereign funds in CNY denominated assets isn't a bad idea. how much risk they can tolerate comparing with the benefits is up to them to assess.

We ditch the Gold Standard because it inhibit the growth of any country, that's because you only have a certain amount of gold (334000 tons) in the world and either you need to minimize the development you have so your country can have enough gold to cycle thru the payment cycle between each project, which mean if you do that, you will have a slow development cycle.

not true. US ditched gold standard because it printed too much dollar. people ain't stupid. they began to use dollars to buy gold to preserve their assets, which caused quick depletion of gold reserve. US had no choice but giving up gold standard.

 

[jhungary]

there is no fundamental difference between CNY and USD. both are printed money by governments. they are only useful when they can be converted to services or goods. if Saudi would like to diversify their investments, holding some part of their sovereign funds in CNY denominated assets isn't a bad idea. how much risk they can tolerate comparing with the benefits is up to them to assess.

But then you are not talking about holding "SOME" CYN Denominated Asset, you are asking Saudi to hold a lot, 600-800 billions worth as the article suggest, you do know even China did not hold that much surplus in their own country (320 billions if I remember correctly) You are asking Saudi Arabia to hold twice that amount??

On the other hand, can China spare that cash is another issue, printing 600-800 billions worth of RMB and have a risk that would go no where? I don't think China government is stupid enough to go and do that. You are talking about trillions worth of currency and you basically printing it on a "It May" promise.

If I was whoever in charge of Saudi Arabian finance, I would say Thanks but No Thanks, judging from the Devaluation and Instability of Yuan in the previous year and this year. I would much rather hold 600-800 billions USD.

not true. US ditched gold standard because it printed too much dollar. people ain't stupid. they began to use dollars to buy gold to preserve their assets, which caused quick depletion of gold reserve. US had no choice but giving up gold standard.

lol........That's is wrong in many level, Gold Standard died after WW1 not in the 60s when Nixon abolish the Bretton Wood System, and it was not the US that killed it, it was the Brits.

Gold Standard in its original form in 1790 is for GBP to anchor to Gold in a pound on pound basis (Hence why it was called British POUND), where 1 GBP correspondent to 1 Pound of Gold.

Problem is, for the UK to involve in WW1, they would have to ramp up their production of Weaponry, Development and Industrialization, and this 1 to 1 pound suddenly cannot be afford to such a rapid ramp up, because you constantly cannot find enough pound to pay the worker to make Guns, Bullets, Uniform, Tanks, Warships, Building Ports, Roads and etc. Since you will need to mine them, when you are spending faster than you can mine the gold to guarantee your currency, then 1 GBP then have to deflate into maybe 1/10 pound of gold, then 1/16 pound of gold and eventually, you basically lose all the value of the currency.

The problem also exist after the world is over, because the rebuilding time would mean a lot of gold need to be spend, and now, you can't even cover the extraction of gold, what the world do? Instead of going Pound to Pound, you now anchor the currency on Gold Bullion, which even tho it's still gold, but there exist a fiat currency because 1 pound or 1 dollar does not correspondent to the exact amount of gold, but rather a collective amount of gold. Which mean by then, gold value is floating, because you will need to decide how much weight for a specific bullion and how much it can support your country, and when this Non 1: 1 exchange started, you can never go back because by then the combination of UK, France, German, US have already issue more Gold Certificate than there could be the actual quantity of gold. That, is the demise of Gold Standard

By 1960, the "Gold Standard" is merely an formality, because you can no longer be able to exchange 1 to 1 since 1920, and by 1960, the world is basically playing one giant game of Cups, when you exchange some money for gold and having "Just Enough" gold so that your country will not go into a panic mode. But by then, the Gold Standard has already died a long time ago.

 

[nang2]

But then you are not talking about holding "SOME" CYN Denominated Asset, you are asking Saudi to hold a lot, 600-800 billions worth as the article suggest, you do know even China did not hold that much surplus in their own country (320 billions if I remember correctly) You are asking Saudi Arabia to hold twice that amount??

On the other hand, can China spare that cash is another issue, printing 600-800 billions worth of RMB and have a risk that would go no where? I don't think China government is stupid enough to go and do that. You are talking about trillions worth of currency and you basically printing it on a "It May" promise.

If I was whoever in charge of Saudi Arabian finance, I would say Thanks but No Thanks, judging from the Devaluation and Instability of Yuan in the previous year and this year. I would much rather hold 600-800 billions USD.



lol........That's is wrong in many level, Gold Standard died after WW1 not in the 60s when Nixon abolish the Bretton Wood System, and it was not the US that killed it, it was the Brits.

Gold Standard in its original form in 1790 is for GBP to anchor to Gold in a pound on pound basis (Hence why it was called British POUND), where 1 GBP correspondent to 1 Pound of Gold.

Problem is, for the UK to involve in WW1, they would have to ramp up their production of Weaponry, Development and Industrialization, and this 1 to 1 pound suddenly cannot be afford to such a rapid ramp up, because you constantly cannot find enough pound to pay the worker to make Guns, Bullets, Uniform, Tanks, Warships, Building Ports, Roads and etc. Since you will need to mind them, when you are spending faster than you can mind the gold to guarantee your currency, then 1 GBP then have to deflate into maybe 1/10 pound of gold, then 1/16 pound of gold and eventually, you basically lose all the value of the currency.

The problem also exist after the world is over, because the rebuilding time would mean a lot of gold need to be spend, and now, you can't even cover the extraction of gold, what the world do? Instead of going Pound to Pound, you now anchor the currency on Gold Bullion, which even tho it's still gold, but there exist a fiat currency because 1 pound or 1 dollar does not correspondent to the exact amount of gold, but rather a collective amount of gold. Which mean by then, gold value is floated, because you will need to decide how much weight for a specific bullion and how much it can support your country, and when this Non 1: 1 exchange started, you can never go back because by then the combination of UK, France, German, US have already issue more Gold Certificate than there could be the actual quantity of gold. That, is the demise of Gold Standard

By 1960, the "Gold Standard" is merely an formality, because you can no longer be able to exchange 1 to 1 since 1920, and by 1960, the world is basically playing one giant game of Cups, when you exchange some money for gold and having "Just Enough" gold so that your country will not go into a panic mode. But by then, the Gold Standard has already dead a long time ago.

good God. this is long. however, so called gold standard is nothing but a nation's promise. A nation can promise a set rate of its currency to purchase its gold, or it can abolish this promise. therefore, British could honor a gold standard and gave it up later. so could Americans.

adopting gold standard serves one purpose. that is to bolster the confidence of holding the paper money. the confidence not only comes from the readiness of converting to precious metals, but also comes from the inherent fiscal discipline imposed on the government. even without gold standard, fiscal discipline alone can help a currency become a reserve currency, such as Japanese yen.

 

[jhungary]

good God. this is long. however, so called gold standard is nothing but a nation's promise. A nation can promise a set rate of its currency to purchase its gold, or it can abolish this promise. therefore, British could honor a gold standard and gave it up later. so could Americans.

adopting gold standard serves one purpose. that is to bolster the confidence of holding the paper money. the confidence not only comes from the readiness of converting to precious metals, but also comes from the inherent fiscal discipline imposed on the government. even without gold standard, fiscal discipline alone can help a currency become a reserve currency, such as Japanese yen.

Not now, not anymore, not after 40% of world gold is now privately own.

If you go gold standard, then it would be a privatized standard now, either that or you point your gun at your citizen and demand them to hand over all their jewellery and mobile phone or anything have gold in it. Which is impossible.

And this world is, and always is, having more demand on money than supply, you can try to limit spending by imposing fiscal discipline, but then it won't work. You will need a fiat currency to replace another fiat currency, but to have one that is bigger than USD, it currently impossible. Unless we again destroy our current financial system and basically forgive EVERYTHING and start over, it just won't happen.

 

[nang2]

Not now, not anymore, not after 40% of world gold is now privately own.

If you go gold standard, then it would be a privatized standard now, either that or you point your gun at your citizen and demand them to hand over all their jewellery and mobile phone or anything have gold in it. Which is impossible.

And this world is, and always is, having more demand on money than supply, you can try to limit spending by imposing fiscal discipline, but then it won't work. You will need a fiat currency to replace another fiat currency, but to have one that is bigger than USD, it currently impossible. Unless we again destroy our current financial system and basically forgive EVERYTHING and start over, it just won't happen.

not really. the government doesn't have to hold enough gold for all its printed money. just like a bank can lend out far more money than its deposit.

it is in theory that gold standard can be an issue when a country's economy grow much faster than gold production. however, in reality, no country has given up gold standard because it grows too fast, only when it prints too fast.

 

[jhungary]

not really. the government doesn't have to hold enough gold for all its printed money. just like a bank can lend out far more money than its deposit.

it is in theory that gold standard can be an issue when a country's economy grow much faster than gold production. however, in reality, no country has given up gold standard because it grows too fast, only when it prints too fast.

When you print too fast, which mean you grow too fast, otherwise where do you suppose all the money you print goes? You can't just print currency for fun, that will deflate your currency.

Ask around, who does not like to be in debt? How many of people around you did not have debt to begin with? No Credit Card, Mortgage, Car Loan, Business Loan, or any kind of debt? Now, you go and tell these people, why don't you only buy a house when you have money to pay for it or only buy a car when you have money to pay for it? The same can be extended to the government.

In reality, the demand of money FAR OUTWEIGHTED the supply of Gold, and that is the reason why Gold Standard failed. Of course you can think otherwise, and in US Point of View, it's actually really please them if China or Russia route back to a Gold Backed System.

 

[nang2]

When you print too fast, which mean you grow too fast, otherwise where do you suppose all the money you print goes?

on the contrary, usually when a country prints money too fast is when it grows too slowly. the recent Japanese prime minister wanted to print more money to jump start sluggish Japanese economy. Obama rev-ed up the money printing machine when recession started.

and, don't worry. once money is printed, it will find its way into the economy, often to the sectors preferred by government bureaucrats.