China's De-Dollarization Is Proceeding Apace

[TaiShang]

China's De-Dollarization Is Proceeding Apace
Stefan Gleason


Originally appeared at Mises Institute

The world monetary order is changing. Slowly but steadily, global trade and currency markets are becoming less dollar-centric. Formerly marginal currencies such as the Chinese yuan now stand to become serious competitors to U.S. dollar dominance.

Could gold also begin to emerge as a leading currency in world trade? Over time, it certainly could. But the more immediate implications for gold’s monetary role center on its increasing accumulation by central banks such as China’s.

As of October 1st, the Chinese yuan has entered the International Monetary Fund’s Special Drawing Right (SDR) basket of top-tier currencies. It now shares SDR status with the U.S. dollar, euro, British pound, and Japanese yen.

Before the yuan officially becomes an SDR currency, the World Bank intends to sell $2.8 billion in SDR bonds in Chinese markets. The rollout of SDR bonds in China began August 31st. According to Reuters, China’s promotion of SDR bonds “is part of a wider push in China to… boost demand for Chinese yuan and diminish reliance on the U.S. dollar in global reserves.”

King Dollar won’t be dethroned overnight. But the place of prominence the U.S. dollar enjoys as the world's reserve currency will indeed diminish over time.

Yuan’s Inclusion in the SDR Currency Basket: Merely a Part of China’s De-Dollarization Strategy

China and Russia have mutual geostrategic interests in helping to promote de-dollarization. Toward that end, the two powers are engaging in bilateral trade deals that bypass the dollar. Annual bilateral trade between China and Russia has surged from $16 billion in 2003 to nearly $100 billion today. When China hosted the G20 summit in September, it will make Russian President Vladimir Putin its premier guest of honor.

U.S. officials are none too pleased. They fear Putin aims to expand his global reach by forging stronger ties with China.

According to the South China Post, “Some Western analysts have viewed the recent, rapid enhancement of such collaboration as the beginning of a partnership set on destabilizing the U.S.-led world order and diminishing Washington’s capacity to influence strategic outcomes.”

Some in the Hillary Clinton campaign even fear that Russia will interfere in the upcoming U.S. election to try to block Hillary’s path to the White House. Russian hackers have been implicated in a number of recent “leaks” that damaged the reputations of U.S. banks and the Obama administration. Wikileaks founder Julian Assange has hinted at further releases. Hillary’s allies openly speculate that these Wikileaks hacks are being sourced from Russia.

But the Russians and the Chinese aren’t counting on cyber warfare to dethrone King Dollar. In addition to bilateral trade deals and strategic plays for regional economic dominance, the two powers are bulking up on gold. Over the past several years, Russia and China have each been adding massively to their gold holdings.

World’s Central Banks Becoming Net Gold Buyers

Since 2009, China’s officially reported gold holdings have jumped by 60%. The enlarged gold stockpiles held by the People’s Bank of China helped China win ascension into the IMF’s elite SDR currency basket.

It’s part of a larger trend of world central banks becoming net gold buyers. They were net sellers throughout much of the 1990s and early 2000s. That helped keep gold prices suppressed. But since 2010, central banks have been net buyers of gold — to the tune of 500 tons per year.

Russia alone added 172 tons of gold in 2014 and 208 tons in 2015. By swapping some of its U.S. Treasury securities for bullion bars, the Russian central bank has become the world’s seventh largest gold holder. Yet gold makes up just 16.2% of Russia’s monetary reserves, which is a lower proportion held by its Eurozone neighbors.

Russia likely isn’t done accumulating. As the world’s third largest gold producer, Russia can readily supply itself with more.

A similar scenario figures to play out in China, perhaps even more dramatically so. China’s “official” gold hoard of 1,823 tons as of August 2016 gives it the world’s sixth biggest gold reserve. Yet relative to the size of China’s economy and currency supply, its gold stash doesn’t amount to much — just 2.3% of total monetary reserves.

Unofficially, China likely has additional gold reserves that it doesn’t report. But even if China’s real gold stash is double or triple what it actually reports, as some analysts suggest, that still leaves the country of 1.3 billion people with far less gold backing than Russia, the United States, Europe, and some of its Asian rivals. China has a lot more gold accumulating to do in the years ahead.

Chinese leaders aim to be regionally dominant. In order to secure that position they are moving to own and control greater shares of the gold market. The recently opened Shanghai Gold Exchange gives China a direct mechanism for controlling the physical gold market in Asia.

It’s a way for China to take at least some control away from Western governments and banks that have traditionally dominated the gold trade out of London and New York.

 

[Taimoor Khan]

You want to hit American hard, make dollar redundant. Build CPEC, build the pipelines taking both Iranian and Saudi oil and gas into China, and pay in local currencies or barter trade. That will be the end of petro dollar.

 

[cloud4000]

You want to hit American hard, make dollar redundant. Build CPEC, build the pipelines taking both Iranian and Saudi oil and gas into China, and pay in local currencies or barter trade. That will be the end of petro dollar.

How will this end the petro dollar? China is not the only one buying oil from Iran and Saudi Arabia? China doesn't have to use dollars, it can use other SDRs, including their own.

 

[Taimoor Khan]

How will this end the petro dollar? China is not the only one buying oil from Iran and Saudi Arabia? China doesn't have to use dollars, it can use other SDRs, including their own.

You know what Saddam Hussain real crime was? He started to trade Iraqi oil in Euros.

 

[GCTom]

This is just another piece of regurgitation from Western Mass Media. It is part of a narrative that China is aggressive and attacking the US dollar and USA interests.

However, de-Dollarization is not the objective of what China is doing. What China, and any country that have a worth, is doing is making their currency more globalized and have a greater share in the global exchange. If this means that few other currency will use less in global trade, then so be it. China is the biggest global trader , it currency used in global trade will only increase in the future.

 

[TaiShang]

This is just another piece of regurgitation from Western Mass Media. It is part of a narrative that China is aggressive and attacking the US dollar and USA interests.

However, de-Dollarization is not the objective of what China is doing. What China, and any country that have a worth, is doing is making their currency more globalized and have a greater share in the global exchange. If this means that few other currency will use less in global trade, then so be it. China is the biggest global trader , it currency used in global trade will only increase in the future.

China is not anti-systemic, but its very growth to a natural level of development and influence is creating systemic shifts. And people are crafting terminologies to define it. I am fine with that so long as they provide good, quick insight to relate the message to the masses.

Aggressiveness is in the nature of historical evolution. The old has to die so that the new can be born.

You want to hit American hard, make dollar redundant. Build CPEC, build the pipelines taking both Iranian and Saudi oil and gas into China, and pay in local currencies or barter trade. That will be the end of petro dollar.

Saudi Arabia cannot be entirely trusted. They are too much embedded with the US. China sees the Russia experience; how Saudis assisted US policy by reducing crude prices to help harm Russian economy.

At the request of the US, Saudi regime can act in a similar hostile fashion against China.

Currently, China's greatest energy partner in energy and energy-related decoupling from USD is Russia. I see the ties to grow further when in 2018 the 400 billion USD gas deal becomes online.

Iran is also rising on China's import list, now that the sanctions are lifted. I am disturbed by the fact that Saudi Arabia factors so heavily in China's crude exports. It should remain a supplier, but not a major one.

 

[ohmrlobalobayeh]

You want to hit American hard, make dollar redundant. Build CPEC, build the pipelines taking both Iranian and Saudi oil and gas into China, and pay in local currencies or barter trade. That will be the end of petro dollar.

You know what Saddam Hussain real crime was? He started to trade Iraqi oil in Euros.

same thing with Muamar Gaddafi - he wanted to introduce the Pan-Africa Gold dinar to replace the USD for oil-trading with African OPEC countries.

Now lets see what they can do when the China uses the Yuan to replace the USD for trading with all OPEC countries.

WW3?

 

[Kyle Sun]

You know what Saddam Hussain real crime was? He started to trade Iraqi oil in Euros.

Exactly !
What yankees really care is currency hegemony !
They do not give a shit to WMD.

 

[ahojunk]

The following article is 3 weeks old but is relevant to this thread.

========
'US dollar flawed... Eventually we will all be using Chinese yuan' - Jim Rogers
Published time: 1 Oct, 2016 15:38 Edited time: 1 Oct, 2016 16:24

Chinese yuan is the only currency on the horizon which can challenge the US dollar to become the world’s reserve currency in the future, says financial commentator and international investor Jim Rogers.

The elite club of reserve currencies used by the International Monetary Fund has a new member, the Chinese yuan.

The list previously had four major world currencies the US dollar, the euro, the British pound and the Japanese Yen. The Chinese yuan, also known as 'renminbi', is the fifth most-used currency in international transactions.

Until 2005 it was tied to the US dollar meaning that when the dollar fluctuated up or down against other currencies, the value of the yuan would move with it.

RT: Why do you think the Yuan is joining the reserve currency basket and what does it mean for the global economy?

Jim Rogers: It is joining because the renminbi is now one of the most important currencies in the world. It is the fifth most commonly used. Remember, 15 years ago nobody knew there was a Chinese currency. It has skyrocketed and it is going to be even more important in the future.

RT: How will this affect the four major world currencies already in the IMF's reserve basket: dollars, euros, sterling and yen? Might this pose a challenge to the dollar’s international dominance?

JR: The fact that it is in the IMF basket now is really just a publicity thing, it is not very important. It is significant that it is there. But that’s about all. Trade flows are what will change that. The fact that the British pound is there doesn’t help it, or the Swiss franc or anything else. Just because you are in the IMF basket means very little. What does mean something is trade flows, and as I’ve said, the renminbi 15 years ago was nothing. Now it’s already one of the most dominant currencies in the world.

RT: China has been the world's largest exporter since 2009, overtaking the US. What does the yuan having reserve currency status mean to traders?

JR: Eventually, we will all be using the renminbi. The renminbi is the only thing I see on the horizon which can challenge the US dollar to become the world’s reserve currency. It is not there yet, but it is moving and moving fast. The US dollar is a very flawed currency; the renminbi has its problems, the main one right now is you cannot buy and sell it. It is a blocked currency. But eventually that will change and it will probably challenge the US dollar…. In Hong Kong, you can use the renminbi in any shop you want. It is happening in Macau, and in Singapore there are people who will take the currency.

It’s not big yet but it is on the way.

 

[TaiShang]

China's Yuan-for-Oil Deals Are a Direct Assault on the US Dollar

Yuan-for-oil will entirely change the monetary dynamics of global energy flows

Bryon King


If Saudi begins accepting yuan for oil, all bets are off on the petrodollar

Editor's note: Russia and China have already inked energy deals in yuan. The fact that the Saudis are inching closer to a similar agreement with Beijing should be front page news.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Source: Daily Reckoning

@Shotgunner51 , @AndrewJin , @Han Patriot , @terranMarine , @Dungeness

 

[Han Patriot]

China's Yuan-for-Oil Deals Are a Direct Assault on the US Dollar

Yuan-for-oil will entirely change the monetary dynamics of global energy flows

Bryon King


If Saudi begins accepting yuan for oil, all bets are off on the petrodollar

Editor's note: Russia and China have already inked energy deals in yuan. The fact that the Saudis are inching closer to a similar agreement with Beijing should be front page news.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Source: Daily Reckoning

@Shotgunner51 , @AndrewJin , @Han Patriot , @terranMarine , @Dungeness

Using more yuan does not mean we need to destroy dollar...the key point here is to rebalance the global order by reducing dollars influence.America needs to start sharing power.

 

[Beast]

Using more yuan does not mean we need to destroy dollar...the key point here is to rebalance the global order by reducing dollars influence.America needs to start sharing power.

It will destroy the dollar, no doubt. USA needs the dollar as most used currency to keep borrowing to sustain its over inflated economy.

But I bet US will warn the Saudi that they will attack and invade them if they go so.

By the way,do Angola accept yuan for its oil?

 

[jhungary]

laugh very hard on this thread.......People here have a misguided interpretation of Petrodollar.

The USD is the dominant World Reserve currency is not because of the oil trade. You can all trade Oil with other currency, it will dip the US Dollar reserve a bit but will not hit USD hard, because most of all the USD used in the world is FOREX, accounted for 85% of world trade. For those who do not know, that's 85% of 5.1 Trillions PER DAY in april 2016 according to BIS (Bank for International Settlement) estimate. Oil Trade did not even remotely touching this.

FOREX break down into 5 different category, where Spot Trade and FOREX Swap took over 50% of the world transaction daily if you want to de-dollarize, you need to attack the FOREX Trade, not Oil Trade.

Look at the 2016 data. USD reserve status is 65% world wide (only 35% of all circulated USD are used within the US) while Euro having drop below 20%, first time since 2002. Chinese Yuan in international status in 2016 is 1.1% being hold worldwide.

USD should not be in the dominant currency, as that will create many problem within the US, a lot more than it does outside the US, that point I agree, but for Yuan to replace USD? I cannot see it coming in the next 50 years. To topple the US dollar, you need an INTERNATIONAL Currency led by EU and China, at this point it's at 20.8% world reserve status. Compare to USD 65%.

To be honest, if US Dollar can be topple within the next 20 year, the only way to do it is to have the top 4 (EU, UK, China and Japan) to joint hand and impose a new Economic/Financial Standard. But Would EU would join hand with the UK after the EU split at all, and the likelihood of China to join hand with Japan is in doubt as well, unless China can find a way to climb over the other currency and make that SIGNIFICANT gain itself, I don't ever see USD will be toppled in our life time.

 

[TaiShang]

The thread is about China's de-dollarization, which means China's doing trade in local currency with other nations. It is not about (and does not claim to be) dethroning the USD as a global currency.

The result of China's policies might contribute to the use of USD as a medium for international trade, but, this is not the starting point. The starting point is that it makes economically more sense to do trade in local currencies than converting them to the USD.

Hence, China buys more oil from the countries that it has currency agreements than those that it does not.

The fall of the KSA from the top to be replaced by Russia as China's largest energy supplier tells a big story.

Iranian Mullahs long traded oil with Yuan since 2012. Not sure how big is the scale.

Check an American redneck source. You will get enlightened and your unsureness will cease to exist.

 

[TaiShang]

Russian, Chinese Gold Reserves to Cut Global Economy's Addiction to Dollar

12:34 09.06.2017

Russia and China continue to stockpile gold in a bid to cut their economies’ dependency on the US dollar in the future. Experts told Sputnik that if the dollar’s role as a global reserve currency is decreased the world will see radical political and economic transformation.

© SPUTNIK/ VALERY TITIEVSKY


In recent years, Russia and China have actively been purchasing the yellow metal and have significantly enlarged their national gold reserves.

According to Philip Klinkmüller, a financial expert with Hopf-Klinkmüller Capital Management, there is a visible trend in Russia and China to buy more bullion to end their dependency on the US dollar.

The expert suggested that in the years to come global financial markets will see a significant devaluation of the American currency.

"According to our estimates, there will be a downward trend in the dollar exchange rate in the next 15 years. In the long-run, it cannot be guaranteed that the dollar will remain a global reserve currency," Klinkmüller told Sputnik Germany.

Bullion was traditionally a major part of the Russia’s and China’s gold and foreign exchange reserves. At the same time, nearly 60 percent of global exchange reserves are denominated in dollars.

On the one hand, gold is a national reserve in the event of a crisis. On the other hand, gold reserves help compensate losses from a fluctuating dollar.

By stockpiling bullion, Russia and China want to get more independent in trading gold and cut their reliance on the US dollar, according to Jochen Stanzl, a market analyst at CMC Markets.

© PHOTO: PIXABAY

Money, Money, Money: Proposed Law Would Change US Currency, Create Dollar Coin

He added that gold purchases also help a country to diversify its national financial resources.

"If the country buys only one currency it gets highly dependent on its exchange rate. By purchasing gold, the central bank diversifies its resources and enhances the soundness of nation’s assets," Stanzl said.

In turn, Klinkmüller noted that buying gold is "absolutely reasonable" for Russia since the yellow metal is helpful to offset the negative effect from sanctions.

"Russia wants to be more independent from the US dollar and act at global financial markets, using gold as a payment instrument. One of the reasons is sanctions imposed by the United States and the European Union over the Ukrainian crisis, including those in trade and investment," the financial expert explained.

As for China, Beijing is currently the world’s importer of gold, and according to Stanzl’s estimates, will keep this status in the future.

The expert outlined the two most probable reasons behind Beijing’s rush on the global bullion market.

"First, China wants to use gold reserves to boost its national currency [the renminbi] which was added to the International Monetary Fund’s basket of reserve currencies last year. Moreover, China has a large foreign trade deficit with the US. By stockpiling bullion, Beijing wants to decrease its dependency on the US," Stanzl said.

At the same time, both experts underscored that gold purchases by Russia and China are not contributing to driving up gold prices in the global market.

According to the World Gold Council, China and Russia are ranked sixth and seventh on the list of country with the largest gold reserves, with 1,843 tons and 1,655 tons respectively. The first on the ranking is the US with 8,134 tons. It is followed by Germany (3,380 tons) and the IMF (2,814 tons).

https://sputniknews.com/business/201706091054472674-russia-china-gold-reserves/

@Götterdämmerung