What's new

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

Mangus Ortus Novem

SENIOR MEMBER
Joined
Jun 7, 2008
Messages
2,984
Reaction score
186
Country
Netherlands
Location
Pakistan
As a reminder, nothing lasts forever...



The World Bank's former chief economist wants to replace the US dollar with a single global super-currency, saying it will create a more stable global financial system.

"The dominance of the greenback is the root cause of global financial and economic crises," Justin Yifu Lin told Bruegel, a Brussels-based policy-research think tank.

"The solution to this is to replace the national currency with a global currency."

The writing is on the wall for dollar hegemony. As Russian President Vladimir Putin said almost two months ago during the BRICs summit in Xiamen,

“Russia shares the BRICS countries’ concerns over the unfairness of the global financial and economic architecture, which does not give due regard to the growing weight of the emerging economies. We are ready to work together with our partners to promote international financial regulation reforms and to overcome the excessive domination of the limited number of reserve currencies.”

As Pepe Escobar recently noted, 'to overcome the excessive domination of the limited number of reserve currencies' is the politest way of stating what the BRICS have been discussing for years now; how to bypass the US dollar, as well as the petrodollar.

Beijing is ready to step up the game. Soon China will launch a crude oil futures contract priced in yuan. This means that Russia – as well as Iran, the other key node of Eurasia integration – may bypass US sanctions by trading energy in their own currencies, or in yuan. Inbuilt in the move is a true Chinese win-win; the yuan - according to some - will be fully convertible into gold on both the Shanghai and Hong Kong exchanges.

The new triad of oil, yuan and gold is actually a win-win-win. No problem at all if energy providers prefer to be paid in physical gold instead of yuan. The key message is the US dollar being bypassed.

China's plans for oil futures trading go back more than two decades, with the government introducing a domestic crude contract in 1993 and stopping a year later amid an overhaul of its energy industry. But in 2013, we first hinted at the birth of the petroyuan was looming...

In doing so China is effectively lobbing the first shot across the bow of the Petrodollar system, and more importantly, the key support of the USD in the international arena... setting the scene for the petroyuan.

And now, we are within two months of it becoming a reality as China prepares to roll out a yuan-denominated oil contract within the next two months...

"Approval of the trading rules by the securities regulator marks the clearance of a major hurdle toward launch of the contract," Li Zhoulei, an analyst with Everbright Futures, said by phone.

"The latest rules raised entry threshold for investors from the draft rules, which shows the government wants to avoid volatility when it first starts trading."

Which, according to Adam Levinson, of hedge fund manager Graticule Asset Management Asia, will be a “wake up call” for investors who haven’t paid attention to the plans.

A Yuan-denominated oil contract will be a “huge story” in the fourth quarter.

“The contract is a hedging tool for Chinese oil companies. We’re convinced Chinese oil companies will be anchor investors in the Aramco IPO.”

All of which fits with recent comments and actions from Russian and Venezuelan officials...

“Venezuela is going to implement a new system of international payments and will create a basket of currencies to free us from the dollar,” Maduro said in a multi-hour address to a new legislative “superbody.” He reportedly did not provide details of this new proposal.

Maduro hinted further that the South American country would look to using the yuan instead, among other currencies.

“If they pursue us with the dollar, we’ll use the Russian ruble, the yuan, yen, the Indian rupee, the euro,” Maduro also said.

Additionally, Levison warns Washington that besides serving as a hedging tool for Chinese companies, the contract will aid a broader Chinese government agenda of increasing the use of the yuan in trade settlement... and thus the acceleration of de-dollarization and the rise of the Petro-Yuan.

“I don’t think there’s any doubt we’re going to see use of the renminbi in reserves go up substantially”

Levinson was even more sanguine about China's growing credit exposure. While Chinese debt-to-GDP continues to rise, we note that Chinese sovereign credit risk has collapsed to 9 year lows...



Which as Levinson notes, "All the issues in China are occurring without fully understanding the asset side of the balance sheet." He is not concerned about China credit issues in the near-term, defining the near term as the next two years, as "the capacity of the sovereign to deal with an issue, should it occur, is pretty significant and therefore important.”

Which appears to the market's perspective as China is now the least risky relative to US in four years...



Finally, while he is less concerned about China's credit, Levinson warns that the lack of volatility as stocks and bonds rally is the “scariest part” of global markets...

“If I am concerned about anything it’s where the level of implied volatility trades,” Levinson said in an interview in Singapore on Tuesday.

“It is extremely low. If there is something to be concerned about in global markets, it’s the endogenous level of where implied volatility is trading.”

Small market declines could escalate quickly, Levinson said.

“You don’t know when an event or an issue is going to present itself,” he said.

“But when it does, the nature of the volatility construct in markets today is such that if you have a modest correction it will turn into a much more severe one in a short period of time, because of the entrenched structural short-selling of volatility.

Any increase in market turbulence could trigger dramatic selling and the biggest of those events could be a broader adoption of China's PetroYuan contract... as Levinson says "will be a huge story" in Q4.

@Götterdämmerung , ah my, friend...there is a take-away in this article. Things we have touched upon...2018?
 
.
I think this is not a direct threat to the USD; it was not designed to be so; USD and RMB still function freely and nations choose the most profitable means of exchange.

It is especially good for nations that are under the threat of sanctions by the US. Taking away the ability to use finance like a weapon is also good for the US. They are becoming too addicted to aggressive posturing.

China undermining the ability in such a graceful and non-aggressive way is impressive.

Still, I bet, Western media would see it as an aggressive move since their reporting is extremely nationalist.
 
. .
When I told people the real intention of OBOR was to create a Chinese international trading system based on Yuan, they were laughing and the Indians were thinking it was just about investment and infrastructure. OBOR is about, using RMB to fund and build infrastructure to connect key countries and bind them into a Chinese trading system. It will determine the fate of China for the next 100 years.
 
.
Putin’s Revenge May See Petro-Yuan Replace Petrodollar

There is little doubt Moscow is hoping to engineer a US economic crisis to cripple its perpetual foe

Bryan MacDonald



The key to the coming petro-yuan lies in Moscow. And, if the Chinese currency eventually succeeds in usurping the long-standing petrodollar, Washington will only have itself to blame.

News that China plans to launch a yuan-denominated oil futures contract by the end of this year has come as a surprise to many analysts. However, Russia experts aren’t startled in the slightest because this move has been coming since Moscow abandoned its quarter-century attempt to integrate with the West, following the 2014 Ukraine crisis. A catastrophe which the Kremlin blames on the United States and the European Union, as part of what it considers to be an attempt to reduce Russian influence in its "near abroad.”

Beijing’s scheme aims to shift trade in “black gold” from petrodollars to a proposed petro-yuan. Which benefits China by making its currency more attractive internationally and providing greater energy security. However, 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.

As the world’s biggest petroleum producer, Russia is vital to Beijing’s project. And, in turn, as the planet’s largest crude importer and most sizable economy (measured by purchasing power parity), China is the only country with the heft to challenge American financial hegemony.

Of course, Vladimir Putin and Xi Jinping can’t achieve their aims alone. Because if the petro-yuan is to succeed, other leading oil-drilling nations, will need to come on board. And, while Iran, Indonesia, and Venezuela have indicated their interest in the project, the key is tempting the Arab states to trade in yuan. And this essentially means Saudi Arabian cooperation is the big prize.

Plan of Action

Because, after all, the petrodollar was born in Jeddah in 1974, when the US Treasury Secretary William Simon convinced the Saudis that America was the safest place to park their oil revenue. And this cash flow has allowed the US to live beyond its means for decades.

However, in recent years, relations have become frayed, with Washington’s support for its fracking industry crushing petroleum prices and causing severe fiscal pain for the Saudis. Indeed, the primary reason for Riyadh’s developing detente with Russia has been a mutual desire to prevent a further slide in energy earnings. As a result, earlier this month, King Salman made a historic visit to Moscow, where the yuan plan was surely on the agenda.

Informed analysts insist the Saudis will have to come on board: “I believe that yuan pricing of oil is coming and as soon as the Saudis move to accept it — as the Chinese will compel them to do — then the rest of the oil market will move along with them," Carl Weinberg, chief economist and managing director at High-Frequency Economics, told CNBC.

The Masterplan

The roots of the petro-yuan lie in a series of "color revolutions" in the former USSR, which convinced Moscow that the West would never treat it as an equal partner. This culminated in a March 2014 speech, in the Kremlin’s majestic Georgievsky Hall, where Vladimir Putin addressed over 1,000 Russian dignitaries. But this was no ordinary keynote. Because tensions between Russia and the West were at levels not seen since the Cold War.

Just a few weeks previously, Ukraine’s government had been violently removed and, amid the chaos, Moscow had hastily moved to reabsorb its “lost province" of Crimea. A strategically important peninsula, which had been controversially transferred to Kiev in 1954, when the two formed a union-state. At the same time, pro-Russian protests raged in the eastern Ukrainian cities of Donetsk and Lugansk.

Back then, a stern Putin memorably said: “if you compress the spring all the way to its limit, it will snap back hard. You must always remember this.”

Indeed, ever since the United States imposed anti-Russia sanctions, first in 2012, ostensibly due to death of an accountant named Sergey Magnitsky, and the European Union, in 2014, in response to the Ukraine crisis, Moscow has been searching for ways to push back at the coercive measures.

The retaliation toward the EU was relatively straightforward: a food import ban, which has had the positive side effect of significantly boosting the domestic Russian agriculture industry, after initially contributing to inflation. However, due to a much smaller interdependency in trade, it’s proved harder to get even with Washington. Until now that is.

There is little doubt Moscow is hoping to engineer a US economic crisis to cripple its perpetual foe. Indeed, as CNBC also notes: “Russia and China have sought to operate in a non-dollar environment when trading oil. Both countries have also increased their efforts to mine and acquire physical gold if, or perhaps when, the dollar collapses.”

If the Saudis don’t play ball, they risk losing further market share. Especially, after new gas and oil pipelines from Russia to China begin operation next year. And there’s also the prospect that Chinese investors could boycott the IPO of state behemoth Saudi Aramco next year.

Meanwhile, there are high expectations for the petro-yuan. Because anything that weakens the American ability to wage economic war, and destabilize the Eurasian space, is a major win for the Kremlin. Furthermore, Putin may also consider the end of dollar dominance to be an important part of his legacy as he prepares for a likely final term as Russian President.

Source: RT
 
.
Taking away the ability to use finance like a weapon is also good for the US
Indeed...

But as of now, USD is used for a transaction worth $ 5 trillion a day. Thread is about trading using RMB for few billions. That too only by China. That's doesn't look like something that would shake the dollar monopoly.
 
.
Indeed...

But as of now, USD is used for a transaction worth $ 5 trillion a day. Thread is about trading using RMB for few billions. That too only by China. That's doesn't look like something that would shake the dollar monopoly.
Everything great had a humble beginning, Pal. it takes time for us to see... :-)
 
. . .
Indeed...

But as of now, USD is used for a transaction worth $ 5 trillion a day. Thread is about trading using RMB for few billions. That too only by China. That's doesn't look like something that would shake the dollar monopoly.

Who said China wants to shake USD's monopoly? China is all about win-win. In this case, it is just pursuing what is to the best of its national economic interests. Doing trade in RMB makes more sense for China. If, for other countries, doing trade in USD, rather than in their own currency, makes more sense. then, they need to stick with that.

China is not trying to be an alternative to the US. China only shows that there could be and there are alternatives.

US can continue its ways and means that it has got used to so far. No body can stop them but only themselves.
 
. .

Pakistan Affairs Latest Posts

Country Latest Posts

Back
Top Bottom