A Profound Danger To The Dollar’s Reserve Status?

This blog and our larger sibling The Daly Stirrer have since 2012 been following moves in the international community, led by Russia and China to replace the US dollar as the global reserve currency, a status that has prevailed since 1974 when the USA concluded an agreement with Saudi Arabia, then totally dominant as the world’s largest oil producer, that all oil trades would be carried out in dollars – this was the birth of the petrodollar.

This agreement has since then given the USA a huge advantage over its trading partners, but the balance of power in the world has shifted with the break up of the Soviet Union, the liberalisation of China and the emergence of China as an economic power and of Russia as a major supplier of oil and gas.

You can follow the whole currency wars sage at our omnibus page, Currency Wars, and, while The Daily Stirrer is on a break, check out the latest development in the currency wars at Zero Hedge

China’s Oil Futures Market Gains Momentum

“WTF has China’s new oil futures market to do with us Minds punters?” you might well ask.

It is in fact going to affect us all not just commodities traders, oil speculators and hedge fund managers. The thing is the Chinese (and their BFFs The Russians and Iranians did not just set up this venture because they fancied dabbling in the oil trade.

The launch of the gold backed Petroyouan on the Shanghai financial markets is the culmination of several years manoeuvreing by China and its allies to create a rival trading system to the Petrodollar which has dominated international trade for over forty years. I reported on the news HERE and in several other posts.

Few people are aware of how reliant the US economy has become on the position of the US$ as the global reserve currency. This is because mainstream media never reports on it and TV pundits dare not mention it for fear of losing their lucrative gigs as talking heads on TV. I have talked about it since the very beginning, when Saddam Hussein decided he didn’t need the Petrodollar, modern technology could trade his oil for any currency he fancied. And we all know what happened to him.

Nothing will change overnight, or next month or for several months, but gradually we will see a further shift of economic power from west to east. And that will affect prices, jobs, our standards of living and much more

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Petro-yuan: China To Launch Renminbi As Reserve Currency & Take Down Petro-dollar

China’s launch of a Yuan-backed oil futures market could shatter the US dollar dominance of the crude oil market, a goal China and Russia, with support from, Iran, have been working towards for at least five years. The US dollar will not give up the top spot easily however so we can expect interesting times ahead for business and trade.

The long awaited yuan-backed crude oil futures market was launched at the end of last month in Shanghai. China is the world’s biggest oil consumer, with eyes on rival benchmarks Brent and WTI as well as the US currency. Beijing sees the US dollar dominated oil market as standing in the way of it’s becoming the world’s largest economy.

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.

“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 comented, according to geopolitics.co. China has recently overtaken the US as the world’s number one oil buyer.

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, referring to the recent spate of tit for tat export tariffs imposed by China and the USA.

As a result of these, 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 some major disadvantages on which the petro-yuan can capitalize. First, the US dollar is still overvalued in currency markets, making domestic oil production very expensive. Second, while Russia and Iran have overland pipelines, the United States does not have transatlantic pipelines to its major markeys in Europe, 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, commented in whatreallyhappened.com

Werner 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.

Europe Prepares To Join The Currency War

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