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.

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China’ s Low Key Launch Of Its Challenge To Petrodollar Supremacy

petrodollar
Goodbye petrodollar, hello petroyuan? 

We have been blogging and commenting for several years on moves by Russia, China and Iran to replace the US dollar as the global reserve currency, or at least to create a serious rival to the dollar hegemony. There can be no greater threat to the established order (or to the global banking cartel’s dreamed of New World Order,) than the emergence of a serious rival to the dollar. As economic game-changers go there is none bigger or more disruptive than a yuan-denominated settlement system for crude oil contracts, especially when set it is set up up by the largest importer of crude on the planet and the second largest exporter of hydrocarbons.

Given the level of U.S. provocations of Russia and China over the past few years and the recent return to cold war conditions with a new arms race on the cards, perhaps we ought to be happy that the Russians and Chinese seem to prefer currency wars to shooting wars as both have demonstrated they have formidable arsenals of advanced weapons and it is far from certain the U.S.A. and NATO could take on either, let alone both simultaneously.

And yet Beijing’s strategy seems to be a softly softly approach. Oil trades are already being conducted in petro-yuan at the Shanghai International Energy Exchange is on hold. This may be related to US sabre rattling and concern that the US deep state, having no economic response to the move may react rashly if presented with a fait accompli. Thus the fact that China and its partners chose to play down the official launch of the new settlement system is understandable. There was room for some euphoria following the launch, 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.

The launch also signalled a series of “firsts” for China’s trade links with the west, including the first opportunity for overseas investors 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. This is entirely in line with the Sino – Russian policy of moving their economic partners towards conducting trades in the currency of the vendor nation.

Will the launch of the petro-yuan be a deathblow to the petrodollar and U.S. economic dominance and the birth of a new era in trade relations? It will but the change is likely to take years rather than weeks. Many variables have to be considered, the most important being China’s capacity to manipulate and eventually dominate the global oil market.

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