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China to buy Oil with gold backed Yuan

General discussions of the systemic, societal and civilisational effects of depletion.

The Death of the PetroDollar, the Birth of the PetroYuan

Unread postby Cid_Yama » Fri 12 Feb 2016, 09:02:32

By Goldman’s estimates, a new oil price “equilibrium” (i.e. a sustained downturn) could result in a net petrodollar drain of $24 billion per month on the way to nearly $900 billion in total by 2018. The implications, BofAML notes, are far reaching: "...the end of the Petrodollar recycling chain is said to impact everything from Russian geopolitics, to global capital market liquidity, to safe-haven demand for Treasurys, to social tensions in developing nations, to the Fed's exit strategy.”

Shifting to the idea of yuan hegemony, China is aggressively pushing its Silk Road Fund and Asian Infrastructure Investment Bank.

The $40 billion Silk Road Fund is backed by China’s FX reserves, the Export-Import Bank of China, and China Development Bank and seeks to increase ROIC for Chinese SOEs by investing in infrastructure projects across the developing world, while the $50 billion AIIB is funded by 57 founding member countries (the US and Japan have not joined) and will serve to upend traditionally dominant multilateral institutions which have failed to respond to the rising influence and economic clout of their EM membership. China will push for the yuan to play a prominent role in the settlement of AIIB transactions and may look to establish special reserves in both the AIIB and Silk Road fund to issue yuan-denominated loans.

Back in early November, SWIFT data showed that 15 new countries had joined a list of nations settling more than 10% of their trade deals with China in yuan. "This is a good sign for [yuan] adoption rates and internationalisation. In particular, Canada's [yuan] usage for payments, which has increased greatly over this period, is very interesting since we have not seen strong adoption of the [yuan] from North America to date,” Astrid Thorsen, Swift's head of business intelligence said.

Earlier that month, China and Russia indicated that going forward, more trade between the two countries would be settled in yuan. From Reuters, last November:

Russia and China intend to increase the amount of trade settled in the yuan, President Vladimir Putin said in remarks that would be welcomed by Chinese authorities who want the currency to be used more widely around the world.

Spurred on by their often testy relations with the United States, Russia and China have long advocated reducing the role of the dollar in international trade.

Curtailing the dollar's influence fits well with China's ambitions to increase the influence of the yuan and eventually turn it into a global reserve currency. With 32 percent of its $4 trillion foreign exchange reserves invested in U.S. government debt, China wants to curb investment risks in dollar.

"As part of our cooperation with this country (China), we intend to use national currencies in mutual transactions.The initial deals for rouble and yuan are taking place. I want to note that we are ready to expand these opportunities in (our) energy resources trade," Putin said at the time, suggesting that going forward, Russia may look to settle sales of oil in yuan.

Sure enough, Gazprom has confirmed that since the beginning of the year, all oil sales to China have been settled in renminbi. From FT:

Russia’s third-largest oil producer, is now settling all of its crude sales to China in renminbi, in the most clear sign yet that western sanctions have driven an increase in the use of the Chinese currency by Russian companies.

Russian executives have talked up the possibility of a shift from the US dollar to renminbi as the Kremlin launched a “pivot to Asia” foreign policy partly in response to the western sanctions against Moscow over its intervention in Ukraine, but until now there has been little clarity over how much trade is being settled in the Chinese currency.

Gazprom Neft, the oil arm of state gas giant Gazprom, said on Friday that since the start of 2015 it had been selling in renminbi all of its oil for export down the East Siberia Pacific Ocean pipeline to China.

Russian companies’ crude exports were largely settled in dollars until the summer of last year, when the US and Europe imposed sanctions on the Russian energy sector over the Ukraine crisis...

Gazprom Neft responded more rapidly than most, with Alexander Dyukov, chief executive, announcing in April last year that the company had secured agreement from 95 per cent of its customers to settle transactions in euros rather than dollars, should the need to do so arise.

Mr Dyukov later said the company had started selling oil for export in roubles and renminbi, but he did not specify whether the sales were significant in scale.

According to Gazprom Neft’s first-quarter results issued last month, the East Siberian Pacific Ocean pipeline accounted for 37.2 per cent of the company’s crude oil exports of 1.6m tonnes in the three months to March 31.

With that, the "PetroYuan" has officially been born and while FT notes that "other Russian energy groups have been more reluctant to drop the dollar for settlement of oil sales," the fact that Russian producers are now openly considering a shift at the same time that officials in the US and Europe are openly discussing stepped up economic sanctions suggests renminbi settlements may become more commonplace going forward.

To understand why and to what extent this is significant in the current environment, consider the following from WSJ:

Officials of the Organization of the Petroleum Exporting Countries, which declined to cut oil production last year, reasoned that maintaining high production levels would protect market share in crucial importing nations.;

But Chinese customs data released Friday show that China’s crude imports from some big OPEC nations have plummeted, while imports from Russia surged 36% in 2014. Meanwhile, imports from Saudi Arabia fell 8% and those from Venezuela dropped 11%.

To summarize: Western economic sanctions on Russia have pushed domestic oil producers to settle crude exports to China in yuan just as Russian oil is rising as a percentage of total Chinese crude imports. Meanwhile, the collapse in crude prices led to the first net outflow of petrodollars from financial markets in 18 years, and if Goldman's projections prove correct, the net supply of petrodollars could fall by nearly $900 billion over the next three years. All of this comes as China is making a concerted push to settle loans from its newly-created infrastructure funds in renminbi.

Putting it all together, the PetroYuan represents the intersection of a dying petrodollar and an ascendant renminbi.

link


At the end of January, Xi Jinping visited Saudi Arabia and finalized a deal to trade in Renminbi. The Petrodollar is dead. The magic checkbook is gone.

The Western Media has failed to report the most important news in decades.

Remember what happened to Iraq when they changed to the Euro?
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Re: The Death of the PetroDollar, the Birth of the PetroYuan

Unread postby onlooker » Fri 12 Feb 2016, 09:48:35

Yes it does look like the "Correction" and "Death" is underway considering five straight days of losses in the stock market. The King is dead long live the King.
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Re: The Death of the PetroDollar, the Birth of the PetroYuan

Unread postby JV153 » Fri 12 Feb 2016, 13:41:02

I have to disagree - while the US currency isn't good, I don't think the yuan is much better. On what do you base such allegations of currency superiority ? After all, the Chinese import even more oil than the US does now - that for one doesn't make the yuan seem like a strong choice.

To its credit, China has managed to more or less keep its image squeaky clean as regards invading other countries. However, it's less than squeaky clean in other ways.
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Re: The Death of the PetroDollar, the Birth of the PetroYuan

Unread postby dissident » Fri 12 Feb 2016, 18:50:39

JV153 wrote:I have to disagree - while the US currency isn't good, I don't think the yuan is much better. On what do you base such allegations of currency superiority ? After all, the Chinese import even more oil than the US does now - that for one doesn't make the yuan seem like a strong choice.

To its credit, China has managed to more or less keep its image squeaky clean as regards invading other countries. However, it's less than squeaky clean in other ways.


The critical detail is that the demand for dollars is slipping. The rest is not relevant. The US could get away with printing money like Pancho Villa before but that option will dissipate in the coming years. The lean years are coming for Uncle Scam.
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Re: The Death of the PetroDollar, the Birth of the PetroYuan

Unread postby Cid_Yama » Sat 13 Feb 2016, 01:13:38

"For my part, whatever anguish of spirit it may cost, I am willing to know the whole truth; to know the worst and provide for it." - Patrick Henry

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Re: The Death of the PetroDollar, the Birth of the PetroYuan

Unread postby ennui2 » Sat 13 Feb 2016, 09:57:59

The whole "Iran oil bourse" thing was what led to "Iran Cable Cut" paranoia. This is just yet another tempest in a teapot.
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Re: The Death of the PetroDollar, the Birth of the PetroYuan

Unread postby Cid_Yama » Sat 13 Feb 2016, 13:47:35

Has nothing to do with the Iran oil bourse. Did you not watch the video, or just not understand it?
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Re: The Death of the PetroDollar, the Birth of the PetroYuan

Unread postby ennui2 » Sat 13 Feb 2016, 17:14:17

The similarity with the Iran Oil Bourse is the rhetoric, which attempts to build a narrative that ends with some sort of WWIII conflagration due to superpowers wagging their dicks. Things don't tend to play out that way, though.

Suddenly the topic shifts to google image screenshots of various soft-points and theorizing how the various military moves on the chess-board would go. It's just doomer WWIII porn for people who are bored the superbowl is over.
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Re: The Death of the PetroDollar, the Birth of the PetroYuan

Unread postby onlooker » Sat 13 Feb 2016, 19:57:44

On this I have to agree with Ennui, I do not see WWIII happening because anyone with an IQ above 0 can see that it would be basically the end of everything. They're is a reason MAD has kept it from erupting for this long it works.
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Re: The Death of the PetroDollar, the Birth of the PetroYuan

Unread postby Cid_Yama » Sat 13 Feb 2016, 20:17:27

So the answer is yes to one or the other.

No one said anything about WWIII. You are creating strawmen.

This is about the end of US Dollar hegemony as the world reserve currency. And all those dollars coming back home like bad checks.

The economic power of the West dies with a whimper.
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Re: The Death of the PetroDollar, the Birth of the PetroYuan

Unread postby onlooker » Sat 13 Feb 2016, 20:25:18

It is interesting Cid, though because I agree that the economic royalists do not wish to give up their power and yet rightly as you document they are rapidly losing it. So what is their end game? I say this does tie in with WWIII in so much as the one ace in the deck they still have is the US military. So are they not like a wounded animal more dangerous as such.
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Re: The Death of the PetroDollar, the Birth of the PetroYuan

Unread postby ennui2 » Sat 13 Feb 2016, 22:33:39

Cid_Yama wrote:The economic power of the West dies with a whimper.


Last time I checked, China's economy was worse off than the US of late.

So I think this is wishful thinking on your part.

Also, those trying to pump up China as this ascendant power seem to be ignoring that it is choking to death under the weight of its own pollution. I, personally, do NOT envy China in any shape or form. If they want to institute their own "hegemony" I doubt it will make any difference in the overall quality of life of their people, nor will it significantly reduce mine.

In other words--nothing to see here, move along.
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Re: The Death of the PetroDollar, the Birth of the PetroYuan

Unread postby JV153 » Mon 15 Feb 2016, 05:26:26

ennui2 wrote:

In other words--nothing to see here, move along.


What Cid_Yama doesn't acknowledge is that those economic royalists he talks about outsourced manufacturing to China in exchange for clean air (?) and even greater profits in their royal stash. Unfortunately China has about 10-12 years before it goes through its bituminous coal reserves and another 10-35 before it's sub-bituminous reserves are near depleted.

The never-ending story. Economic exploitation-economic exploitation-economic exploitation. Nobody said it's going to be easy.
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Re: The Death of the PetroDollar, the Birth of the PetroYuan

Unread postby Cid_Yama » Mon 15 Feb 2016, 14:03:16

Nonsense. Those jobs were sent to China, (the Philippines, Vietnam, Mexico, etc.) Because that's where multinationals could exploit the cheapest labor, paying pennies on the dollar, rather than pay a living wage to Americans.

Because those places didn't have the infrastructure, they had to build it, and forced through legislation in the US to pay for it, charging the US citizens to send their own jobs out of the country.

They figured if they globalized labor, they could drag labor costs down worldwide. Creating impoverishment among the working class everywhere. And in that they were successful. No more 'middle class', send those uppity high end laborers back down where they belong.

Unfortunately, they crashed the economy globally. They destroyed the consumer base. They forgot someone has to buy the stuff they make.

And China wanted better for their people. Wages went up there, and shipping costs increased, cutting profits and showing their whole globalization scam to be flawed.

They wanted 'Free Trade', Bullshit agreements intended to undermine other nations ability to protect their own economies and currencies through tariffs. Another scam where the stronger nations benefit while weaker nations were looted.

So they destroyed the infrastructure and manufacturing base of the United States, throwing masses out of work, and diminishing our nations power to control the multinationals.

All I hear is propagandists blah, blah, blah, that is not reflected in the realities.

Multinationals have no national loyalties. They are only interested in harvesting the wealth of nations and directing it into their own coffers.

Intangibles like national loyalties, compassion, honor, truth, integrity and justice have no place on the balance sheet.

Best check your soul. You may have sold it, along with your nation.
Last edited by Cid_Yama on Mon 15 Feb 2016, 14:12:55, edited 1 time in total.
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Re: The Death of the PetroDollar, the Birth of the PetroYuan

Unread postby onlooker » Mon 15 Feb 2016, 14:09:11

And that is where the "real" political divide lies now, between those who have no problem selling out their country and those who still have some qualms about doing so. Well said Cid, Multinationals, Big Banks, and the Super Wealthy and elite have no allegiance except to their own greed and power lust.
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Re: The Death of the PetroDollar, the Birth of the PetroYuan

Unread postby ennui2 » Mon 15 Feb 2016, 14:57:57

JV153 wrote:What Cid_Yama doesn't acknowledge is that those economic royalists he talks about outsourced manufacturing to China in exchange for clean air (?) and even greater profits in their royal stash.


The Chinese did not need to be coerced into doing this. Their top-down economy has/had been pursuing growth at a breakneck pace, paying lipservice to sustainability.
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Re: The Death of the PetroDollar, the Birth of the PetroYuan

Unread postby JV153 » Tue 16 Feb 2016, 17:52:52

Cid_Yama wrote:Has nothing to do with the Iran oil bourse. Did you not watch the video, or just not understand it?


Newman is funny.. he's alert.. but to copycat support his position? I don't think so.
Everybody has a magic chequebook these days and most of it is in the form of shadow derivatives, not US dollars. China also has its own version.
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Re: The Death of the PetroDollar, the Birth of the PetroYuan

Unread postby Cid_Yama » Tue 16 Feb 2016, 19:10:40

Derivitives? HA! That's like saying Fiat of Fiat. And No, the Renminbi is backed by gold.
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Re: The Death of the PetroDollar, the Birth of the PetroYuan

Unread postby onlooker » Tue 16 Feb 2016, 19:13:22

Cid_Yama wrote:Derivitives? HA! That's like saying Fiat of Fiat.

That is what makes these checkbooks so magic just fictional digits or pixels on computer screens absolutely no connection with anything real or tangible..
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China to buy Oil with gold backed Yuan

Unread postby AgentR11 » Sat 02 Sep 2017, 10:58:58

The trick here is that the Yuan converts to physical gold on Chinese Exchanges; so you can either sell your oil in Yuan, and use the Yuan to buy Chinese stuff; of if you have too much Yuan, you can convert it to contracts for physical gold.

Apparently this mechanism has been in the works for a while; but looks like they'll pull the trigger on it by end of year.

Now, they aren't saying the word "Russia" here, and the news is mostly covering Saudis wanting to sell some in Yuan; but my belief is that because both Russia and China maintain massive gold reserves, that this is designed to ease the purchasing of Russian energy when the time comes that Russia is completely excluded from dollar markets. Since such things take a long time to mature, its a wise move to get it up and running long before its needed.

http://oilprice.com/Latest-Energy-News/World-News/China-Readies-Yuan-Priced-Crude-Oil-Benchmark-Backed-By-Gold.html

In the end, it won't end dollar dominance; but it will end the ability to use that dominance to starve out competitors.
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