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De-Dollarization Accelerates: China Readies Yuan-Priced Crude Oil Benchmark Backed By Gold

Public Policy

The world’s top oil importer, China, is preparing to launch a crude oil futures contract denominated in Chinese yuan and convertible into gold, potentially creating the most important Asian oil benchmark and allowing oil exporters to bypass U.S.-dollar denominated benchmarks by trading in yuan, Nikkei Asian Review reports.

The crude oil futures will be the first commodity contract in China open to foreign investment funds, trading houses, and oil firms. The circumvention of U.S. dollar trade could allow oil exporters such as Russia and Iran, for example, to bypass U.S. sanctions by trading in yuan, according to Nikkei Asian Review.

To make the yuan-denominated contract more attractive, China plans the yuan to be fully convertible in gold on the Shanghai and Hong Kong exchanges.

Last month, the Shanghai Futures Exchange and its subsidiary Shanghai International Energy Exchange, INE, successfully completed four tests in production environment for the crude oil futures, and the exchange continues with preparatory works for the listing of crude oil futures, aiming for the launch by the end of this year.

“The rules of the global oil game may begin to change enormously,” Luke Gromen, founder of U.S.-based macroeconomic research company FFTT, told Nikkei Asia Review.

The yuan-denominated futures contract has been in the works for years, and after several delays, it looks like it may be launched this year.

Some potential foreign traders have been worried that the contract would be priced in yuan.

But according to analysts who spoke to Nikkei Asian Review, backing the yuan-priced futures with gold would be appealing to oil exporters, especially to those that would rather avoid U.S. dollars in trade.

“It is a mechanism which is likely to appeal to oil producers that prefer to avoid using dollars, and are not ready to accept that being paid in yuan for oil sales to China is a good idea either,” Alasdair Macleod, head of research at Goldmoney, told Nikkei.

21 Comments on "De-Dollarization Accelerates: China Readies Yuan-Priced Crude Oil Benchmark Backed By Gold"

  1. joe on Sun, 3rd Sep 2017 9:51 am 

    People are aware that the dollar nowdays is only part of a basket of currencies which are backed by world bank Special Drawing Rights. The yuan was only recently added to this system so no longer threatens the dollar. Why? Special Drawing Rights are priced in relation to the USD$ and the currencies must exist in a weighted average. The Renminbi is around 8%, so that means no matter how valuable it gets, it can only have 8% of global currency by value. The US is weighted at 40%. So not only is
    China is correct to offer this trade, its obligations force it to this. The weighting is reviewed every 5 years and is changed from time to time. However the dollar is not under any serious threat from this. If anything it helps because it helps trade.

  2. bobinget on Sun, 3rd Sep 2017 12:52 pm 

    Lets see what Google news turns up;
    Saudi Arabia
    China and Saudi Arabia to team up on US$20 billion investment fund
    South China Morning Post Aug 24, 2017
    Saudi institutions willing to consider funding in yuan
    Zawya Aug 24, 2017
    Oil, money, and drones from Saudi Arabia – China’s latest top news
    SupChina Aug 24, 2017
    View full coverage
    Chinese yuan rises in global oil markets as Saudi seeks funding in RMB
    China Daily Aug 31, 2017
    The Star Online
    A future where you can use yuan instead of dollar
    The Star Online Aug 31, 2017
    Sharjah government plans to issue yuan bond in China
    Nasdaq Aug 31, 2017
    The Future of China’s Yuan is in Gold
    CFO innovation ASIA Aug 31, 2017
    Construction company’s net profit surges in H1
    China Daily Aug 30, 2017
    South China Morning Post
    Sinopec Oilfield Service expects to swing back to profit next year
    South China Morning Post Aug 30, 2017
    The Aramco IPO: A Geopolitical Game Of Thrones Aug 29, 2017
    Here’s a Future Where You Can Use the Yuan Instead of the Dollar
    Bloomberg Aug 30, 2017
    China’s ICBC in talks with Gulf governments, firms on yuan bonds
    Reuters Aug 31, 2017
    China’s VAT reform helps expand cooperation in Belt and Road Initiative
    China Daily Aug 29, 2017
    China’s July ethanol exports rise 8% on month to 19814 cu m
    Platts Aug 28, 2017
    The Fuse (registration) (blog)
    What Does China’s Status as Largest Oil Importer Mean for US Interests?
    The Fuse (registration) (blog) Aug 29, 2017

  3. bobinget on Sun, 3rd Sep 2017 1:09 pm 

    Joe, if your still here.
    What’s your take on missing Venezuelan crude?

    How long will SPR replace #3 provider Venezuela?

    Why Russia and China and KSA and Venezuela
    all, at this time, seeking yuan instead of petrodollar?

    What direction will Iraq and Iran take?

    Can Venezuela really go broke holding 18% of proven reserves?

    When was the last time there was a $5.60 spread
    between WTI & Brent?
    Has this ARB anything to do with S&D or currency

    When was the last time a US president verbally blasted S. Korea ?

    Would YOU sell a million barrels to US or Europe?

    Do you trust President Trump to make rational decisions?

  4. Davy on Sun, 3rd Sep 2017 1:40 pm 

    Bob, maybe this will come to fruition but please present the actual numbers now as in today. You remind me of the board techno optimist and their fantasy renewables future or the Bric bank crowd. You are not there yet, bob. I know you are a sinophile but please restrain yourself. You look like a dork crowing about nothing.

  5. joe on Sun, 3rd Sep 2017 3:48 pm 

    Russia is forced to accept yuan cause obama and Congress is trying to economically strangle Russia into handing over the worlds second largest oil reserves and open up Russia to emigration and nation building never seen since the US was opened up. Trumps attitude towards Russia is rational and correct, they must be brought into the global system and respected cause there is no other way. DPRK is an example of a country that has been economically strangled, they have nothing to lose. Iraq is the same and if the US persues Iran to the end they will end up with exactly the same problem. Ironically Iran is today where DPRK was in the late 1990s, the right policy now will solve allot of problems, the wrong one ensures global destruction. Bob I realise from your questions that you want me to think you are really smart, but in truth questions about Venezuelas proven reserves assumes that we can trust what we are being told by the numbers, if we can then we must stop using oil now cause the world is definitely warming, if not then let’s keep talking. I’m sorry for you if you believe that one specific trade is proof that the dollar is doomed, even if that was true would it matter? Currency is simply a medium of exchange, what matters in a trade is the value of the labour bought and sold, right now the US buys the vast bulk of the labour sold internationally by China, it pays for it with dollars not yuan so China has a problem, it must store up dollars or release them on, now at least it can do so in a way to increase its own money supply, its fairly certain the yuan will probobly replace the pound then maybe the Euro but if/when it does get ready for a very diverse global economy since China will be buying vast portions of the world’s labour, not necessarily a bad thing. It’s countries like Venezuela which could stand to benefit enormously if the aloof and greedy wealthy class could only work with the hungry and bitter poor classes to make a society capable of working together to offer maturing economic powers like China competitive bases to produce goods for international trade. What direction will Iraq take? Thats not where the game is. The real game is Turkey, cause whatever the Kurds do next will determine if Turkey will become isis on roids or not. Did you know that Turkey is teaching Jihad as part of a new school system that has dropped random mutations as part of its evolution classes? Keep your eyes on the prize. There is more to fear in the world than Iran and Trump.

  6. Makati1 on Sun, 3rd Sep 2017 8:09 pm 

    “…Sanctions directed against China would immediately backlash against America: what would happen if China decided to curtail its trade with the the USA … ? America is an import led economy with a weak industrial and manufacturing base, heavily dependent on imports from the PRC. … “Made in China” is the backbone of retail trade in the USA which indelibly sustains household consumption in virtually all major commodity categories from clothing, footwear, hardware, electronics, toys, jewellery, household fixtures, food, TV sets, mobile phones, etc. … A large share of goods displayed in America’s shopping malls, including major brands is “Made in China”. … “Made in China” also dominates the production of a wide range of industrial inputs, machinery, building materials, automotive, parts and accessories, etc. not to mention the extensive sub-contracting of Chinese companies on behalf of US conglomerates. … Production does not take place in the USA. The producers have given up production. … In the short run, the US cannot relinquish its imports of Chinese manufactured goods. It would be economic suicide.”


  7. bobinget on Sun, 3rd Sep 2017 9:56 pm 

    Joe, thank you for your reply.
    Don’t be offended, please.
    Obama is no longer president.
    Both houses and Presidency are held by Republicans. Look it up.

    What Joe is your first language?
    Most American’s are not multi lingual, as you know.
    Be proud Joe for being an exception.

  8. Makati1 on Sun, 3rd Sep 2017 10:44 pm 

    Meanwhile: “Gunfight at thr Walmart Corral”

    “…The two women pulled the 20-year-old’s hair, and the woman’s mother was pushed aside before pulling out a gun,…”

    Insanity is winning! LOL

  9. Davy on Mon, 4th Sep 2017 5:39 am 

    “China Battles “Impossible Trinity”

    “The popular name for this is “kicking the can down the road,” which is a perfectly good description. I prefer more technical terms such as dynamic systems in “subcritical” and “supercritical” state space, but it amounts to the same thing.”

    “It is confronting the harsh logic of the “Impossible Trinity.” The Impossible Trinity theory was advanced in the early 1960s by Nobel Prize-winning economist Robert Mundell. It says that no country can have an open capital account, a fixed exchange rate and an independent monetary policy at the same time. You can have one or two out of three, but not all three. If you try, you will fail – markets will make sure of that.”

    “But just because the trinity is impossible in the long run does not mean it cannot be pursued in the short run. China is trying to peg the yuan to the U.S. dollar while maintaining a partially open capital account and semi-independent monetary policy. It’s a nice finesse, but isn’t sustainable. China cannot keep the capital account even partly closed for long without drying up direct foreign investment. Similarly, China cannot raise interest rates much higher without bankrupting state-owned enterprises.”

    “What does China do next? Under the unforgiving logic of the Impossible Trinity, China will have to either devalue the yuan or see its reserves evaporate. In the end, China will have to break the yuan’s peg to the dollar in order to stop capital outflows without killing the economy with high rates. The Impossible Trinity really is impossible in the long run. China will find this out the hard way.”

  10. Cloggie on Mon, 4th Sep 2017 5:56 am 

    What Joe is your first language?
    Most American’s are not multi lingual, as you know.
    Be proud Joe for being an exception.

    English English, not American English.

    What makes you think joe is multilingual? Very few Anglos are multilingual, apart from Canadians [*], for the simple reason that the rest of the world speaks English, c.q. uses English as a doormat. It doesn’t make sense to learn a language and next never use it.


    17% Canadians bilingual.

  11. Davy on Mon, 4th Sep 2017 6:03 am 

    “Americans suffer from inadequate foreign language education”

    “The United States is largely monolingual. In fact, only about 15-20 percent of Americans consider themselves bilingual”

  12. Cloggie on Tue, 5th Sep 2017 1:52 am 

    I’m amazed at the large share of Angola and Oman in Chinese imports of oil. When are we going to see shiny beach resorts there, like in Dubai?

    The United States is largely monolingual. In fact, only about 15-20 percent of Americans consider themselves bilingual

    Most of them probably Mexicans speaking Spanish and English.


    (In the US this kind of comedy is probably “too racist”, even if Manuel is Spanish, not Mexican)

  13. Davy on Tue, 5th Sep 2017 5:33 am 

    This will make my Euro friends happy:
    “Merkel, Schulz Agree: “It’s Clear, Turkey Should Not Become An EU Member”

    “Having blasted Germany for “abetting terrorists,” Turkish president Edrogan was on the receiving end of some ire this weekend as the refugee crisis and the EU deal with Turkey dominated the TV debate between Chancellor Angela Merkel and her coalition ally SPD challenger Martin Schulz on Sunday. The rivals agreed, however, that Turkey can’t be part of the EU.”

  14. Cloggie on Tue, 5th Sep 2017 6:08 am 

    Everybody understands that by now, but Juncker wants to maneuver Turkey in abandoning the talks first. The EU has been promising Turkey membership some 50 years ago and doesn’t want to be seen as a

    Thanks to sultan Erdogan, Turkey has rediscovered its true (Islamic) roots, thank God, um Allah.

    Turkey is stepping back from secular modernity. Eventually we all will and end up as “Romans with an iPad”.

  15. Davy on Tue, 5th Sep 2017 7:30 am 

    China’s entire economy, global stocks, bonds, real-estate, sovereign debt and zombie corporations are part of this. IMA, China is now the most important source of demand and credit globally. When Chinese credit dries up we should wonder how all these other bubbles can be maintained. I am not criticizing China I am emphasizing their central importance. My question centers on the issue of are markets now so managed that asset runs are smothered because there is nowhere to go except a Minsky event? Are we approaching a brittle state where the lack of possible movement that protects us is itself a potential for a crystalizing phase change. Will global markets rapidly freeze one day?

    “The Trouble With Asset Bubbles: If You Stop Pumping, They Pop”

    “There are several dynamics at play in this double-bind.
    1. The process of inflating a bubble (for example, the current bubbles in stocks and real estate) requires pushing investors and speculators alike into risky asset classes. This puts the market at increasing risk as everyone is pushed to one side of the boat.
    2. Those on the other side of the boat (i.e. shorts) are slowly but surely eradicated as the pumping keeps inflating the bubble. When the bubble finally bursts, there are no shorts left to cover, i.e. buy stocks at lower prices to reap their profits.
    3. As the bubble continues to expand, the money available to enter the market and keep prices rising declines. The very success of the pumping process strips the markets of new sources of new money, leading to a point where normal selling exceeds new-money buying and the bubble collapses.
    4. Money pumping by central banks and governments follows a curve of diminishing return. One analogy is insulin insensitivity: as the systemic distortions build, markets become increasingly insensitive to money pumping. Authorities respond to this intrinsic process of increasing insensitivity by pumping even more money into the system.
    But as with insulin insensitivity, at some point the system loses all sensitivity to money pumping: no matter how much money central authorities inject, the markets refuse to go higher. At this point, the stick-slip nature of bubbles manifests and modest selling triggers a collapse as participants all rush for the exits. Buyers have vanished and there is no longer a bid at any price.
    5. Having pumped the assets higher with ever-greater injections of speculative risk and pumping, central banks and states have exhausted their ability to re-inflate assets as they collapse.”

  16. _____________________ on Tue, 5th Sep 2017 9:29 am 

    Are you gay fags or sad fags?

  17. adonis on Tue, 5th Sep 2017 7:00 pm 

    the system is no longer working and all vested interests are taking us into the next phase of ‘kicking the can down the road’ it ain’t gonna be pretty it will be a new world order based on a totalitarian communist system that is why all the central banks are steering the ship towards the rocks.they will need to wipe out all investors to launch their new system

  18. Boat on Tue, 5th Sep 2017 7:06 pm 

    they will need to wipe out all investors to launch their new system…

    No investors… system. Check N Korea at night. No lights.

  19. Makati1 on Tue, 5th Sep 2017 7:27 pm 

    Boat, What does Korea’s lighting have to do with the end of American dollar dominance? There are other systems that will work perfectly well. They are just ones in which you will have to work for a living.

  20. Boat on Tue, 5th Sep 2017 8:51 pm 

    You see the end of a lot of scenarios but they never materialize. The only thing you’ve done is support popcorn consumption.
    Work for a living? Some of you idiots griped because I work for a living. lol Such is the comedy of mixed messages one reads from extreme emotion. Bless your heart it’s hard to keep all that misinformation straight.

  21. GregT on Wed, 6th Sep 2017 12:13 am 

    “Work for a living? Some of you idiots griped because I work for a living.”

    Thank you for your service Boat. Keep up the good work buddy, we’re all counting on you!

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