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The World’s New Reserve Currency? Everything You Need To Kno

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The World’s New Reserve Currency? Everything You Need To Kno

Unread postby AdamB » Sun 29 Oct 2017, 08:31:32


Earlier this week, we pointed out that the 'PetroYuan' is on the verge of becoming reality with Graticule's Adam Levinson noting that the birth of a yuan-denominated oil contract will be a “huge story” in the fourth quarter, and will be a “wake up call” for investors who haven’t paid attention to the plans. As a reminder, nothing lasts forever... Judging by the interest in the topic, investors are less informed than many believed and so the different teams within Société Générale Cross Asset Research examine what this contract would mean for the global oil markets and for the internationalisation of the yuan - if it gets off the ground. Part 1 The proposed yuan-denominated crude oil futures contract Why is a yuan-denominated Chinese crude futures contract interesting to think about? Why is it potentially significant? Would yuan-denominated Chinese crude futures affect the


zerohedge-The World’s New Reserve Currency? Everything You Need To Know About PetroYuan
Peak oil in 2020: And here is why: https://www.youtube.com/watch?v=2b3ttqYDwF0
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Re: The World’s New Reserve Currency? Everything You Need To

Unread postby ROCKMAN » Sun 29 Oct 2017, 11:55:44

From the link: "The proposed contract is for medium sour crude oil, is physically deliverable, and – most significantly – would be denominated in yuan." Actually the significant portion of that statement is the physical delivery requirement. The US oil futures do not have such a requirement: on any given day the total volume of contracts can exceed 1 BILLION BBLS. That would completely dwarf any future potential volume in a Chinese futures market.

But let's get back to the basics: what would a petroyuan world look like? Probably all/most of the OPEC oil sold to China would be denominated in the yuan. But does that mean Nigeria wouldn't be forced to denominate the 5% of oil imports in US $'s our refineries buy? Especially if our refineries require it? Nigeria wouldn't seem to have much choice.

But that's small potato's: 87% of US oil imports don't come from the ME. So if the petroyuan becomes a reality those other countries exporting to the US (with Canada and Mexico dominating) will require US refineries to settle payments in yuan...OR ELSE?

Perhaps a better view point would be separating oil purchases into different SOF...spheres of influence. Easy to separate into two major SOF: the US and China. We'll consider them equal despite the US importing about 40% more the China. But a different picture when you look at US exports: China is the world’s largest net importer of crude oil. We'll ignore 2nd level importers India and Japan...for the moment. And more important then volume is the source.

So now look at sources of imports. As stated not much from OPEC to the US. But the situation with China is evolving. According to the EIA: in recent years, China’s crude oil imports have increasingly come from countries outside OPEC. While OPEC countries still made up most (57%) of China’s 7.6 million bopd imports in 2016, oil from non-OPEC countries made up 65% of the growth in China’s imports between 2012 and 2016. Leading non-OPEC suppliers included Russia (14% of total imports), Oman (9%), and Brazil (5%).

So given the origins of the original US petrocurrency denomination by OPEC there's not much significance to US imports today and much more felt by China. So let's assumes China eventually gets OPEC to roll over and denominate its sales in yuan. Not much impact on US refineries or our primary import oil sources. But makes some sense for the Chinese SOF. Especially Russia now that energy trade with China is growing. ButLots more to discuss but that's enough to chew on for now. Perhaps we'll someday discuss the possibility of two global reserve currencies.

That last comment should push a few here over the edge. LOL.
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Re: The World’s New Reserve Currency? Everything You Need To

Unread postby Outcast_Searcher » Sun 29 Oct 2017, 13:09:28

AdamB wrote:
Judging by the interest in the topic, investors are less informed than many believed and so the different teams within Société Générale Cross Asset Research examine what this contract would mean for the global oil markets and for the internationalisation of the yuan - if it gets off the ground.


zerohedge-The World’s New Reserve Currency? Everything You Need To Know About PetroYuan

Note the total irony of a Tyler Durden titled zerohedge article commenting on investors being ill informed. (Given the number of totally incorrect short to moderate term doom predictions his articles promote every year). Is this self-parody, or just massive cluelessness? I'm betting on the latter.
Given the track record of the perma-doomer blogs, I wouldn't bet a fast crash doomer's money on their predictions.
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Re: The World’s New Reserve Currency? Everything You Need To

Unread postby Outcast_Searcher » Sun 29 Oct 2017, 13:18:28

ROCKMAN wrote:But let's get back to the basics: what would a petroyuan world look like? Probably all/most of the OPEC oil sold to China would be denominated in the yuan. But does that mean Nigeria wouldn't be forced to denominate the 5% of oil imports in US $'s our refineries buy? Especially if our refineries require it? Nigeria wouldn't seem to have much choice.

But that's small potato's: 87% of US oil imports don't come from the ME. So if the petroyuan becomes a reality those other countries exporting to the US (with Canada and Mexico dominating) will require US refineries to settle payments in yuan...OR ELSE?

...

So given the origins of the original US petrocurrency denomination by OPEC there's not much significance to US imports today and much more felt by China. So let's assumes China eventually gets OPEC to roll over and denominate its sales in yuan. Not much impact on US refineries or our primary import oil sources. But makes some sense for the Chinese SOF. Especially Russia now that energy trade with China is growing. ButLots more to discuss but that's enough to chew on for now. Perhaps we'll someday discuss the possibility of two global reserve currencies.

Good points, Rockman. And once again, when and if this actually happens, as long as the new global reserve currency(s) is/are denominated in something traded in volume on the FX market -- the TOTAL impact to anyone trading oil (contracts or physical) with means and a brain is the cost of hedging their oil expenditures in terms of those currencies -- IF they're concerned about currency risk. Once that's done, any impact is simply accounting.

And yet, the endless mindless predictions of "the demise of the dollar" due to this and other FUD phantoms continues endlessly.

Why do so many people continue to listen to these people when data and ideas can be evaluated on the internet? Oh yes - "mindless". Never mind.
Given the track record of the perma-doomer blogs, I wouldn't bet a fast crash doomer's money on their predictions.
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Re: The World’s New Reserve Currency? Everything You Need To

Unread postby ROCKMAN » Mon 30 Oct 2017, 11:00:55

Outcast - "And yet, the endless mindless predictions of "the demise of the dollar". Been thinking more about the concept of a hemisphere reserve currency vs a global reserve currency. Just to make sure we all start on the same page. From wiki:

"A reserve currency is a currency that is held in significant quantities by governments and institutions as part of their foreign exchange reserves. The reserve currency is commonly used in international transactions, international investments and all aspects of the global economy. It is often considered a hard currency or safe-haven currency. People who live in a country that issues a reserve currency can purchase imports and borrow across borders more cheaply than people in other nations because they do not need to exchange their currency to do so."

And then I discovered I might be a tad premature with the hemisphere reserve concept.

So it's not so much which currency is a reserve currency (RC) but how much is any one country's currency is held "in reserve". All this hand ringing over the yuan becoming the RC and I don't recall anyone expressing such concern over the euro in recent years. In 2009 the euro was 27% of the reserves while the $ was 62% and the Chinese renminbi was not held by anyone. During the previous 10 years the euro increased 10% while the $ decreased 10%: why no alarm bells back then?

And while in 2016 the renminbi finally made the status at 1.1% there were 4 countries whose currencies were held in higher volumes then the Chinese currency: Britain, Japan, Canada and Australia. So once again the MSM grabs onto a theme (China's currency on the verge of becoming THE global reserve currency) and beats it to death. But it worked, at least with many of the gullable here. LOL. Will the renminbi increase in the years to come? Probably. But is it about the bump the US off the throne anytime soon? No. In fact it has a long way to go to take the #2 slot away from the euro.

Again another great example of how a 30 second web search produces FACTS that exposes the hype for exactly what it is: bullsh*t. Think of all the time wasted by some folks here going on and on about how the yuan was in the process of destroying the $. Efforts better spent on discussing the Rockman's profound geologic skills in my very humble opinion. LOL.

Know you really know everything you need to know. The FACTS:

https://en.m.wikipedia.org/wiki/Reserve_currency
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Re: The World’s New Reserve Currency? Everything You Need To

Unread postby radon1 » Mon 30 Oct 2017, 17:50:46

Yuan is not even freely convertible, how can it be a reserve currency? Rouble is a better reserve currency than yuan in this respect, lol. Trash talk.
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Re: The World’s New Reserve Currency? Everything You Need To

Unread postby ROCKMAN » Mon 30 Oct 2017, 19:17:16

Radon - Just scanned a number of articles and actually little chance of the ruble holding any % of the global reserve. If I read correctly the Russian central bank has been acquiring other reserve currencies to back the rather volatile ruble. But I don't spend much time reading about the FX universe...too much like accounting for this "dirt person". LOL.
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Re: The World’s New Reserve Currency? Everything You Need To

Unread postby ralfy » Mon 30 Oct 2017, 19:55:05

This might be a related point:

"Pricing oil in yuan may be next move in China's currency ambitions"

http://www.straitstimes.com/business/pr ... -ambitions
http://sites.google.com/site/peakoilreports/
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Re: The World’s New Reserve Currency? Everything You Need To

Unread postby ROCKMAN » Tue 31 Oct 2017, 11:55:25

ralfy - First, the article misrepresents the nature of the oil trades: the buyer doesn't set the denomination of the trade...the seller does. Second: "It is also likely to approach crude oil suppliers...some of which already accept yuan as payment for sale of their crude oil...". If they are accepting the yuan for those purchases but are using the current yuan/$ exchange rate to adjust the price then the trades are effectively still using the $ as the sales denomination. Any country can pay for its oil purchases in its own currency if the buyer is willing to accept it. But the price would be adjusted as per the current exchange rate. Plus a little bit added to the price to cover the cost of the exchange.

And as pointed out earlier they need to stop putting the yuan up as potential competition to the dollar with respect to becoming a significant reserve currency. Long before it can displace the dollar as THE dominant reserves currency it needs to displace the euro. The euro which is about 20% of the reserve currency market compared to the yuan that's less then 2% today.

It matters not to the global currency market how many yuan Singapore or Hong Kong are sitting on: they are not the global economy.
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Re: The World’s New Reserve Currency? Everything You Need To

Unread postby ralfy » Tue 31 Oct 2017, 20:56:55

ROCKMAN wrote:ralfy - First, the article misrepresents the nature of the oil trades: the buyer doesn't set the denomination of the trade...the seller does. Second: "It is also likely to approach crude oil suppliers...some of which already accept yuan as payment for sale of their crude oil...". If they are accepting the yuan for those purchases but are using the current yuan/$ exchange rate to adjust the price then the trades are effectively still using the $ as the sales denomination. Any country can pay for its oil purchases in its own currency if the buyer is willing to accept it. But the price would be adjusted as per the current exchange rate. Plus a little bit added to the price to cover the cost of the exchange.

And as pointed out earlier they need to stop putting the yuan up as potential competition to the dollar with respect to becoming a significant reserve currency. Long before it can displace the dollar as THE dominant reserves currency it needs to displace the euro. The euro which is about 20% of the reserve currency market compared to the yuan that's less then 2% today.

It matters not to the global currency market how many yuan Singapore or Hong Kong are sitting on: they are not the global economy.


I don't see the misrepresentation. If the seller sets the currency (probably not denomination), then it can choose to sell in yuan. Using an exchange rate is obvious, but at some point sellers will choose to keep the yuan or another currency and use it to avoid paying extra to have it exchanged, which is what you point out in the latter part of your paragraph.

As for the last two points of your post, you need to read the article carefully, especially the last fifteen paragraphs or so.
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