by Kenneth Schortgen, Daily Economist:
On Sept. 1, a new report out of Asia is signaling China is ready to make their next move against the Petrodollar, and the next step in their plans to bring about a return to gold backed finance.
According to sources, China is preparing to roll out a new oil contract that will be denominated in Yuan, and convertible with physical gold. The collaboration will take place between the two markets of the Shanghai Gold Exchange and the Shanghai International Energy Exchange.
China is expected shortly to launch a crude oil futures contract priced in yuan and convertible into gold in what analysts say could be a game-changer for the industry.
The contract could become the most important Asia-based crude oil benchmark, given that China is the world’s biggest oil importer. Crude oil is usually priced in relation to Brent or West Texas Intermediate futures, both denominated in U.S. dollars.
China’s move will allow exporters such as Russia and Iran to circumvent U.S. sanctions by trading in yuan. To further entice trade, China says the yuan will be fully convertible into gold on exchanges in Shanghai and Hong Kong.
“The rules of the global oil game may begin to change enormously,” said Luke Gromen, founder of U.S.-based macroeconomic research company FFTT.
China has long wanted to reduce the dominance of the U.S. dollar in the commodities markets. Yuan-denominated gold futures have been traded on the Shanghai Gold Exchange since April 2016, and the exchange is planning to launch the product in Budapest later this year.
Yuan-denominated gold contracts were also launched in Hong Kong in July — after two unsuccessful earlier attempts — as China seeks to internationalize its currency. The contracts have been moderately successful.
The existence of yuan-backed oil and gold futures means that users will have the option of being paid in physical gold, said Alasdair Macleod, head of research at Goldmoney, a gold-based financial services company based in Toronto. “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,” Macleod said. – Nikkei Asia
This plan to replace the Petrdollar has been at least four years in the making, and below is a transcript of an article I wrote back in 2013 regarding this scenario.
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