by Kenneth Schortgen, The Daily Economist:
One of the most controversial news reports in the past few months has been the planned creation of a Yuan denominated oil futures contract, and its potential to be tied with gold through the Shanghai Gold Exchange. And the lack of opacity coming directly from Beijing on this, especially with the virtual blackout of new policies leading up to China’s Communist Party Congress last week, has split many in the alternative media on whether this story is legitimate, or more of a conspiracy theory despite the fact it was published in both the Asia Nikkei, and the South China Morning Post.
But on Oct. 24 something interesting occurred that once again brings this potential sea-change and direct attack on the Petrodollar to light as a mainstream media source, ie… CNBC, published an article on this projected oil contract with a notation of it being sometime down the road backed or tied to gold.
China is looking to make a major move against the dollar’s global dominance, and it may come as early as this year.
The new strategy is to enlist the energy markets’ help: Beijing may introduce a new way to price oil in coming months — but unlike the contracts based on the U.S. dollar that currently dominate global markets, this benchmark would use China’s own currency. If there’s widespread adoption, as the Chinese hope, then that will mark a step toward challenging the greenback’s status as the world’s most powerful currency.
The plan is to price oil in yuan using a gold-backed futures contract in Shanghai, but the road will be long and arduous.
“Game changer it is not — at least not yet,” said Gal Luft, co-director of the Institute for the Analysis of Global Security, a Washington based think tank focused on energy security. “But it is another indicator of the beginning of the glacial, and I emphasize the word glacial, decline of the dollar.” – CNBC
In addition to CNBC this morning writing on this move, a U.S. hedge fund, Graticule Asset Management Asia, also speculated on the potential of this new oil contract.
Adam Levinson, of hedge fund manager Graticule Asset Management Asia, said China rolling out a yuan-denominated oil contract within the next two months will be a “wake up call” for investors who haven’t paid attention to the plans.
The move toward creating a so-called “petro-yuan” will be a “huge story,” Levinson, the founder and chief investment officer of Singapore-based Graticule, said in a Bloomberg Television interview on Tuesday.
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