Monday, March 1, 2021

Tag: Why Launch of Oil Futures in China’s Currency is Important

Why Launch of Oil Futures in China’s Currency is Important

from Sputnik News:

China’s decision to launch yuan-denominated oil futures backed by gold may deal a substantial blow to the petrodollar and open the door to the further internationalization of the renminbi. Chinese scholars have told Sputnik that Beijing is ready to take risks and push ahead with its “petro-yuan” project.

The launch of oil futures denominated in yuan is an important step toward the internationalization of the Chinese currency, Cheng Fengying, research fellow at the World Economy Institute of the China Institutes of Contemporary International Relations (CICIR), told Sputnik.

“Now is just the right moment: Oil prices are low, supply exceeds demand and China is the largest consumer of oil,” Cheng highlighted speaking to Sputnik China.  “If we do not set the payments in yuan now, we will not learn how to influence prices and when the market situation changes and demand exceeds supply, we will be in a losing position.”

The researcher admitted that China is facing certain risks related to its plan to price oil in yuan using futures contract, such as the outflow of investments and currency.

According to Cheng, the process of internationalization of the yuan “could be compared to the boundless ocean”: “It all depends on our ability to swim and take risks. We are prepared for risks. For example, a committee under the People’s Republic of China (PRC) State Council to oversee financial stability and development was set up [on Wednesday].”

The official statement quoted by Xinhua News Agency reads that the Committee “will be tasked with deliberating major reform and development programs for the financial sector, coordinating financial reform, development and regulation, coordinating issues concerning monetary policy, and coordinating the making of financial policies and related fiscal and industrial policies.”

What is the Major Advantage of China’s Oil Futures Being Priced in Yuan?

Wang Zhimin, director of the Center for Globalization and Modernization at China’s Institute of Foreign Economy and Trade, regards the possibility of converting futures into gold as a competitive advantage over Brent and West Texas Intermediate (WTI) benchmarks.

“Settlements in renminbi will be convenient, because the ‘petro-yuan’can then be converted into gold,” Wang told Sputnik. “It is very good. After all, the Bretton Woods system was supposed to be tied to gold. Although [the dollar’s convertibility into gold] was suspended [in 1971], gold still remains a solid commodity.”

Read More @