China returns the world to the gold standard

Our translation of an article from vestifinance.com preceded by our commentary.

China is set to open its oil futures market on March 26 via the Shanghai International Energy Exchange. The futures will be denominated in RMB (yuan), thereby launching the petroyuan. Since the yuan is now essentially convertible to gold, this reintroduces the gold standard, which was eliminated by Richard Nixon in 1971.

Nixon floundered around in search of a new prop for the dollar and finally settled on a petrodollar agreement with the Saudis whereby the US would become essentially a mercenary force to defend the Saudi royals and their oil fields (though judging by the outcomes of US-waged wars since then, it would appear the unspoken part of the deal was to rid the Saudis of Shiite and secular leaders as well, to the benefit of radical Wahhabism/Salafism) in exchange for them charging only US dollars for their oil and keeping their reserves in USD as well. The confidence in the USD that this unsavoury deal created in the biggest investors has kept the buck afloat since that time. However, the Chinese are now exerting enormous pressure on the Saudis to drop this sordid deal and start using the yuan instead. There are signs that Saudi is starting to crack. For example, Crown Prince Salman has broken a sacred tradition of buying all its military arms from the US and has been negotiating with Putin for the purchase of the S-400 air defence system.

If he eventually decides to make a clean break of it, adopting the petroyuan and kicking the buck under the bus, the US dollar will be hard put to hold its own as a reserve currency for world trade settlements.

This is not the best of times for the dollar since it has lost considerable value against a basket of world currencies and the US stock market is starting to crumble.

The rampant imposition of US sanctions on a wide assortment of states for an arbitrary host of misdeeds is also making the petroyuan more attractive as an immunizer against this possibility. While the US seems oblivious to this side effect of its liberal sanctions policy, the EU, Russia, Iraq and others are keenly aware of how easily the US could bring down their economies with a strict application of it. And it’s not just the US-designated “enemies.” In June 2014 the US Justice Department fined French bank BNP Paribas $8.9 billion for trading with Iran in US dollars. Thus, even “friendly” countries need to fear trading in dollars. The petroyuan might be just the ticket for them.
 
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China changes the rules of the game in the oil market

4-9-2017

Moscow, September 4 - Vesti.Ekonomika
 
China is preparing to launch a futures contract for oil, denominated in RMB with a possible conversion to gold. According to experts, this may radically change the rules of the game in the oil market, as it will allow raw material exporters to avoid using the dollar.
 
Considering the fact that China is the world's largest oil importer, this contract could become a new benchmark for traders, only this time it will be based in Asia.  Recall that two reference contracts for crude oil - WTI and Brent, are now traded on the world market, and both are denominated in US dollars.
 
The launch of the futures, denominated in RMB, will allow exporters, such as Russia and Iran, to avoid using dollars and, if necessary, avoid sanctions. In addition, the exchanges of Hong Kong and Shanghai will be able to convert the yuan into gold, which will be an additional incentive for the displacement of trade in Asia, as reported by the agency Nikkei.
 
LAUNCHING A NEW OIL CONTRACT
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Shanghai International Energy Exchange in June and July carried out the necessary preparatory work, as well as a test auction, and is now beginning to train potential participants. This will be China's first commodity futures contract, open to foreign companies, such as investment funds, trading houses and oil companies.
 
Many experts, including the US, admit that now the rules of the game on the global energy market can change.
 
By the way, China has already matured to launch its futures. The fact is that in recent years, active participation of Chinese independent oil refineries has been noted, which has made the domestic market in China diverse.  This means that an environment was created in which the contract for crude oil will be in demand.
 
Further, China has long wanted to reduce the dominance of the US dollar in commodity markets. Gold futures have already been launched, and have traded on the Shanghai Gold Exchange since April 2016. Now the exchange plans to start trading on the stock exchange in Budapest by the end of this year.
 
In addition, the contracts for gold in RMB were launched in Hong Kong in July, although this was preceded by two unsuccessful attempts.
 
Once again, we emphasize that the presence of two contracts (for oil and gold, denominated in RMB) will allow bidders, in fact, to pay for oil in gold or convert the yuan into gold. In any case, it is an excellent opportunity to avoid settlements in US dollars, and even if the trader has no desire to pay in RMB, he can use gold.
 
Russia, for example, will be able to sell oil to China, and while converting yuan into gold, our country will have no obligation to keep money in Chinese assets or transfer proceeds from the sale of "black gold" to dollars.
 
As already mentioned above, these futures are of the greatest interest for countries against which the US conducts an aggressive foreign policy: Venezuela, Iran, Qatar and others.
 
By the way, China is using an element of pressure, stating that those who do not want to sell oil through a new contract in RMB will lose a share in the Chinese market. Thus, for example, according to Chinese media, Beijing has already proposed calculations in the yuan for Saudi Arabia. While the Saudi response to this s not known, China has already reduced its share of oil imports from Saudi Arabia.
 
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Original text: http://www.vestifinance.ru/articles/90448
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