Petroyuan
- dejongistani
- Mar 31, 2018
- 2 min read
The Chinese introduced a yuan denominated oil futures contract on the Shanghai commodities exchange on Monday March 26 and thus unleashing the petroyuan. The petroyuan is a competitor to the petrodollar, the US dollar denominated oil futures contract which trades approximately 14 trillion USD annually, that ensures that the US dollar is used everywhere oil is traded. For those traders and trading nations that prefer not to use the US dollar or whose use of the US dollar is impeded by sanctions or other regulatory barriers. For those traders and trading nations being able to use an alternative currency, Chinese Yuan, allows them to thrive irrespective of the inconsistent and malevolent way in which the US enforces banking laws and sanctions.
The Chinese and Russian have taken several steps towards freedom from the burden of the petrodollar but not all of them have succeeded.
Path to Freedom From the Petrodollar
Chinese Yuan added to IMF reserve currency list, special drawing rights SDR
Russia / China oil & gas trade in Yuan
Russia repatriates / hordes gold
2015 launch of Asian Infrastructure Investment Bank (AIIB) to counter the IMF and World Bank
2015 launch of Mir payment system as alternative to SWIFT
The Chinese tried to launch their petroyuan oil futures contract in 2015 but were unsuccessful. As the world has moved so far towards crazy in 2018 the launch this time around is probably the best timing for the Chinese. Russia has suffered under US sanctions and is a large oil and gas producer so they are incentivized to not only use the 2015 Gazprom arrangement with China but eager to work with other countries that are eager to work outside of the US dominated financial system like Iran and North Korea.
The world dominated by the US only works if the US doesn't abuse it's position. Clearly the US has abused it's position through OFAC and other sanctions on countries that don't align to US ideology. Even US allies are not exempt from punishment where the French bank BNP Paribas was fined an enormous amount of money, $8.9 billion, for violating US sanctions on payments related Sudan, Cuba and Iran.
Cryptocurrencies are playing a role in the demise of the petrodollar as well but the petroyuan, being backed by gold and a futures contract for a real good oil, is more likely to be adopted by mainstream traders and trading countries. I believe this is good for the world but will be a hard pill to swallow for the current power players as it means their influence in the world is waning. Let's hope all parties can cope and that the petroyuan doesn't replace the petrodollar and we end up with many alternative payment systems so that no one country or one system can unduly abuse their dominant position and payment networks need to compete for market share and therefore actually serve their client needs.
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