Saturday, November 11, 2017

Low oil prices and low demand the perfect environment for China to implement the Petroyuan oil/gold contracts

As economists and financial analysts in the alternative sphere debate whether China is truly dedicated towards the implementation of a competitor to the Petrodollar by the end of the year, scholars and engineers behind the plan are looking at the current environment of low oil prices and low demand as the perfect time to test this gambit.

There are many factors behind the need to create an oil market that allows buyers and sellers to transact oil sales in a currency other than the dollar, but for China it is much more pragmatic as they recognize that the world they are trying to build requires nation states to be able to conduct trade using their own sovereign currencies, and not have to be bound to the dollar in order to do this.

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." – Sputnik News
Additionally, China intends to add a sweetner to this yuan denominated oil contract by facilitating the use of Shanghai Gold Exchange to allow countries to hedge their investment with gold if they are not comfortable in holding or trading in large amounts of RMB.
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." 
The Chinese scholar highlighted that given the instability in the global economy, the precious metal has taken on a new significance. 
Wang noted that some countries, such as Russia, have already agreed to trade oil with China in yuan. He believes that gold-backed futures contracts will attract even more attention from global players.


Post a Comment