The Birth Of The PetroYuan (In 2 Pictures)

Tyler Durden's picture




 

Give me that!!

 

It belongs to the Chinese now!

h/t @FedPorn

As we previously detailed,  two topics we’ve deemed critically important to a thorough understanding of both global finance and the shifting geopolitical landscape are the death of the petrodollar and the idea of yuan hegemony. 

In November 2014, in “How The Petrodollar Quietly Died And No One Noticed,” we said the following about the slow motion demise of the system that has served to perpetuate decades of dollar dominance:

Two years ago, in hushed tones at first, then ever louder, the financial world began discussing that which shall never be discussed in polite company - the end of the system that according to many has framed and facilitated the US Dollar's reserve currency status: the Petrodollar, or the world in which oil export countries would recycle the dollars they received in exchange for their oil exports, by purchasing more USD-denominated assets, boosting the financial strength of the reserve currency, leading to even higher asset prices and even more USD-denominated purchases, and so forth, in a virtuous (especially if one held US-denominated assets and printed US currency) loop.

 

 

The main thrust for this shift away from the USD, if primarily in the non-mainstream media, was that with Russia and China, as well as the rest of the BRIC nations, increasingly seeking to distance themselves from the US-led, "developed world" status quo spearheaded by the IMF, global trade would increasingly take place through bilateral arrangements which bypass the (Petro)dollar entirely. And sure enough, this has certainly been taking place, as first Russia and China, together with Iran, and ever more developing nations, have transacted among each other, bypassing the USD entirely, instead engaging in bilateral trade arrangements.

Falling crude prices served to accelerate the petrodollar’s demise and in 2014, OPEC nations drained liquidity from financial markets for the first time in nearly two decades:

By Goldman’s estimates, a new oil price “equilibrium” (i.e. a sustained downturn) could result in a net petrodollar drain of $24 billion per month on the way to nearly $900 billion in total by 2018. The implications, BofAML notes, are far reaching: "...the end of the Petrodollar recycling chain is said to impact everything from Russian geopolitics, to global capital market liquidity, to safe-haven demand for Treasurys, to social tensions in developing nations, to the Fed's exit strategy.”

Shifting to the idea of yuan hegemony, China is aggressively pushing its Silk Road Fund and Asian Infrastructure Investment Bank.

The $40 billion Silk Road Fund is backed by China’s FX reserves, the Export-Import Bank of China, and China Development Bank and seeks to increase ROIC for Chinese SOEs by investing in infrastructure projects across the developing world, while the $50 billion AIIB is funded by 57 founding member countries (the US and Japan have not joined) and will serve to upend traditionally dominant multilateral institutions which have failed to respond to the rising influence and economic clout of their EM membership. China will push for the yuan to play a prominent role in the settlement of AIIB transactions and may look to establish special reserves in both the AIIB and Silk Road fund to issue yuan-denominated loans.

Back in early November, SWIFT data showed that 15 new countries had joined a list of nations settling more than 10% of their trade deals with China in yuan. "This is a good sign for [yuan] adoption rates and internationalisation. In particular, Canada's [yuan] usage for payments, which has increased greatly over this period, is very interesting since we have not seen strong adoption of the [yuan] from North America to date,” Astrid Thorsen, Swift's head of business intelligence said.

Earlier that month, China and Russia indicated that going forward, more trade between the two countries would be settled in yuan. From Reuters, last November:

Russia and China intend to increase the amount of trade settled in the yuan, President Vladimir Putin said in remarks that would be welcomed by Chinese authorities who want the currency to be used more widely around the world.

 

Spurred on by their often testy relations with the United States, Russia and China have long advocated reducing the role of the dollar in international trade.

 

Curtailing the dollar's influence fits well with China's ambitions to increase the influence of the yuan and eventually turn it into a global reserve currency. With 32 percent of its $4 trillion foreign exchange reserves invested in U.S. government debt, China wants to curb investment risks in dollar.

 

The quest to limit the dollar’s dominance became more urgent for Moscow this year when U.S. and European governments imposed sanctions on Russia over its support for separatist rebels in Ukraine.

"As part of our cooperation with this country (China), we intend to use national currencies in mutual transactions.The initial deals for rouble and yuan are taking place. I want to note that we are ready to expand these opportunities in (our) energy resources trade," Putin said at the time, suggesting that going forward, Russia may look to settle sales of oil in yuan. 

Sure enough, Gazprom has confirmed that since the beginning of the year, all oil sales to China have been settled in renminbi. From FT:

Russia’s third-largest oil producer, is now settling all of its crude sales to China in renminbi, in the most clear sign yet that western sanctions have driven an increase in the use of the Chinese currency by Russian companies.

 

Russian executives have talked up the possibility of a shift from the US dollar to renminbi as the Kremlin launched a “pivot to Asia” foreign policy partly in response to the western sanctions against Moscow over its intervention in Ukraine, but until now there has been little clarity over how much trade is being settled in the Chinese currency.

 

Gazprom Neft, the oil arm of state gas giant Gazprom, said on Friday that since the start of 2015 it had been selling in renminbi all of its oil for export down the East Siberia Pacific Ocean pipeline to China.

 

Russian companies’ crude exports were largely settled in dollars until the summer of last year, when the US and Europe imposed sanctions on the Russian energy sector over the Ukraine crisis...

 

Gazprom Neft responded more rapidly than most, with Alexander Dyukov, chief executive, announcing in April last year that the company had secured agreement from 95 per cent of its customers to settle transactions in euros rather than dollars, should the need to do so arise.

 

Mr Dyukov later said the company had started selling oil for export in roubles and renminbi, but he did not specify whether the sales were significant in scale.

 

According to Gazprom Neft’s first-quarter results issued last month, the East Siberian Pacific Ocean pipeline accounted for 37.2 per cent of the company’s crude oil exports of 1.6m tonnes in the three months to March 31.

With that, the "PetroYuan" has officially been born and while FT notes that "other Russian energy groups have been more reluctant to drop the dollar for settlement of oil sales," the fact that Russian producers are now openly considering a shift at the same time that officials in the US and Europe are openly discussing stepped up economic sanctions suggests renminbi settlements may become more commonplace going forward.

To understand why and to what extent this is significant in the current environment, consider the following from WSJ:

Officials of the Organization of the Petroleum Exporting Countries, which declined to cut oil production last year, reasoned that maintaining high production levels would protect market share in crucial importing nations.;

 

But Chinese customs data released Friday show that China’s crude imports from some big OPEC nations have plummeted, while imports from Russia surged 36% in 2014. Meanwhile, imports from Saudi Arabia fell 8% and those from Venezuela dropped 11%.

 

 

To summarize: Western economic sanctions on Russia have pushed domestic oil producers to settle crude exports to China in yuan just as Russian oil is rising as a percentage of total Chinese crude imports. Meanwhile, the collapse in crude prices led to the first net outflow of petrodollars from financial markets in 18 years, and if Goldman's projections prove correct, the net supply of petrodollars could fall by nearly $900 billion over the next three years. All of this comes as China is making a concerted push to settle loans from its newly-created infrastructure funds in renminbi.

Putting it all together, the PetroYuan represents the intersection of a dying petrodollar and an ascendant renminbi.

 

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Thu, 01/21/2016 - 12:47 | 7077710 Latina Lover
Latina Lover's picture

"Putting it all together, the PetroYuan represents the intersection of a dying petrodollar and an ascendant renminbi."

Well said.  China, Russia and India are re asserting their historic roles as key players in Asia,  the worlds largest and most important continent.  The Saudis are recognizing that the USSA is on the decline.

Thu, 01/21/2016 - 12:49 | 7077735 Ghost of PartysOver
Ghost of PartysOver's picture

So much for that Russia China hug-a-thon.    Putin must be a little perturbed.  Or he is not willing to sell his oil at that price.

Thu, 01/21/2016 - 12:51 | 7077744 Latina Lover
Latina Lover's picture

No, China is merely diversifying oil suppliers and building long term relationships, in accordance with the Silk Road Initiative..  They still need Russia for overland oil supply, since the USSA navy cannot blockade a land based pipeline.

Thu, 01/21/2016 - 13:01 | 7077790 TeamDepends
TeamDepends's picture

The future must not belong to idiots who slander free market capitalism, and embrace communism.

Thu, 01/21/2016 - 13:03 | 7077798 ParkAveFlasher
ParkAveFlasher's picture

Capitalism, shmapitalism, tariffs tariffs tariffs!

Thu, 01/21/2016 - 13:05 | 7077805 Save_America1st
Save_America1st's picture

And don't forget:  The Shanghai Gold Exchange is set to crank up on April 2016.  No fraudulent levereged paper contracts.  Physical PM's only.

 

Thu, 01/21/2016 - 13:16 | 7077809 ParkAveFlasher
ParkAveFlasher's picture

Every three months I hear about "the SGE opening up" in five months.  Sh!t or get off the pot already!

Thu, 01/21/2016 - 13:47 | 7077986 Tom Servo
Tom Servo's picture

If you ever doubt the future of the petrodollar, you are just peddling fiction.... (LOL)

 

Thu, 01/21/2016 - 14:05 | 7078068 Miles Ahead
Miles Ahead's picture

Oh I had to log in... for that Park Ave.

Capitalism, shmapitalism!

Classic!

And @GhostParty...  nice try.  You're getting monkey-hammered.  Wrong message bud...

Thu, 01/21/2016 - 19:57 | 7079526 bonderøven-farm ass
bonderøven-farm ass's picture

Duh king be peddling duh bling.

Fucking ghetto rats...every last one. 

Thu, 01/21/2016 - 20:07 | 7079583 The Saint
The Saint's picture

Don't get too excited about those pics.  Those chains look nice in a photo but actually that's just cheap Hong Kong plastic around their necks.

Thu, 01/21/2016 - 21:57 | 7079997 HowdyDoody
HowdyDoody's picture

Those chains are heavy. They are genuine 100% 22 carat gold plated tungsten.

Thu, 01/21/2016 - 13:27 | 7077896 marathonman
marathonman's picture

Didn't the Chinese do a 10% devaluation of the yuan?  I've seen some other articles that suggest they'll do another 30-40%.  And the Saud's are creating the petroyuan?  Okay....

Thu, 01/21/2016 - 13:40 | 7077959 Sanity Bear
Sanity Bear's picture

all you got to do is lower the price of worthless paper far enough and someone will think it's a good deal

Thu, 01/21/2016 - 16:00 | 7078578 Bananamerican
Bananamerican's picture

"and here is a lovely parting gift, you dusky infidel, uh, I mean, "Mr (P)resident"

Thu, 01/21/2016 - 13:05 | 7077806 knukles
knukles's picture

For some reasons the picture of Yomomma and the Prince reminds me of this joke ....

https://www.youtube.com/watch?v=OI1UghAtr98

Thu, 01/21/2016 - 13:38 | 7077952 Baron Munchausen
Baron Munchausen's picture

Free market capitalism?

Lol.

Where is that?

Thu, 01/21/2016 - 19:53 | 7079493 Lea
Lea's picture

"Free market capitalism? Lol. Where is that?"

Free market capitalism was dead by the end of the 19th century. Today, it's a fairy tale.

Big business that strangles competition by swallowing it, international wealth concentrations have taken over. One only has to see small companies all belong to bigger companies, to understand newcomers and small producers don't stand a chance, barring that of either being bought or going bankrupt.
An nothing can bring back old free market capitalism, as its natural tendency, anyway, is to concentrate the tools of production through the creation of cartels, so even in the unlikely case of a resurrection (one wonders through what miracle), it would be back to square one anyway - with companies obsessing over killing the competition and pulling all the dirtiest tricks in the book to that end, like they all were in the old days.

Thu, 01/21/2016 - 13:19 | 7077865 Life of Illusion
Life of Illusion's picture

 

 

http://english.cri.cn/12394/2016/01/21/3381s913989.htm

 

Promoting connectivity and expanding practical cooperation. Connectivity is the artery of the Belt and Road Initiative. In building connectivity, we should give priority to Asian countries and start with transportation infrastructure. China has a strong competitive edge in areas such as railway, electricity, telecommunications, mechanical engineering, metallurgy and construction materials. We committed 40 billion dollars to the establishment of a Silk Road Fund in 2014 to support relevant cooperation projects in countries along the Belt and Road. Iran is strategically located and has distinctive geographical advantages. China is ready to deepen cooperation with Iran on building roads, railway, sea routes and the Internet, and facilitating East-West connectivity in Asia and on this basis better promote trade and investment liberalization among countries along the Belt and Road, lower the cost of the cross-border movement of people, goods and capital and expand energy, resources and industrial cooperation.

Thu, 01/21/2016 - 12:50 | 7077745 Hitlery_4_Dictator
Hitlery_4_Dictator's picture

Ouch, we are screwed 

Thu, 01/21/2016 - 12:52 | 7077753 Latina Lover
Latina Lover's picture

Not really,  If we could remove our bankster rulers, preferably with their heads on pikes, we would eventually be freer and far richer.

Thu, 01/21/2016 - 13:11 | 7077838 tjeffersonsghost
tjeffersonsghost's picture

This is great news, I can go without more of Saudi Hi Jackers flying planes into our buildings...

Thu, 01/21/2016 - 14:13 | 7078105 Miles Ahead
Miles Ahead's picture

The only one who was Hi was you apparently.  7 of those "Saudi 19" are still alive and working for S/A industry or airlines.  You ever heard of False Flag?  Or you really believe Hani Hanjour pulled that amazing 270 degree (that's 3/4 around since you were Hi in arithmetic class) and hit the bullseye (the Acct. Dept. looking for $2 Trillion missing) without messing up that nice manicured lawn.

You ain't fit to be T.Jefferson's decomposed carcass, let alone his ghost...

If you forgot the /s, my apologies.

Thu, 01/21/2016 - 21:14 | 7079854 Rakshas
Rakshas's picture

KAVORKA!!! ........ oh no sorry wrong channel........ CONSPIRACY THEORIST!!!!

 

https://www.youtube.com/watch?v=CJw4nHJfG-E

and for any Sam's Club members that may have wandered into the room ........    https://www.youtube.com/watch?v=yuC_4mGTs98

 

 

 

^_^

Thu, 01/21/2016 - 16:30 | 7078691 BlindMonkey
BlindMonkey's picture

When you read that infographic describing the petrodollar, feel free to replace the term petrodollar with petroyuan.  The Chinese are.

Thu, 01/21/2016 - 12:52 | 7077755 Mr Pink
Mr Pink's picture

Big deal... I re-gift every Xmas

Thu, 01/21/2016 - 12:56 | 7077769 knukles
knukles's picture

For years we re-gifted last years fruit cakes to our crazy grandma

Thu, 01/21/2016 - 13:01 | 7077788 Never One Roach
Never One Roach's picture

Is that the Medal of Freedom they're passing around or the Int'l Human Rights Bling Thingy??

 

I get them confused.

 

Thu, 01/21/2016 - 13:57 | 7078039 LawsofPhysics
LawsofPhysics's picture

More importantly, is that the gold backing the yuan?

All this "talk" about China adopting a gold-backed currency while they continue to devalue....

Blah, blah, blsh, I see bad debt everywhere, and a Chinese government that does not want to give up their ability to devalue their currency.


Thu, 01/21/2016 - 15:56 | 7078556 Implied Violins
Implied Violins's picture

Oh, they WILL back the Yuan with gold, later this year. They are being added to the SDR in October. In the meantime, there might be this little interlude, called WAR. After that little thing is cleared up, the Chinese will be sitting pretty as the new face of the world's reserve currency.

Thu, 01/21/2016 - 14:25 | 7078158 doctor10
doctor10's picture

The whole Mid-East mess is owned by Hillary.

20 years-from Albright to Clinton-of sending women-even a black women-to do men's jobs in the Middle east

ya'd think if its so damn important for Muslim men to sell their oil in USD-we'd at least the foresight and judgment to do them the courtesy of sending a Trump-type or our own Putin-type out to negotiate on our behalf.

Instead we send women. And wonder why the rest of the world sees Americans as "arrogant" and "clueless" -and then pretend we really just can't figure out what happened over there-"nobody could see it coming" etc

And all the while Putin is laughing in his sleeve-and Bibi is raging-and all the Muslim Leaders of consequence are dead-humiliated in the eyes of their own countrymen by being forced to kowtow to American women. They are deposed and killed by their countrymen.

Any REAL politician and female American leader -knowing how critical the region is to American interests-should be able to see and appreciate the damage to American interests of forcing Muslim men to openly negotiate American interests with women. And should have declined the position in the best interests of the country.

There are very good reasons Muslim tradition and customs are considered Medieval. Simply desiring them not so does not make it not so-regardless of what Foggy Bottom would like to believe. The PC ideology infesting the American oligarchy has cost America the PetroDollar.

Thank you Hillary

Thu, 01/21/2016 - 15:11 | 7078330 Silky Johnson
Silky Johnson's picture

All the bombs and shit probably didn't help much either.

Thu, 01/21/2016 - 14:56 | 7078277 Kirk2NCC1701
Kirk2NCC1701's picture

Looks like the days of Wine & Roses will be replaced by Whine & Rosens, when the PetroDollar gets demoted by a "Basket of Currencies", that will be backed by Strategically Real & Precious Assets:  PM and Oil.  Which I've advocated here since Day 1:  Real Money <--> Real Assets

Also as stated before, have a "Basket of PM" is better than just "Gold only", to avoid CB games of manipulation.  Being able to shift the Allocation of Gold, Silver, Platinum and Palladium within the PM basket, give a country's CB the flexibility to withstand extra-national attacks from "International Speculators", if you know what I mean.

The other side of the Real Assets are Precious Energies (Natgas, Oil, Coal, Uranium), whereby the 3 Hydrocarbon fuels are crucial to the Chemical industry for Plastics, Fertilizers, Meds, Foods, Transport, etc, etc.  Uranium power plants are -- when properly designed and constructed -- are a great risk-mitigation against Hydrocarbon wars, and great for Desalination purposes if you live in a hot, dry country.

The Paradigm you must keep in mind, and that is based on universal natural laws, that can not be manipulated, is based on the Matter-Energy relationship of physics. Which results in Key1 Matter <--> Key2 Energy

  1 Precious Materials 

  2 Precious Energy

p.s.  Fuck you Krugman and your snake-oil selling ilk!  I told you this years ago, and you still haven't seen the light.  You call yourself Paul, but still sound and walk like Saul.  Whatever 'light' you see, is not Divine but a Fatah Morgana.

Thu, 01/21/2016 - 15:29 | 7078396 TAALR Swift
TAALR Swift's picture

"Kirk to Enterprise", while most people can grasp the CONCEPT of Precious Materials to mean Precious/Noble Metals (Gold, Palladium, Platinum and Silver), and perhaps even Strategic Materials like Titanium or Uranium, people are emotionally and psychologically too conditioned to think only along the lines of Gold.

It's more of a deep-seated cultural habit, than a well-reasoned cognitive position. Some rare people, or an AI do not have that aforementioned handicap.

The salient question then becomes: Will Central Bankers of the various countries under siege by the USD, have the IQ plus the emotional courage to do the truly smart thing, or will they follow "tradition"?

Put another way, will they be Early or Leading Adopters, or will they be Laggard Adopters? Will they lead or follow? To rephrase from Prince Hamlet's soliloquy, while contemplating suicide:

To be or not to be,
To Lead or to Follow, that is the question,
Whether 'tis nobler in the bind to suffer
The slings and arrows of outrageous debts,
Or to take arms against a sea of troubles,
And by opposing, end them?
To lie or die, to weep or sleep?
Aye, there's the rub.

Thu, 01/21/2016 - 17:55 | 7079067 messystateofaffairs
messystateofaffairs's picture

Ok but more importantly will the Israelis be able to field strategic numbers of dual citizen traitors in China? 

Thu, 01/21/2016 - 12:45 | 7077711 Soul Glow
Soul Glow's picture

That gold meddlion is peddling fiction!

Thu, 01/21/2016 - 12:58 | 7077778 BeaverFever
BeaverFever's picture

The gay president has a distaste for gold necklaces. He prefers pearl necklaces, hot ones if possible.

Thu, 01/21/2016 - 13:01 | 7077794 Never One Roach
Never One Roach's picture

Reggie is jealous.

Thu, 01/21/2016 - 12:46 | 7077724 E.F. Mutton
E.F. Mutton's picture

And Barack looks upon this and his other "works", gives a hearty thumbs up and says, "Mission Accomplished"

Thu, 01/21/2016 - 12:48 | 7077733 4 wheel drift
4 wheel drift's picture

'mission accomplished' indeed.....

the muslim traitor, aided by hitlery

both despicable sub-humans

Thu, 01/21/2016 - 13:17 | 7077856 atthelake
atthelake's picture

I think you have to be a citizen to be a traitor.

Thu, 01/21/2016 - 13:42 | 7077964 Baron Munchausen
Baron Munchausen's picture

Aided by shitloads of jewish/zionist backers and advisors and appointees.

Like, far, far more than by muslims - its not even close.

Funny how your lot always leave that out.... Its all about hating muzzies whole never questioning the israeli 5th column, right?
http://original.antiwar.com/justin/2014/11/23/israel-americas-biggest-fr...

http://original.antiwar.com/justin/2015/12/31/mossad-caucus-exposed/

Thu, 01/21/2016 - 12:47 | 7077729 savedeposit
savedeposit's picture

So fuck Obummer, down with the dollar

Here we come Eurasia !!

Thu, 01/21/2016 - 12:48 | 7077730 Rockfish
Rockfish's picture

I can not wait to Trump these fools.

 

Thu, 01/21/2016 - 12:57 | 7077773 knukles
knukles's picture

BBG article today about the Davos Power Elite panicking at the thought of Trump
I knew there were more reasons to like the man
Those shits at Davos should be euthanized

Thu, 01/21/2016 - 15:39 | 7078470 Lost in translation
Lost in translation's picture

Why waste the the meds on euthanasia?

Woodchippers work just as well.

Thu, 01/21/2016 - 12:49 | 7077742 EddieLomax
EddieLomax's picture

Will the Chinese get lots of free mosques too as part of the deal, or have they got smarter negotiators then us?

Thu, 01/21/2016 - 12:52 | 7077751 savedeposit
savedeposit's picture

10000 upvotes for you if i could

Thu, 01/21/2016 - 15:29 | 7078415 GoldSilverBitcoinBug
GoldSilverBitcoinBug's picture

China doesn't bomb or doesn't try to regime change Muslim countries or try to impose "democracy" or the so called -feminishit gay marriage- "western values" in Muslim countries, big difference !

Thu, 01/21/2016 - 15:37 | 7078465 Lost in translation
Lost in translation's picture

Dead troublemakers in Urumqi would seem to suggest, "no."

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