"It's A Huge Story": China Launching "Petroyuan" In Two Months

Tyler Durden's picture

As a reminder, nothing lasts forever...

The World Bank's former chief economist wants to replace the US dollar with a single global super-currency, saying it will create a more stable global financial system.

"The dominance of the greenback is the root cause of global financial and economic crises," Justin Yifu Lin told Bruegel, a Brussels-based policy-research think tank.

 

"The solution to this is to replace the national currency with a global currency."

The writing is on the wall for dollar hegemony. As Russian President Vladimir Putin said almost two months ago during the BRICs summit in Xiamen,

“Russia shares the BRICS countries’ concerns over the unfairness of the global financial and economic architecture, which does not give due regard to the growing weight of the emerging economies. We are ready to work together with our partners to promote international financial regulation reforms and to overcome the excessive domination of the limited number of reserve currencies.”

As Pepe Escobar recently noted, 'to overcome the excessive domination of the limited number of reserve currencies' is the politest way of stating what the BRICS have been discussing for years now; how to bypass the US dollar, as well as the petrodollar.

Beijing is ready to step up the game. Soon China will launch a crude oil futures contract priced in yuan. This means that Russia – as well as Iran, the other key node of Eurasia integration – may bypass US sanctions by trading energy in their own currencies, or in yuan. Inbuilt in the move is a true Chinese win-win; the yuan - according to some - will be fully convertible into gold on both the Shanghai and Hong Kong exchanges.

The new triad of oil, yuan and gold is actually a win-win-win. No problem at all if energy providers prefer to be paid in physical gold instead of yuan. The key message is the US dollar being bypassed.

China's plans for oil futures trading go back more than two decades, with the government introducing a domestic crude contract in 1993 and stopping a year later amid an overhaul of its energy industry. But in 2013, we first hinted at the birth of the petroyuan was looming...

In doing so China is effectively lobbing the first shot across the bow of the Petrodollar system, and more importantly, the key support of the USD in the international arena... setting the scene for the petroyuan.

And now, we are within two months of it becoming a reality as China prepares to roll out a yuan-denominated oil contract within the next two months...

"Approval of the trading rules by the securities regulator marks the clearance of a major hurdle toward launch of the contract," Li Zhoulei, an analyst with Everbright Futures, said by phone.

 

"The latest rules raised entry threshold for investors from the draft rules, which shows the government wants to avoid volatility when it first starts trading."

Which, according to Adam Levinson, of hedge fund manager Graticule Asset Management Asia, will be a “wake up call” for investors who haven’t paid attention to the plans.

A Yuan-denominated oil contract will be a “huge story” in the fourth quarter.

 

“The contract is a hedging tool for Chinese oil companies. We’re convinced Chinese oil companies will be anchor investors in the Aramco IPO.”

All of which fits with recent comments and actions from Russian and Venezuelan officials...

“Venezuela is going to implement a new system of international payments and will create a basket of currencies to free us from the dollar,” Maduro said in a multi-hour address to a new legislative “superbody.” He reportedly did not provide details of this new proposal.

Maduro hinted further that the South American country would look to using the yuan instead, among other currencies.

“If they pursue us with the dollar, we’ll use the Russian ruble, the yuan, yen, the Indian rupee, the euro,” Maduro also said.

Additionally, Levison warns Washington that besides serving as a hedging tool for Chinese companies, the contract will aid a broader Chinese government agenda of increasing the use of the yuan in trade settlement... and thus the acceleration of de-dollarization and the rise of the Petro-Yuan.

“I don’t think there’s any doubt we’re going to see use of the renminbi in reserves go up substantially”

Levinson was even more sanguine about China's growing credit exposure. While Chinese debt-to-GDP continues to rise, we note that Chinese sovereign credit risk has collapsed to 9 year lows...

Which as Levinson notes, "All the issues in China are occurring without fully understanding the asset side of the balance sheet." He is not concerned about China credit issues in the near-term, defining the near term as the next two years, as "the capacity of the sovereign to deal with an issue, should it occur, is pretty significant and therefore important.”

Which appears to the market's perspective as China is now the least risky relative to US in four years...

Finally, while he is less concerned about China's credit, Levinson warns that the lack of volatility as stocks and bonds rally is the “scariest part” of global markets...

“If I am concerned about anything it’s where the level of implied volatility trades,” Levinson said in an interview in Singapore on Tuesday.

 

“It is extremely low. If there is something to be concerned about in global markets, it’s the endogenous level of where implied volatility is trading.”

Small market declines could escalate quickly, Levinson said.

“You don’t know when an event or an issue is going to present itself,” he said.

 

“But when it does, the nature of the volatility construct in markets today is such that if you have a modest correction it will turn into a much more severe one in a short period of time, because of the entrenched structural short-selling of volatility.

Any increase in market turbulence could trigger dramatic selling and the biggest of those events could be a broader adoption of China's PetroYuan contract... as Levinson says "will be a huge story" in Q4.

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overbet's picture

This calls for.....Bombs! yes bombs somewhere will fix this. Bombs fix everything

ultraticum's picture

<------ LESS THAN 5       How many in the entire District of Criminals understands this issue?

<------ MORE THAN 5

BetaGap's picture

A color-revolution or some shit-spring will be installed. I'm settled now...

BurningFuld's picture

 

"The dominance of the greenback is the root cause of global financial and economic crises," 

I thought it was the root cause of the US being able to bomb whoever they wanted.

stacking12321's picture

tyler:

to the best of my knowledge, this petroyuan gold-convertible contract has been debunked:

"Beijing is ready to step up the game. Soon China will launch a crude oil futures contract priced in yuan and convertible into gold."

no real sources are provided, just a few writers linking to each other, one of which is the asian nikkei review linked here

david morgan and smaulgld have both discussed how this is an ubsubstantiated story.

not to say that it won't happen at some point, but for the time being there doesn't appear to be a valid source for this claim.

 

loebster's picture

Serves America well for destroying the US Petrodollar with the Sept 11 bill. https://goo.gl/oehIgG

stizazz's picture

Great link. Great prediction there. Actions have consequences.

BennyBoy's picture

 

Screw dollar hegemony.

Back to good old hegemony.

johngaltfla's picture

There is a Yuger story tonight as the Democrats have appeared to toss the Clinton Crime Family overboard:

BOOM: Washington Post Breaking News Tonight that Hillary Campaign and DNC Paid for Infamous Trump Dossier
beemasters's picture

"concerns over the unfairness of the global financial and economic architecture, which does not give due regard to the growing weight of the emerging economies"

Same is true with Bitcoins....if you consider it as a 'currency'...

espirit's picture

Wow, where are we going to go from here?

Think about it folks.

new game's picture

but jim willy says the china gold contracts are a joke. same shit as merica does to supress the price.

trust me, they are all scaming and bypassing phys gold being priced by demand. if china actually does, i'll say this, there aint enfu gold to cover billions of barrels of oil. so then what. dump billions of contract gold to supress the price to avoid what nixon secumbed to? fuking joke in the end as the gold won't be there. game of bullshit and i believe jimmy cracked corn...

wet_nurse's picture

"Not enough gold" - dumb

Jim Willie, who is my favorite crazy uncle, doesn't think what you say he does.

ScratInTheHat's picture

One Fake Money to Rule Them All!

RU4Au's picture

Common for this "there isn't enough gold" thought to persist amongsst those who don't get how stuff works. There is always enough gold. It is always = how much there is + about 2%/year. the issue comes when one assumes that at $1200/oz that it must cover all assets and liabilities. It obviously can't at current prices. The magic of making it adequate is to have a higher price. This price will be multiples of where it now trades, but there will always be enough gold.

philipat's picture

It IS significant that China will launch the CNY Oil contract, BUT this article is misleading. China will NOT "provide the option to be paid in Gold instaed" which would be an explicit backing of Oil CNY by Gold, which isn't going to happen. Gold traded on the SGE in CNY CANNOT be exported from China so it is NOT correct that the CNY derived from oil trades can be converted into Gold unless the intention is to leave the proceeds (in Gold) sitting in China.

What is correct is that the CNY could be used to purchase Gold, via Dollars, on International exchanges, including the Shanghai International Exchange SIE) but that is not the same thing. Even now, these International Excahnges can be used to purchase Gold using USD if that is what the oil supplier wishes, but it is NOT the same as "backing the oil contract with Chinese Gold". Also, the Gold traded on the SIE is private and does NOT belong to the Chinese Government so it is incorrect to say that the Chinese Government has any control over this Gold.

In summary, if an International oil seller wishes to convert the CNY proceeds of a CNY oil trade into Gold on an International exchange and thereby acquire someone else's Gold, that's fine and can already happen. But it is NOT the case that China will trade oil for Gold using its own Gold or will in any way commence backing the CNY with Gold.

But to repeat, it IS significant that China will launch this oil contract in CNY because it is a step in the process of eliminating the Petrodollar and, perhaps just as significant in terms of movement in this process, a step towards having the Saudis receive payment for Chinese oil shipments in CNY.

besnook's picture

i think you are assuming we know the terms of the "gold backing". a gold backed futures contract probably amounts to a guarantee that the ultimate payment will be in gold. that's part of the reason there is no gold price response. i think china is trying to get everyone used to the idea that they create the value of their  paper currency by the willingness to pay with gold. so you have the "gold" transaction backwards. if china pays in gold then china purchases the gold with forex or its huge cache of dollars and delivers the gold unless they have algoed an inventory of gold necessary for possible gold exchange deals to keep a fixed rate for themselves.

gold will be involved in this contract somehow and i think igold's role will be significant to encourage the internationalization of the yuan as an insurance policy type backing and not real gold backing.

 

philipat's picture

Time will tell but I don't believe that China will, either explicitly or implicitly, back its oil trades with ITS OWN Gold or implicitly create (if only the perception of) a Gold-backed CNY. China doesn't want the CNY to become the world's reserve currency, which of entails the running of sustained trade defecits.

SeuMadruga's picture

That Triffins paradox seems tantamount to the old "not-enough-gold" fallacy.

Consuelo's picture

 

 

"...david morgan and smaulgld have both discussed how this is an ubsubstantiated story."

Yes they have, and neither one has provided any of their own substantiated facts to disprove it.

KansasCrude's picture

David Morgan is the biggest douchebag in the PM space.  Smaulgld is a Cartel apologist.   Both are worthless

anarchitect's picture

It has also been debunked by Koos Jensen, who is neither a douchebag nor a cartel apologist.

http://www.zerohedge.com/news/2017-10-16/gold-backed-oil-yuan-futures-co...

 

hola dos cola's picture

Yuan pricing and clearing of crude oil futures is the "beginning" of a broader strategic push "to support yuan pricing and clearing in commodities futures trading," Pan Gongsheng, director of the State Administration of Foreign Exchange, said last month.

To support the new benchmark, China has opened more than 6,000 trading accounts for the crude futures contract, Reuters reported in July.

https://www.cnbc.com/2017/10/24/petro-yuan-china-wants-to-dethrone-dolla...

anarchitect's picture

Yuan pricing, yes.  Convertible into gold, no.

hola dos cola's picture

I see why you're 'alert'. 10 times, heh? And you think it is 'just' a Pump?

http://www.thedailyeconomist.com/2017/09/to-facilitate-oil-for-yuan-for-...

You should check on what the Russians say about it.

 

hola dos cola's picture

China’s longer-term intentions were perhaps made more apparent by an essay by Dr. Zhou Xiaochuan, governor of China’s central bank, in March 2009.

The outbreak of the current crisis and its spillover in the world have confronted us with a long-existing but still unanswered question, i.e., what kind of international reserve currency do we need to secure global financial stability and facilitate world economic growth, which was one of the purposes for establishing the IMF? There were various institutional arrangements in an attempt to find a solution, including the Silver Standard, the Gold Standard, the Gold Exchange Standard and the Bretton Woods system. The above question, however, as the ongoing financial crisis demonstrates, is far from being solved, and has become even more severe due to the inherent weaknesses of the current international monetary system.

Theoretically, an international reserve currency should first be anchored to a stable benchmark and issued according to a clear set of rules, therefore to ensure orderly supply; second, its supply should be flexible enough to allow timely adjustment according to the changing demand; third, such adjustments should be disconnected from economic conditions and sovereign interests of any single country. The acceptance of credit-based national currencies as major international reserve currencies, as is the case in the current system, is a rare special case in history. The crisis again calls for creative reform of the existing international monetary system towards an international reserve currency with a stable value, rule-based issuance and manageable supply, so as to achieve the objective of safeguarding global economic and financial stability.

 

https://www.goldmoney.com/research/goldmoney-insights/oil-for-gold-the-r...

RU4Au's picture

Then there must be synonyms for 'douchebag' and 'apologist'.

BobEore's picture

Priceless exchange - between two parties who...

altho they have both managed to be HALF RIGHT - we will refrain from calling "half-wits" ... instead preferring to return both ... to sender!

 

  • Louis from Smaulgold is a  'cartel apologist'... because unlike most all of his contemporaries in the 'gold space' he has refrained from becoming a mere cheerleading lackey of BIGGOLD(aka - the $power), instead concentrating his efforts on fairly objective reportage of that same space?  Therefore becoming... of course, almost UNREAD...

as opposed to the REAL CARTEL APOLOGIST, mR kOOsJaN - who shills for the eastern wing of the same $powers BULLIONSALES division, and by doing so ... of course, becomes immensely popular with mind wiped roadkill warriors who luv to read fantasy novellas bout ChinaGold, Brics n the new Silk Road, Dollar Death Dance... and other $power o/o memes which dementos like sillywilly and friends are hired to dispense daily. >>>?

Yu are a  piece o work there bud!

But, allowing for the fact that yu and your (non)halfwit buddy - are both right about Morgan...

let's not sweat the lil stuff huh?

oh, and shill boy apologist an fanbouy - takes a msg back to yur 'leader' - I won't be traveling over to his 'website' as suggested by the indefatigable fantasist... I'll be right HERE... awaitin his return for the next episode,

when we deal with the aftereffects of his playing the ultimate loser card -

victim of a 'hate crime'... which, like SPLC and other BIGOLD $POWER players, is what pyschopaths call anybody who calls them out on their bullshit!

gloves/off.https://storify.com/SuaveBel/how-the-world-is-being-fooled-by-phony-oppo...

buttons/muttons - yur day is comin to a cloose@@!

I_rikey_lice's picture

"David Morgan is the biggest douchebag in the PM space"

 

Yup, I agree. Morgan is the biggest fucking douchebag.

From his website:

http://www.themorganreport.com/consultation

 

"Spend A Full Day With Me


Spend a full day with myself (David Morgan), One on One. You’re invited to my home where we spend the day blueprinting your future. Then we are off for a great dinner (my treat) and fellowship. I’ll even pay for your hotel if you chose to stay the night.

 

Plus, For A Limited Time! I’ll give you full access to our “Mastermind Membership Series” for 2 years. My clients pay me $1,000 a year to receive that membership. That is a savings of $2,000.

Cost: $5,000.00"


I think you are better off getting some tranny to fuck you up the ass for $100. Morgan will fuck you up the ass for $5,000 but you will also lose another 80% when he finishes blueprinting your future. Fucking douchebag.
syzygysus's picture

Which one did you like better? The tranny or the Morgan?

Such hate....David has always been a good guy, and if you don’t like his services, you can always GFYS.

Cheers.

I_rikey_lice's picture

I would prefer the tranny to David any day of the week. David is a scumbag douchebag who preys on the weakminded like all PM pumpers do. Maybe if you suck his dick before the consultation he will only stick his thumb up your ass. You will still lose 80% + on your newly blueprinted portfolio. 

jmack's picture

  I dont know, He is buying dinner, it sounds so tempting.  I bet he even shells out for a $200 bottle of wine.  only $5000!

I_rikey_lice's picture

Yeah after you shell out $5,000 he takes you to Burger King and sticks you in a flea bag motel, "his treat". Only a fucking douchebag would make such an offer. 

My suggestion, take the ass fucking before dinner.

stacking12321's picture

if someone puts forth a claim, particularly an extraorinary claim like this one, there should be verifiable sources available.

it's the job of whoever makes the claim to provide proof.

francis scott falseflag's picture

unsubstantiated story  ==  rumor

rumor  ==  impossible to prove or disprove.

internet  ==  free word salad

IntercoursetheEU's picture

The price of gold continues to snooze in response to this news

KansasCrude's picture

PAPER gold is setting new records for extended Open Interest and is further proof that the defenses of the FiAT MONEY empire have a massive number of suppression buttons to push.  Ever wonder why gold trades 23 hours a day while the precious stock market trades less than 8 hours....  Enjoy the last days of empire the pillars are shaking and crumbling as we watch.  Acceleration of the illusion's evaporation will make believers in the status quo the poorer.  TIme is running out take protection now.

hola dos cola's picture

Funny you say that. Was just looking at that simultaneously little spike in Ag and Au today. Any idea what caused it?

DjangoCat's picture

These are tidal moves.  Ever watch the tide go out, or paint dry?

Winston Churchill's picture

The gold contract,delivery only,in yuan already exists.SMaulgold are idiots.

Paired with an oil contract,delivery only,its a de facto a petrogoldyuan.

RationalLuddite's picture

 Exactly. 

 

But this has more pedigree than i knew. This Robert Fisk article from 2009 in The Independent  (yes) lays out that this was a true Long Game by China & Russia. He seriously got genuine intelligence back then on the plans it now seems certain. And guess when in 2009 he said the plan was to go into full operation? 2018 ... :)

 

Interesting too about Japan & France, if those are still participants too. Really an interesting insight 

 

https://www.google.com.au/amp/www.independent.co.uk/news/business/news/t...

 

Also covered here in the second half https://youtu.be/geWnRz1XBTw

a false profit's picture

You need to search a little more widely:

 

Jim Rickards and Max Keiser discuss the topic:  https://youtu.be/7CYf_UFzopk?t=15m10s  

stacking12321's picture

two people on youtube talking about this, particularly two non-chinese people, is not a verifiable source

i don't have time to sit through a half hour video chat, maybe there really is a source somewhere else in the talk.

if you have a link to the actual source for the info, please provide it.

otherwise, this is only hearsay.

Rubicon727's picture

Other sources: Asia Times, RT, Pepe Escobar is probably the best source, and if you could tap into the US/EU oligarchs, they are fully apprised of these global changes.

There are also sociologists/economists who have narrated the full extent of what the patterns are of any Empire that, inevitably, dies.

Arrighai's book - written in Engish.  Is a good start.

DjangoCat's picture

Take a chill pill and take the time.  Both men are onto what is going on.  Max can be very entertaining.  Ricards is just scary.

Try Gerald Celente once in a while.

 

stacking12321's picture

I’m already chill, but don’t have time...a long list of YouTube videos I’d love to watch but usually don’t watch anything over 15 min

I know who max and Rickards are, but let’s face it, they are talking heads here, The Whole discussion was about whether theres a confirmed source for the story, so far I haven’t seen it

I have no doubt that’s the direction things are heading but for now it’s just speculation

Max is a kook but I like him
Rickards is smart and well informed but I don’t trust what he says and I don’t believe that he believes his words either, he has an agenda - cia shill?
Celente, can’t stand that guy.

DjangoCat's picture

I enjoy watching both.  Ricards has an amazing grasp of names and dates.  If he didn't hype his books so much, he would be more interesting.

As the Chinese say, may you live in interesting times.