Another Step Towards Collapse Of The Petrodollar

Authored by Rory Hall via The Daily Coin,

For the past year and half a major topic throughout the alternative press has been the new Chinese oil futures contract settled/priced in yuan. The fact that China is directly challenging the Federal Reserve Note, U.S. dollar, is quite a significant change. For those that have been paying attention this new futures oil contract is nothing more than the next step in China moving completely away from the Federal Reserve Note, and the “world reserve currency” system and towards a multi-polar world with several currencies being used for international trade.

Ken Schortgen, Jr., The Daily Economist, recently penned an article about Nigeria approving a currency swap agreement with China, stating,

It has been a little more than a month since China officially began offering oil futures contracts denominated in the Yuan currency, but early results continue to be positive for this contract to over time take more and more market share from the West and the Petrodollar.  And with Iran, Qatar, and even Venezuela having already agreed to buy and sell their oil in currencies other than the dollar, a new currency swap agreement signed on May 3 between Nigeria and China could mean that a fourth OPEC nation could also soon be leaving the Petrodollar.

The Central Bank of Nigeria (CBN) has signed a currency swap deal worth about $2.5 billion with the People’s Bank of China to provide adequate local currency liquidity for transactions between national businesses, The Punch newspaper reported on Thursday, citing a high-ranking official from the Central Bank of Nigeria (CBN). Sputnik News

The Daily Economist

While China pursued currency swaps as far back as 1997, during the “Asian financial crisis”, none of the agreements were ever activated. That all changed with the global financial meltdown in 2008. China began actively pursuing, and instituting, direct currency swaps and even went so far as to open “Renminbi Clearing Centers” around the world including Canada, the backyard of the U.S..

Beyond the moderate progress in Asian regional financial cooperation, China has signed swap agreements with approximately 30 countries since 2008 (see Table 1). The People’s Bank of China (PBOC) stated that those swap agreements were intended not only to “stabilize the international financial market,” but also to “facilitate bilateral trade and investment.”

CogitAsia

The chart above, from CogitAsia, was produced in 2015 and does include Japan, Nigeria or France all of which are conducting direct currency swaps with China. All three nations bring something unique, economically speaking, to the table that will prove beneficial for both sides of the trade.

China now has direct currency swaps with more than 30 nations, including some of the largest economies in the world, like Japan, France, Australia to name but a few. This is all part and parcel to circumventing the world reserve currency system which punishes other nations, while at the same time strengthens the U.S. economy. What’s terrible for the rest of the world is awesome for the U.S..

China, along with a great many other nations, are ready for this system to change and balance the economic scale. When you announce to the world that your currency is someone else’s problem, the people that have the problem usually find a way to mend the problem and eliminate the situation creating the problem.

Even the gloomiest pessimists accept that a steep dollar depreciation would inflict more suffering on China and other Asian economies than on the United States. John Snow’s counterpart in the Nixon administration once told his European counterparts that “the dollar is our currency, but your problem.”

Snow could say the same to Asians today. If the dollar fell by a third against the renminbi, according to Nouriel Roubini, an economist at New York University, the People’s Bank of China could suffer a capital loss equivalent to 10 percent of China’s gross domestic product. For that reason alone, the P.B.O.C. has every reason to carry on printing renminbi in order to buy dollars. 

NY Times

This is exactly where we stand today.

China, along with Russia, understand this scenario all too well. These two nations, along with 30+ other nations, are making moves to be rid of the problem known as the Federal Reserve Note, U.S. dollar.

Once this “problem” is corrected the U.S. economy will change dramatically. Inflation, and according to some economist like John Williams of Shadow Stats, hyperinflation will reign down on the U.S. economy like the world has never seen or experienced before. At this juncture we can only hope cooler heads prevail and a major war doesn’t manifest to announce the coming change in our global monetary system.

 

Comments

The First Rule Quantify Thu, 05/10/2018 - 00:01 Permalink

What this article doesn't tell you, is that fiscally speaking China is in about as bad of shape as the US Govt.

 

The $21 Trillion US Debt is painfully obvious; whereas China's debt load is more disguised.

But remember they are a Communist Govt, where they essentially own the banks and are responsible for them (and bank bailouts).

And China's banks are in terrible shape.

 

 

In reply to by Quantify

Posa The First Rule Thu, 05/10/2018 - 00:30 Permalink

It's a lot easier for China to cancel debt in the sectors that the government owns... the challenge is to keep employment growing. China is addressing that by the BR and essentially taking on the task of converting 5 billion impoverished humans into paying consumers. That will keep the Chinese labor force busy for the rest of the century.

In reply to by The First Rule

philipat Posa Thu, 05/10/2018 - 00:38 Permalink

There are lots of down sides and I know they don't want to do this, BUT the only way out of this for humanity against the Deep State(s) is for China and Russia to launch a joint RUB/CNY backed by Gold. And they need to be this NOW whilst they have military superiority over the US in Fifth generation jet fighters (versus the F-35 lemon) and hypersonic weapons systems. If they don't, the US will "negotiate" them into oblivion and then, when it suits them, break any agreements made after they have caught up. (See ABM Treaty and Iran as examples).

In reply to by Posa

Theosebes Goodfellow GoFuqYourself Thu, 05/10/2018 - 06:44 Permalink

I'm not sure we're seeing the humor in this. Nigeria is engaging in a currency swap with the Chinese. So who gets screwed on that deal? The Chinese are notorious for devaluing their currency, and I'm sure the Nigerians are rather good at that game as well.
It would help them if their trade/fiat shenanigans didn't reflect their effects in FRNs, but the reality is that the Chinese are net buyers of natural resources and select Nigerians are the net sellers of their country's treasures.

China is playing long-ball with "All your bases are belong to us".

In reply to by GoFuqYourself

brushhog Theosebes Goodfellow Thu, 05/10/2018 - 08:09 Permalink

My advice to everyone, regardless of age, gender, or political persuasion, regardless of whether the economy will grow and get stronger, slow and stagnate, or collapse in ruins......start a garden. START A GARDEN. You have nothing to lose and everything to gain. Its a great hobby that you can do whether young or old. It will extend your life, improve your health, and teach you about life, and the earth. When you garden you are getting closer to reality. START A GARDEN.

If nothing big happens in the economy you will become healthier, happier, more self reliant, empowered, AND have alot of delicious organic food of a quality that you can never find in a store. If the bottom falls out, you have a skill and a knowledge that could soften the blow, provide for your children, give you a bartering tool, and just maybe save your life. START A GARDEN. Start it this year, its the perfect timing. Learn about seeds, fencing, compost, manure, drainage, irrigation, get connected to the weather, to your soil, the local critters, the bees and other pollinators. Get outside, get some sunshine. START A GARDEN.

In reply to by Theosebes Goodfellow

TRM brushhog Thu, 05/10/2018 - 10:39 Permalink

And a TAX FREE way to have more disposable income!! They will tax you when you make money (income tax) and tax you when you spend it (sales tax). 

But if you don't buy as much food your disposable income just went up. You now have more money to do other things with. 

In my experience a $2 pack of seeds will product about $40-$50 worth of food. If anyone can find a legal way to make a 25:1 ROI I'm all ears  :) 

In reply to by brushhog

doctor10 Four Star Thu, 05/10/2018 - 05:20 Permalink

USD isn't going away anytime soon.  The biggest "blow' it took was the formation of the EU.  It dropped from 75-80% of world trade before the Euro to 65-68% since.  Before the Euro the 2nd most commonly used currency was the Deutschmark-at 20-25%

The world  would be better off without the Euro. Brussels was a step backward on the world stage

 

In reply to by Four Star

JIMSJOE2 philipat Thu, 05/10/2018 - 07:18 Permalink

You need to stop listening to the goldbugs. China has over $21 trillion in liquidity and grows monthly. The total amount of gold ever mined at today's prices in only $7 trillion with most being unavailable. Where are they going to get the gold? In addition this requires a gold window. Do you really think China will allow its gold to be exchanged and moved out of the country? Not a chance in hell!

     In addition this would strengthen the yuan and collapse exports making them too expensive.

     Those who promote gold are like used car salesmen who will say anything to market their product using fear porn which is never correct. The fact is they dream of the good old days when gold backed currencies. Those days are gone and will never return as today's international financial system as simply by-passed the metal.

In reply to by philipat

brushhog JIMSJOE2 Thu, 05/10/2018 - 07:37 Permalink

I agree that China is unlikely to come out with a gold backed currency for most of the reasons you mentioned. However, saying our monetary system has bypassed a commodity backing is like saying our monetary system has bypassed reality...in which case I tend to agree but it cant go on forever. Gravity will bring it down to earth one way or another.

In reply to by JIMSJOE2

TRM JIMSJOE2 Thu, 05/10/2018 - 10:44 Permalink

Example: Iran sells oil to China and takes Yuan for it but doesn't want to be exposed to Yuan inflation etc. Solution is they park any excess Yuan in gold on the Shanghi exchange. When they get around to needing it to buy stuff from China they exchange it back. Gold never leaves China but acts as insurance against inflation. Same for Russia-China, Iran-Russia trade. 

You effectively end up with a precious metals based currency system.

In reply to by JIMSJOE2

Matteo S. The First Rule Thu, 05/10/2018 - 05:44 Permalink

No because the point you seem to have missed is that it is the current account balance that matters most.

 

Self financed huge debt is much more sustainable than foreign financed huge debt. The US is the most indebted country to the rest of the world : its net foreign position is 9 trillion dollars in the red while China’s bet foreign position is a huge surplus.

In reply to by The First Rule

The Navigator J S Bach Thu, 05/10/2018 - 02:52 Permalink

One tooth???

The whole mouth is full of rotting teeth.

What we don't know is WHEN sepsis will bring the patient into cardiac arrest.

Soon, is what all the 'experts' say, but King Dollar is still King and I'm still stacking and waiting for those stacks to be more than shiny and pretty. No Matter, MATH WILL PREVAIL, one day. Math and Physics cannot be 'played' or ignored forever. 

In reply to by J S Bach

JIMSJOE2 Labworks Thu, 05/10/2018 - 08:28 Permalink

Total nonsense. The contract was created so Chinese oil firms can hedge on the mainland for price stability. There are no oil producing countries lining up to trade. To have liquidity, the exchange has allowed speculators, hedge funds, to use foreign currencies for margin requirements.

   

    Now the petrodollar in the Middle East has become meaningless and the reason why Congress threw the Saudis under the bus. The purpose was to flood the international financial community with dollars and treasuries and was accomplished decades ago and no longer needed. Central banks do not like to hold large amounts of foreign currencies as they pay no interest and are forced to buy treasuries as this is the second most liquid and largest market on the planet. China is at least 10 years away from having a large and liquid enough market and Europe has no federalized bond guaranteed by all EU members which leaves treasuries as the only game in town. 

    The US recently passed the Saudis in crude exports and now is becoming a major oil producing country all sold in dollars.

    Now if you read any of the articles out of the PBOC they were forced to set up currency swaps as the dollar was gaining so much strength it was increasing trade settlement cost. They have not lost faith in dollars or treasuries.

In reply to by Labworks

Xredsx BlindMonkey Thu, 05/10/2018 - 00:04 Permalink

When every nation is under one global free trade agreement and all use the same single currency, then there will be no more wars.

But will only work if under one centralised debt creation and taxation system. So who will win the race to world domination by taking all the money? Will it be the USA, China, United Nations, even the EU ( I got to throw in a joke).

or just simply the British Crown via the British Rothschilds.

Iran is the very last piece to the puzzle.

Then the co--upted shall fall.

In reply to by BlindMonkey

OverTheHedge Xredsx Thu, 05/10/2018 - 00:08 Permalink

A single world currency will be the Eurozone on steroids, and it will include nations like Zimbabwe, Venezuela, Bangladesh, Nigeria to name a few. You thought Greece was a corrupt, disorganised mess - a single world currency will crash within weeks, as the corrupt fleece the sheep on a scale never before imagined. As we have already seen, the only way for it to work is for rich nations to make direct payments to poor nations, to recycle the currency.

Perhaps we should encourage it....the reset after the reset should sort it all out, for the 500,000 still left alive.....

In reply to by Xredsx

Xredsx OverTheHedge Thu, 05/10/2018 - 00:24 Permalink

Oh yeah, the system must collapse first. Well, I do know another possible way, but this would make best seller. And the corrupted go down first, especially in the US and then Europe.

Just one form of Corruption= When one is in a position of authority and they make decisions that affect the population. And this decision is influenced by a personal gain in any type of form.

Yeap, the world just doesn't have enough land to build enough prisons.

In reply to by OverTheHedge

divingengineer Wed, 05/09/2018 - 23:53 Permalink

Keep  dreaming boys. 

The $ has plenty of pull left.

A good worldwide depression will put it right back on top.

The defeatism is pathetic here, man up you pussy-farts.

SDShack divingengineer Thu, 05/10/2018 - 00:23 Permalink

Engineer is more right then wrong IMO. The Petro$ will be the last fiat standing in the World Wide Debt Ponzi shell game. This will happen because the Petro$ is backed, not by full faith & credit, but by the USSA Security State. This insures that all other fiat on the planet will be sacrificed first on the alter of the Petro$. The Yen has already gone there. The Euro is teetering. PetroYuan is being implemented, and then there is the whole war on cash and the rise of crypto. Make no mistake about it. The USSA Security State will do WHATEVER is necessary to coerce every "ally" that it is in "their" best interest to sacrifice their own currency for the sake of the Petro$. It's what every Ponzi creator does. When the Ponzi starts to unravel as a few savvy "investors" realize they might be getting scammed and pull out, the Ponzi creators have to stall the complete collapse as much as possible by lying, delaying, threatening, running, etc. The USSA will do exactly the same thing in this World Wide Debt Ponzi. All that collapsed fiat "money" will flow from the dying sovereigns to the Petro$ is one last futile attempt to keep the Ponzi going because it is all they know how to do... extend and pretend.

In reply to by divingengineer

snblitz SDShack Thu, 05/10/2018 - 01:48 Permalink

Generally speaking you do not want to perform trades over time when the other party controls the currency being used.

So all these currencies and bilateral deals are not really solving any problems.

As others have stated all these new currencies will fall until the US dollar is the last one standing.

Though I wish they would all fall and we could have sound money:

https://finitespaces.com/2018/04/07/why-we-create-sound-money-and-governments-wreck-them

In reply to by SDShack

DemandSider divingengineer Thu, 05/10/2018 - 05:12 Permalink

"Defeatism" isn't the right word. Basically, the thugs running this country threaten the leaders of countries who won't take our I.O.Us with death, and we invite all the world's criminals to hide their stash in dollars. We don't have industrial policy, our parasitic bankers and the MIC only allow a twisted monetary policy, while infrastructure and the middle class corrodes.

In reply to by divingengineer

JibjeResearch Wed, 05/09/2018 - 23:56 Permalink

China will get...

1. The PetroYuan, the BRI, and made in China 2025.

The only way to stop it is WW3.

WW3 will go through Russia.

 

Most of us on ZH are irrelevant.

Best Wishes to all :)

Posa JibjeResearch Thu, 05/10/2018 - 00:36 Permalink

It may be possible that enough sane voices in the US Predator Class emerge to steer a different course that accepts the US as just another nation that has to cooperate with everyone else on the planet, and not a singular Hyper-Power controlling the Universe. Sounds like a better option than nuclear annihilation. I imagine It would take the likes of Gates- Kochs- Bezos- Buffet to ally with some honest elements of the US military to pull this off...

In reply to by JibjeResearch