Petroyuan

[bernorange 8363]

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Trading in the new Shanghai oil future commenced last Monday, ...
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China does not intend to replace the petrodollar with its own currency, other than for her own energy and commodity imports. To put it into context, China imports about 8 million barrels of oil per day, mostly from the Eurasian continent, which compares with global daily demand of roughly 100 million barrels. China also produces her own oil to the tune of about 3.7 mbd, so if all China’s suppliers take yuan in payment, it leaves about 88% of global demand still being priced in dollars.

Therefore, there is for the moment little alarm in Western financial markets about this development. However, at the same time, US oil production is rising, and her imports declining, so even though the energy world is dominated by dollars, the relative importance between the US and China with respect to the international oil trade is rapidly shifting away from America.
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Now we turn to the circumstance faced by the dollar. Just at the moment when the role of the petrodollar is being undermined by the new yuan contract, and the non-American world is still awash with dollars following the last financial crisis, President Trump is increasing the budget deficit, and consequently we can expect the trade deficit to increase further as well.ⁱⁱ

There can only be one result, and that is substantial and sustained selling of the dollar on the exchanges. It is reminiscent of the situation in the mid to late 1960s, when returning dollars led to three distinct failures: a failed attempt to absorb dollar sales for gold by setting up the London gold pool, a failed devaluation of the dollar from $35 to $42.22, and finally the collapse of the Bretton Woods Agreement in August 1971. That was the last great Triffin unwind, and now the next one is in prospect.

Foreign holders of dollars, including China, will wake up to the threat, if they have not already done so. ...

More:  https://www.goldmoney.com/research/goldmoney-insights/the-yuan-oil-future-and-gold

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The US dollar’s share of currency reserves reported to the International Monetary Fund declined in the final quarter of 2017 to a four-year low, as other currencies’ shares of reserves grew, data released yesterday showed. ...

http://www.themalaymailonline.com/money/article/us-dollar-share-of-global-currency-reserves-hits-4-year-low-says-imf

[Amobie 58]

So when does the war start?

[bernorange 8363]

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The Shanghai debut of China's first yuan-denominated crude futures trading market on Monday proved a great success, with major domestic and foreign traders displaying active interest. Total turnover amounted to 18.3 billion yuan ($2.9 billion) on the first trading day.

The market's better-than-expected performance is believed to have significantly contributed to the recent strength of the yuan on global currency markets.

As China largely depends on crude imports, price volatility in the commodity market is a major impediment. It launched the crude futures market to address the problem and also to gain more pricing power over the crucial commodity.

An important move by Beijing to open up its financial sector, the new crude benchmark has garnered increasing attention, because it challenges the current dollar-dominated pricing scheme of crude oil markets - commonly known as the petrodollar system - which helps underpin the dollar's status as the major international reserve currency.

Once the yuan-denominated crude futures market is established as a major oil benchmark with active trading volume and significant domestic and global investor participation, the acceptance of the Chinese yuan as a mode of global transaction will rise.

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http://www.globaltimes.cn/content/1095841.shtml

China couldn't be more clear about their intentions.

[F250 28817]

23 hours ago, bernorange said:

More:  https://www.goldmoney.com/research/goldmoney-insights/the-yuan-oil-future-and-gold

http://www.themalaymailonline.com/money/article/us-dollar-share-of-global-currency-reserves-hits-4-year-low-says-imf

Once the yuan-denominated crude futures market is established as a major oil benchmark with active trading volume and significant domestic and global investor participation, the acceptance of the Chinese yuan as a mode of global transaction will rise.

 

[Neonmoon 38130]

Petrodollar: better watch yo ass

[Amobie 58]

56 minutes ago, bernorange said:

http://www.globaltimes.cn/content/1095841.shtml

China couldn't be more clear about their intentions.

You have to hand it to the Chinese, they come up with plans and stick to them.  

[F250 28817]

4 minutes ago, Amobie said:

You have to hand it to the Chinese, they come up with plans and stick to them.  

It kind of feels like we have been fucking around a little too much like Rocky training in a fancy hotel while Clubber Lang is doing pull ups with ropes in his closet.

[bernorange 8363]

Some interesting notes about the petroyuan:

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• It is monstrously expensive: more than twice the cost per lot compared than US dollar ones. The transaction fee for Shanghai futures is about $3.20 per lot, compared with about $1.50 for U.S. oil contracts, according to Bloomberg.
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• It trades for only a few hours. One hour and a half in the morning, one hour and a half in the afternoon and a few hours at the close of the Chinese market. While the rest of the international oil contracts have twenty-four-hours trading, the Chinese local currency energy market (INE) trades eight hours a day. The implantation and internationalization of a currency does not happen because it is decided by a government
• It has excessive margin requirements, more than double those of the equivalent markets in US dollars. The margin required to participate in China’s futures is 7% of the contract value, rising to 10 percent the month before delivery and 20 percent in the last three days before delivery. In the U.S., the margin is 3.4% of the contract value, according to Goldman Sachs and Bloomberg.
• To the above, we must add two other barriers. A translation exchange to other currencies of 3% and, above all, an economy that has capital controls in which the Chinese government can decide by decree if you can or cannot get your money back when it pleases you.

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https://www.themaven.net/mishtalk/economics/petroyuan-s-crash-at-birth-brIBnp9rg06VLnT90iTfYA/

Mish also posits that the Yuan is in no position to take over the world reserve currency, but I think he misses the larger point that it doesn't have to in order for the dollar to lose that mantle.  It just takes a critical mass of countries/economic actors to seek alternatives (whether the Yuan, gold, SDRs, or some other medium) to erode the dollar's hold on that position.