- China has launched an oils future contract that is denominated in Yuan
- However, there is limited demand from oil producers for Yuan
- To make this contract attractive, China setup the futures contracts so that holders could convert yuan into physical gold
- The contract thus allow anyone to trade oil for gold
Implications
- Allows Oil Exporters to bypass the traditional Petrodollar System (US Dollar and US Financial System)
- Provides a way for companies that are sanctioned by the US to sell their oil (Russia, Iran, etc.)
- Could destabilize the US Dollar if it becomes popular
More Details
- The contracts can be converted to gold through exchanged in Shanghai or Hong Kong
- PetroChina and Sinopec will be initial buyers of the contracts (to supply liquidity)
- First Chinese commodities futures contract open to foreigners
Why It Makes Sense (for the Chinese)
- Chinese GDP and Oil Demand is rapidly growing
- China will eventually becomes the world's largest oil importer
- Helps China escape from US Control of the worldwide financial system
- Allows China to print yuan to pay for imports
Why It Makes Sense for Other Countries to Use
- Avoid control from the US government
- Avoid sanctions and US monitoring
- Reduce risk of USD inflation
- China is currently the largest gold miner and buyer in the world
- China has been rapidly accumulating gold reserves
- Shanghai has the worlds largest physical gold market