Petroyuan Was Born This Week. Here’s What It Means
BY JAMES CORBETT
THEDAILYCOIN.ORG
APRIL 2, 2018
It has been promised for 25 years. Its coming has been heralded as a world-changing event. It has launched a thousand headlines in the last few months. And it happened this week. But if you blinked you would have missed it.
What am I talking about? Why, the launch of a Chinese yuan-denominated oil futures contracts on the Shanghai International Energy Exchange, of course! Or, in more headline-appropriate terms: The Birth of the Petroyuan!
Considering this event has been in the works for literally a quarter of a century (since the Chinese tried and failed to launch such a contract in 1993), the event came and went with remarkably little fanfare, even from the ChiCom mouthpiece press. Take Xinhua’s decidedly low-key announcement: “China launches crude oil futures trading.” No celebration of the glorious arrival of the dawn of a new monetary order. No bold proclamations about the impending dominance of the Chinese benchmark in global oil sales. Not even a screed about how the fearless leader, President For Life Xi, is bravely steering the country toward a petroyuan utopia. Just:
China on Monday launched trading of the yuan-denominated crude oil futures contracts at the Shanghai International Energy Exchange, which is the first futures listed on China’s mainland to overseas investors.
The listed futures for trading are contracts to be delivered from September this year to March 2019. The benchmark prices of 15 contracts were set at 416 yuan (65.8 U.S. dollars), 388 yuan and 375 yuan per barrel, varied by delivery dates.
Li Qiang, Shanghai’s Party chief, and Liu Shiyu, chairman of China Securities Regulatory Commission, together rang the gong to open the trading session.
Oh, and the name of this earth-shaking, world-changing futures contract? “SC1809.” It’s like they’re going out of their way to make this as unremarkable as possible.
But still, here it is. The event that everyone’s been waiting for. A first, tentative step toward the petroyuan and one potential way for the international community to step away from the petrodollar. So what does it mean?
Well, that really depends whether you’re talking short-term or long-term.
I’ve discussed the long-term ramifications of this move before, most notably in “China’s New World Order: Gold-backed oil benchmark on the way.” Quick recap: The Shanghai Energy Exchange’s yuan-denominated oil contracts, combined with the Shanghai Gold Exchange’s yuan-denominated gold fix means that it may one day be possible for a country (like, oh, say, Russia) to sell oil to China in yuan and exchange that yuan for gold, thus completely bypassing the dollar.
Cue the “end of the dollar paradigm” theme here.
But hold on just a minute. That certainly is the long-term vision that is being pursued here, and there’s no doubt that China, Russia, Iran and many other countries around the world would jump at the chance to create a viable alternative to the petrodollar…but are we really that close? Short answer: No. No, we aren’t.
Longer answer: Remember when China promised to build an alternative to the SWIFT Network that the banks use to transmit transaction data between countries? You know, the one that’s “totally not political” even though the EU strong-armed it into de-listing Iranian banks for political reasons in 2012? And then remember how it emerged that China’s so-called SWIFT “alternative” was actually going to be run on the SWIFT Network itself?
Do you think there might be some similar shenanigans going on with this petrodollar “alternative?” If so, then might I just say you are an extremely jaded and skeptical person. You are also correct, so give yourself a cookie.
Just read the fine print on the SC1809 contracts, as related by Xinhua: “At the beginning, US dollars can be used as deposit and for settlement. In the future, more currencies will be used as deposit.” So (for the moment, at least) this isn’t a golden ticket for bypassing the dollar. Overseas traders will still be putting dollars in and getting dollars out. The yuan will just be the denomination of the contract.
The Rest…HERE
