Thursday, April 27, 2017

Iran's model for using gold in place of the petrodollar growing as Russia takes the lead in global oil market

Even before China and Russia implemented their new payment systems to allow for nations to trade using their own currencies rather than having to go through SWIFT and the dollar, a precedent was set during the years of Iranian sanctions to have oil trading done outside the petrodollar.

Image result for gold for oil
The sanctions were meant to be stifling, but the Iranians loosened this problematic liquidity noose by using all their banks that weren’t sanctioned, and sold rich Iranian oil to India. Of course, the Indians couldn’t pay Tehran directly. Neither could they pay bilaterally in rupees due to sanctions and infrastructure needed to trade in a bilateral currency. Instead, Iran requested that India pay in gold so India paid Turkey, the Middle East’s gold market, and Turkey gave Turkish gold to Iranian banks, which then swapped with the Central Bank of Iran.
This 'oil for gold' mechanism allowed Iran to survive during the decade long sanctions imposed upon them by the U.S., but more importantly, it set in motion a way for Russia and China to use this process on a more permanent basis.
This clever evasion was known as the Iran-India-Turkey triangle. Iran was escaping the dominance of the US dollar and trading in real money, not a hegemonic fiat currency that was being printed hot-off-the-press all day. They were dealing in gold; not something that could be strangled through SWIFT and electrons traded on a screen easily. A simple intermediator and precious metals could break Obama’s heralded “crippling” sanctions. 
Fast forward to March 2017; the Russian Central Bank opened its first overseas office in Beijing as an early step in phasing in a gold-backed standard of trade. This would be done by finalizing the issuance of the first federal loan bonds denominated in Chinese yuan and to allow gold imports from Russia. 
The Chinese government wishes to internationalize the yuan, and conduct trade in yuan as it has been doing, and is beginning to increase trade with Russia. They’ve been taking these steps with bilateral trading, native trading systems and so on. However, when Russia and China agreed on their bilateral US$400 billion pipeline deal, China wished to, and did, pay for the pipeline with yuan treasury bonds, and then later for Russian oil in yuan. 
This evasion of, and unprecedented breakaway from, the reign of the US dollar monetary system is taking many forms, but one of the most threatening is the Russians trading Chinese yuan for gold. The Russians are already taking Chinese yuan, made from the sales of their oil to China, back to the Shanghai Gold Exchange to then buy gold with yuan-denominated gold futures contracts – basically a barter system or trade. 
The Chinese are hoping that by starting to assimilate the yuan futures contract for oil, facilitating the payment of oil in yuan, the hedging of which will be done in Shanghai, it will allow the yuan to be perceived as a primary currency for trading oil. The world’s top importer (China) and exporter (Russia) are taking steps to convert payments into gold. This is known. So, who would be the greatest asset to lure into trading oil for yuan? The Saudis, of course. 
All the Chinese need is for the Saudis to sell China oil in exchange for yuan. If the House of Saud decides to pursue that exchange, the Gulf petro-monarchies will follow suit, and then Nigeria, and so on. This will fundamentally threaten the petrodollar. - Atimes

1 comments:

What I don't currently understand is that given that the USA is on a potential nuclear war footing in Korea and the Middle East is a can of worms with Russia, I'm sure, no longer willing to permit the Saudis and their Friends anymore leeway in their games aimed at taking over Syria, is why the Gold price is not soaring to new heights. Am I missing something ? is all this potential war chaos just a charade ?

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