Tuesday, September 19, 2017

China to follow up yuan denominated oil contract with having all commodities to be sold in RMB rather than dollars

On Sept. 18, an official from China's central bank announced that the country is in the process of looking at market rules to determine how best to start selling all commodities in the Yuan currency, rather than in the global standard of U.S. dollars.

This move comes just weeks after an announcement by the Shanghai International Energy Exchange that China will be formulating a Yuan denominated oil contract to compete directly with the dollar denominated Brent (London) and WTI (Chicago).

The country is studying the “market rules and mechanisms of pricing commodities in yuan [to] satisfy demand from domestic and overseas investors,” Pan Hongsheng, deputy secretary general of the People’s Bank of China’s monetary policy committee, was quoted as saying by the official China Securities Journal
Pan’s comments, made on Monday at an international oil and gas conference in Hangzhou, capital of eastern China’s Zhejiang province, came as China is about to launch a yuan-denominated crude oil futures contract in Shanghai that has been almost seven years in the planning. 
Having more commodities priced in yuan would be beneficial for China not only in terms of giving it more pricing power, but also as it seeks to build an effective foreign exchange mechanism for the currency, according to a local analyst. 
“Such a move would diversify trading entities and increase yuan products to pave the way for a more market-oriented exchange rate mechanism,” Zhang Jun, chief economist at Morgan Stanley Huaxin Securities in Shanghai, said. 
“It would help domestic firms to manage forex risks and would also boost the internationalisation of the yuan.” – South China Morning Post

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