Monday, May 21, 2018

China's control over global oil trade soars to 12% in just two months since yuan denominated market opened in March

China is quickly establishing a proven track record that when they finally decide to open a competing market against the West, it doesn't take long before they achieve significant dominance in that sector.  Case in point was their establishment of a Yuan denominated gold price in early 2016 which in a very short amount of time led the Shanghai Gold Exchange to surpass both London and New York to become the largest physical gold market in the world.

In March of this year China decided to take on the West's stranglehold on oil pricing and its foundation behind dollar hegemony through the Petrodollar.  And in just two short months, this new Yuan denominated oil market has seized 12% of the global oil trade, with an even greater share expected in the near future thanks to the U.S.'s tearing up of the Iran Deal.

As more countries pay for oil in yuan, the standing of the Chinese currency in global finance has grown, an analyst tells RT. However, its future path won’t be completely smooth, he warns. 
“If people started to pay for oil in yuan, central banks would need to hold reserves in yuan, leading to a massive increase in the global demand for yuan, reducing the cost of financing the Chinese economy,” IISS Singapore Senior Fellow for Economic & Energy Security Pierre Noel told RT. 
“This, in turn, is only possible if the yuan is a truly international currency. Therefore, the most likely pattern is that the shift to yuan-denominated oil trading will happen alongside the internationalisation of the yuan, which is (for the most part) a function of Beijing's monetary policy and financial regulatory decisions.” 
The share of yuan-backed crude oil contracts has soared to 12 percent of global trading since the US withdrawal from the Iran nuclear deal, compared to eight percent in March, when they were launched. – Russia Today
China's Yuan denominated oil contract has the potential to break the Petrodollar, but not the dollar itself as the global reserve currency.  This is because since it came into being back in 1973, the percentage of trade that oil encompasses out of the entire dollar based global trade has fallen to just 7%, meaning that even if China took over the lion's share of the market, the world would still use dollars as the medium of exchange for most everything else.

However this dominance is being addressed in a much different way, and that is through the introduction of bi-lateral trade agreements.  And interestingly enough, it is through this mechanism that China doesn't have to force a large scale internationalization of their currency as a means to defeat the dollar, because instead it will be their trade partners who accomplish this by simply refraining from buying them since they can now use their own currencies without the need for a middleman.

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