The world’s top oil importer, China, is preparing to launch a crude oil futures contract denominated in Chinese yuan and convertible into gold, potentially creating the most important Asian oil benchmark and allowing oil exporters to bypass U.S.-dollar denominated benchmarks by trading in yuan, Nikkei Asian Review reports.
The crude oil futures will be the first commodity contract in China open to foreign investment funds, trading houses, and oil firms. The circumvention of U.S. dollar trade could allow oil exporters such as Russia and Iran, for example, to bypass U.S. sanctions by trading in yuan, according to Nikkei Asian Review. To make the yuan-denominated contract more attractive, China plans the yuan to be fully convertible in gold on the Shanghai and Hong Kong exchanges.…Looks like the rumors are turning out to be true.
China already runs fixed rate with the yuan pegged to the dollar. This would mean that the Chinese government would need to obtain gold rather than USD, but China is a major gold producer while the US has a monopoly on dollar issuance. More importantly, this system would bypass the financial system under US control that the US is using politically, including economic warfare.
Could a gold standard be coming back?
Oil Price
China Readies Yuan-Priced Crude Oil Benchmark Backed By Gold
Tsvetana Paraskova
UPDATE
Martin Armstrong points out that the proposed yuan-gold convertibility is not a fixed rate but at a floating rate, linked to the gold market.
Gold – Oil – Dollar
Martin Armstrong
UPDATE
Martin Armstrong points out that the proposed yuan-gold convertibility is not a fixed rate but at a floating rate, linked to the gold market.
You either PEG it to the dollar (unwise for political reasons) or you “LINK” it to gold – but do not PEG it to gold. If you attempt to PEGthe yuan to gold, that would fail for you are making the same mistake as Bretton Woods. The only possible way is to “LINK” it to gold but on a floating exchange rate. That way you are encouraging confidence in the yuan allowing it to be redeemed on a floating basis with gold. Hence, the political risk of the currency is reduced for it could become possible that the currency system breaks apart and politically currencies could be politically frozen and nonredeemable.Armstrong Economics
Gold – Oil – Dollar
Martin Armstrong
23 comments:
No trust in their own munnie at any level ....
Now they are losing trust in the USD for two reasons.
The first is misperception about the growing US public debt.
The second is weaponizing of dollar owing to dollar hegemony.
A new global monetary system in now in the works.
It's too much of a hassle to work with USD but Chinese government is even more arbitrary and capricious than the washington beltway/frankfurt crowd.
Playing both sides makes good business sense because at least one side will always allow transactions.
Funny how US and EU banks are subject to penalties for doing business with prohibited regimes yet branches of Chinese banks in the US do business with every prohibited regime in the world without any problems from US regulators. Those transactions would cause branches of Swiss or UK banks operating in the US to be penalized, or shut off. Chinese companies sell to prohibited regimes while simultaneously selling to the US and State governments. The company that built the Bay bridge for San Francisco would be a good example.
US government doesn't give a toss about impacts on US business or citizens and will throw them out to sharks without a thought so long as it promotes a powerful appearance of the US military financial complex to allies. There is no longer a military industrial complex. The US is so weak industrially, it can't even produce a tank, ship or airplane of domestic produced parts anymore. Military financial complex is more accurate.
"Now they are losing trust in the USD"
Good!!!!!
"The company that built the Bay bridge for San Francisco"
Complete incompetent disaster ... the bridge is a pos...
"Now they are losing trust in the USD"
Good!!!!!
Depends on the outcome. If it means a return to a gold standard, which is what happens when confidence falls, not so good for policy space going forward.
China and Russia are for it though since they have huge gold reserves, and a return to a gold standard would therefore benefit them.
"China and Russia are for it though since they have huge gold reserves, and a return to a gold standard would therefore benefit them."
Tom - US has more than twice the gold reserves of Russia and China combined. If Russia and China's huge gold reserves would benefit them in a return to a gold standard, would not the same be true for the US?
This is the scary thing from the MMT POV, Ed.
Libertarian and conservative America would love going back to a gold standard. Probably the Democratic establishment, too.
The difference this time is it's not a Betton Woods arrangement with the USD convertible at a fixed rate.
If China follows through on this, it seems likely that the US would seriously consider adopting a gold-based fixed rate again.
I will be interesting to see how the financial community lines up on this.
BTW, when I said above that Russia and China have huge gold reserves, I was including gold still in the ground. The US has much larger gold reserves in the vault.
"It will be interesting to see how the financial community lines up on this."
Wall Street will go into convulsions. Abandonment of Bretton Woods paved the way for explosive proliferation of financial derivatives predicated on volatility in the foreign exchange and fixed income markets. If you are right about a new gold standard in the making, now would be a good time to sell upscale NYC condos.
That's what I suspect, too, Ed. In that case, they will do everything in their power to kill it before it kills the goose that lays the golden egg for them.
Yes. It was no accident that the first financial futures contracts emerged in the mid-1970s. This makes me wonder if there is a connection to the recent rally in the gold market.
Bitcoins, gold, all the hard money ideals are making a comeback.
They never really went away Ryan.... USD ziombie-ism is relatively recent phenom...
A return to a GS means WWIII and a complete disaster for humanity.
The eurozone is driven by soft 'hard money' and the only way it is remotely functional is because beggar-thy-neighbour export driven model.
The moment this becomes global would mean a collapse of the system in few years and chaos everywhere. Libertarians dreams come true.
With the direction and speed at which things are headed right now geopolitically, return to a gold standard is the bottom of our concerns. In comparison it looks an eternity away.
Oh please Tom tactical nuclear strike on NK is hardly WW3.... China and Russia would probably thank the US...
A preemptive strike requires taking out their entire capability before they can respond. How to know for sure that is possible. There is no way to know.
As Steven Bannon said in effect, it's a fools errand and not going to happen.
Any more than Trump's threat to cut off trade with all countries that continue to trade with NK. The US is going to cut off China. Get ready for a global depression and ensuing WW.
This is not a slam dunk.
Trump is talking through his hat as usual.
First thing to do is to bring 28.5K US troops home from South Korea because they will be the first casualties in an outbreak of hostilities. After that, the key to North Korea is China, and the key to China is Taiwan. Imagine the impact on Chinese public opinion of a symbolic gift from the U.S. to Taiwan of a Statue of Liberty size statute of the Goddess of Democracy.
https://sinosphere.blogs.nytimes.com/2014/06/01/the-rise-and-fall-of-the-goddess-of-democracy/
The Tiananmen Square democracy protests of 1989 have all but been erased from Chinese popular culture. Maybe it's time to remember.
Ed maybe we could re-gift the actual Statue of Liberty to them and get that pagan relic the hell outa here ... I would go for that one... kill two birds with one stone...
Ed, this is a common mistake that Americans make about societies with non-Western cultures. Such societies are not individualist and don't place a high value on "liberty" in the sense of the West.
This thinking is comparable to the Chinese thinking that Americans can be converted to there point of view by emphasis on harmony, which Chinese people value highly and Americans not so much.
This was the thinking that led to the replacement of JCS chief General Shinseki for suggesting that an occupation force of hundreds of thousand would be needed to secure Iraq. Wolfowitz responded that the Iraqis would greet us with flowers for liberating them from Saddam. When that didn't occur spontaneously, a "welcome" was staged for propaganda purposes.
The same thing happened when the US tried to liberalize the Russian Federation after the collapse of the USSR during the Yeltsin year. The oligarchs and Russian mafia took over instead and the country as whole was going down the tubes until Putin became president and put a stop to it. America views that as "authoritarianism" if not dictatorship, while Putin enjoys a hugely high approval rating from Russians. American propaganda features the relatively few dissidents, along with some dispossessed oligarchs, in its propaganda to convince people that the vast majority of Russians would prefer to live under an American-style democracy, when in reality they are sour on it after what happened.
America needs to get its own shit together before it can regain cred in the world and recapture its lost soft power. Until then American should just STFU.
I am not down on America. Just saying that I woke up to the BS when I was serving during the Vietnam War and realized what was really going down behind the propaganda veil. American need to "take their country back" not in historical terms, which included Native American genocide and non-white slavery (remember the origin of the term "Shanghaied"), but rather in the sense of the American idealism that never existed in actuality. This cultural ideal is great for America. Other countries have their own cultural ideals and Americans should realize that and leave them alone to work on realizing those ideals.
UPDATE
Martin Armstrong points out that the proposed yuan-gold convertibility is not a fixed rate but at a floating rate, linked to the gold market.
You either PEG it to the dollar (unwise for political reasons) or you “LINK” it to gold – but do not PEG it to gold. If you attempt to PEGthe yuan to gold, that would fail for you are making the same mistake as Bretton Woods. The only possible way is to “LINK” it to gold but on a floating exchange rate. That way you are encouraging confidence in the yuan allowing it to be redeemed on a floating basis with gold. Hence, the political risk of the currency is reduced for it could become possible that the currency system breaks apart and politically currencies could be politically frozen and nonredeemable.…
Armstrong Economics
Gold – Oil – Dollar
Martin Armstrong
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