We have been following this story since it blew onto the scene in early
September 2017. The earlier story was mishandled by several news outlets and
overshadowed the true nature of the implications of what this means.
A futures oil contract priced yuan (Chinese renminbi) is a serious attack
on the Federal Reserve Note and the world reserve currency status. As this
contract begins to take shape and attract more and more business this has the
potential to cripple the Federal Reserve Note. China is the largest importer
of oil and as their economy continues to be built the demand for oil will
continue to grow.
China began training traders on this new contract back in October and have
been testing their system for the past several months. It appears the bugs
are all worked out and there is enough traders to begin offering this new
futures contract.
China has successfully completed its fifth round of yuan-backed oil
futures testing may officially begin the contract by the end of this year. It
seeks to challenge the dominance of the petrodollar.
Last week the Shanghai International Energy Exchange said the system has
met all the listing requirements after rehearsals for futures trading
denominated in the Chinese currency.
“An official launch during Christmas would be appropriate. The Western
market would be quiet and allow the Shanghai exchange as well as Chinese
investors to adjust in the early days,” Chinese trader Yuan Quwei told
Bloomberg.
According to Wang Xiao, an oil analyst at Guotai Junan Futures “The
Chinese oil industry wants to have a local hedging tool while institutional
investors look at Shanghai crude futures as an important product in their
portfolios.”
“Shanghai oil will be the first Chinese product that allows foreign
investors to trade directly and such involvement will surely bring more
volumes,” said Wang.
As the largest energy consumer China is interested in having oil contracts
in yuan. Beijing plans to introduce its own oil benchmark which will rival
Brent or West Texas Intermediate. Experts say Chinese authorities will need
to first convince large oil producers and consumers to use the yuan and
invest in the Shanghai benchmark.
The Chinese government announced plans to start a crude oil futures
contract priced in yuan and convertible into gold earlier this year. The
contract enables the country’s trading partners to pay with gold or to
convert yuan into gold without the necessity to keep money in Chinese assets
or turn it into US dollars.
It has the potential to help China’s push for yuan internationalization
significantly, analysts claim. Beijing plans to promote the use of its
currency in the global commodity markets, according to Pan Hongsheng, the
deputy secretary general of the People’s Bank of China’s monetary policy
committee.
He said the countries within the Belt and Road initiative, which are
exporting a significant amount of commodity products to China, should start
using yuan-denominated crude oil futures as a benchmark for pricing.
The official added China will push forward the formation of pricing
systems for yuan-denominated commodity products and encourage local
commercial banks to launch innovative financial services to support these
developments. Source
Will it happen over the next 7 business days? Would it be best for China
to launch this contract during a slower trading time?
It would make sense that China would want to get this contract in place
before the Chinese New Year Celebration, which lasts two weeks, that begins
on Friday February 16. If the contract launches before years end that would
give China approximately 6 weeks of live trials going into the New Year.
Still no mention of gold backing, but it is still early in this process
and we still believe gold will be coming back to the trade settlement table,
it may not have anything to do with oil contracts but we know that China and
Russia are discussing gold trade settlement with their BRICS allies.
