The world’s top oil importer, China, is preparing to launch a crude oil futures contract denominated in Chinese Yuan and convertible into gold, allowing oil exporters to bypass the U.S.-dollar denominated benchmarks by trading oil for Yuan, Nikkei Asian Review reported.
Last month, the Shanghai Futures Exchange and its subsidiary company Shanghai International Energy Exchange, INE, successfully completed four tests for the crude oil futures, and the exchange continues preparing for the listing of crude oil futures, aiming for a potential launch by the end of this year.
“The rules of the global oil game may begin to change enormously,” Luke Gromen, founder of U.S.-based macroeconomic research company FFTT, told Nikkei Asia Review.
The move would allow China to use all the gold its horded for the past several years to back its oil contracts with gold exchange which would help the Chinese to finally unseat the petro-dollar as the world reserve currency.
This would enable countries to surpass U.S. sanctions and trade oil in Yuan than convert to gold a precious asset.
China opened up its gold market just last year, an entirely separate system than the COMEX gold futures market in New York and the Over-the-Counter (OTC) trades cleared through the London Bullion Market. The country than subsequently linked its gold market with Dubai (India) another BRICs nation.
China and Russia have both been working to undermine the West and the U.S. dollar since China called for a new world reserve currency in 2009.
A Wikileaks cable titled “China increases its gold reserves in order to kill two birds with one stone” shows that China was already shifting some of its massive foreign holdings into gold and away from the U.S. dollar in 2009. China again began stockpiling gold in 2013, when they bought JPMorgan’s building that previously housed its gold.
The IMF and United Nations have even expressed agreement that it’s time to replace the U.S. dollar as the world reserve currency with what’s known as SDRs or special drawing rights . Then the Asian Infrastructure Investment Bank (AIIB) was planned between 2010-2012, and was fully operational by 2016.
“China has been pushing for the SDR to become more widely used for some time, as a way to challenge the dominance of the dollar without pushing the renminbi as a direct competitor,” Julian Evans-Pritchard, a China economist at Capital Economics in Singapore, told Reuters.
In 2014, Russian and Chinese central banks agreed on a draft currency swap agreement, which allowed them to increase trade in domestic currencies and cut the dependence on the U.S. dollar in bilateral payments made between the two countries.
That same year, China’s Foreign Exchange Trade System extended the Yuan’s swaps trading to 11 currencies on the interbank foreign-exchange market, Bloomberg reported. Russia and China furthered the dollar’s divide in 2015, by setting up an alternative to the EU-based global currency messaging and interchange service or SWIFT called CIPS or (China International Payment System.)
China then approved the usage of the Russian Ruble over the U.S. dollar for its border city Suifenhe, in the Heilongjiang Province during a pilot program. Later the same year, the two countries opened up an e-commerce platform called incubator in that same province.
Following years of work, on October 1st, 2016, the Yuan joined the IMF’s SDR currency basket. The IMF did an analysis and concluded that financial instruments denominated in SDR would lower volatility and risk compared to holding assets in individual currencies, as well as save costs.
“M-SDRs could, therefore, be attractive to investors and issuers by offering a prepackaged diversification option,” the IMF wrote.
For years now, both Russia and China have buying gold in massive amounts and dumping U.S. Treasury bonds at an accelerating rate. Finally there is the BRICS alliance formed of Brazil, Russia, India, China and South Africa – to bypass and overtake the U.S. dollar as the world’s reserve currency. Now we know how they are going to do it through taking over the petro-dollar's main source of revenue oil.
Further financial moves made by Russia and China to unseat the dollar include the following:
In July earlier this year, Russia and China two BRICS nations agreed to establish a joint investment forum together to further their de-dollarization efforts.
“We have expressed our support for the agreement between the Russian Direct Investment Fund (RDIF) and the China Development Bank towards the creation of a joint investments fund worth 65 billion Yuan $9.56 billion. We agreed to continue consultations on a more wide use of national currencies in mutual payments and investments. I am sure that the opening of the first foreign office of the Central Bank of Russia in China will contribute to that,” Putin said.
Then in March, Russia’s central bank opened its first overseas office in Beijing, coming one step closer to replacing the U.S. dollar as the world’s reserve currency.
The South China Morning Post reported the new office was part of agreements made between the two countries “to seek stronger economic ties.”
“The opening of a Beijing representative office by the Central Bank of Russia was a “very timely” move to aid specific cooperation, including bond issuance, anti-money laundering and anti-terrorism measures between China and Russia,” Dmitry Skobelkin, deputy governor of the Central Bank of Russia said.
Financial regulators from both countries agreed in May 2016 to issue home-currency-denominated bonds in each other’s respective markets, a move that is seen as the beginning of the dethroning of the U.S. dollar, as both countries have stated they would implement a replacement for years.