China's De-Dollarization Is Proceeding Apace

[TaiShang]

The Petrodollar Is in Trouble

As Saudi Arabia continues to liquidate more of its foreign exchange reserves, it means serious trouble for the petrodollar system

Steve St. Angelo



The birth of the petrodollar

The U.S. PetroDollar system is in serious trouble as the Middle East’s largest oil producer continues to suffer as the low oil price devastates its financial bottom line. Saudi Arabia, the key player in the PetroDollar system, continues to liquidate its foreign exchange reserves as the current price of oil is not covering the cost to produce oil as well as finance its national budget.

The PetroDollar system was started in the early 1970’s, after Nixon dropped the Gold-Dollar peg, by exchanging Saudi Oil for U.S. Dollars. The agreement was for the Saudi’s only to take U.S. Dollars for their oil and reinvest the surpluses in U.S. Treasuries. Thus, this allowed the U.S. Empire to continue for another 46 years, as it ran up its ENERGY CREDIT CARD.

And run up its Energy Credit Card it most certainly did. According to the most recent statistics, the total cumulative U.S. Trade Deficit since 1971, is approximately $10.5 trillion. Now, considering the amount of U.S. net oil imports since 1971, I calculated that a little less than half of that $10.5 trillion cumulative trade deficit was for oil. So, that is one heck of a large ENERGY CREDIT CARD BALANCE.

Regardless… the PetroDollar system works when an oil exporting country has a “SURPLUS” to reinvest into U.S. Treasuries. And this is exactly what Saudi Arabia has done up until 2014, when it was forced to liquidate its foreign exchange reserves (mostly U.S. Treasuries) when the price of oil fell below $100.

So, as the price of oil continued to decline from the mid 2014 to the latter part of 2016, Saudi Arabia sold off 27% of its foreign exchange reserves. However, as the oil price recovered at the end of 2016 and into 2017, this wasn’t enough to curtail the continued selling of Saudi’s foreign exchange reserves. The Kingdom liquidated another $36 billion of its foreign exchange reserves in 2017:

Saudi Arabia Foreign Exchange Reserves

According to the Zerohedge article, Economists Puzzled By Unexpected Plunge In Saudi Foreign Exchange Reserves:

The stabilization of oil prices in the $50-60/bbl range was meant to have one particular, material impact on Saudi finances: it was expected to stem the accelerating bleeding of Saudi Arabian reserves. However, according to the latest data from Saudi Arabia’s central bank, aka the Saudi Arabian Monetary Authority, that has not happened and net foreign assets inexplicably tumbled below $500 billion in April for the first time since 2011 even after accounting for the $9 billion raised from the Kingdom’s first international sale of Islamic bonds.

….. Whatever the reason, one thing is becoming clear: if Saudi Arabia is unable to stem the reserve bleeding with oil in the critical $50-60 zone, any further declines in oil would have dire consequences on Saudi government finances. In fact, according to a presentation by Sushant Gupta of Wood Mackenzie, despite the extension of the OPEC oil production cut, the market will be unable to absorb growth in shale production and returning volumes from OPEC producers after cuts until the second half of 2018. Specifically, the oil consultancy warns that due to seasonal weakness in Q1 for global oil demand, the market will soften just as cuts are set to expire in March 2018.

The Saudi’s have two serious problems:

1. As the Saudi’s cut their oil production due to the OPEC agreement, the U.S. shale energy companies ramp up production because they are able to produce oil by shifting any losses to Brain-Dead investors looking for a higher yield. This destroys the ability for OPEC to drain global oil inventories, so the oil price continues to trend lower. Which means the Saudi’s may have to liquidate even more foreign exchange reserves in the future on lower oil prices. Rinse and Repeat.
2. The Saudis are planning a 5% IPO – Initial Public Offering in 2018 of their estimated $2 trillion of their oil reserves and are hoping to get $200 billion. However, energy analysts Wood Mackenzie estimates that the value of the reserves are more like $400 billion, not $2 trillion. This is due to all the costs, royalties and 85% income tax to support the Saudi Government and the 15,000 members of the Royal Saudi Family. Thus, Wood Mackenzie doesn’t believe there will be much in the way of dividends left over.

That being said, I highly doubt the Saudi’s have the 266 billion barrels of oil reserves stated in the new 2016 BP Statistical Review. The Saudi’s produce about 4.5 billion barrels of total oil liquids per year. Thus, their reserves should last them nearly 60 years.

Now… why on earth would Saudi Arabia sell a percentage of its oil reserves if it has 60 more years of oil production in the future???? Something just doesn’t pass the smell test. Is it worried about lower oil prices, or maybe it may not have all the reserves that it states?

Either way… it is quite interesting that Saudi Arabia continued to liquidate its foreign exchange reserves in April even though the price of oil was above $53 for the majority of the month. I believe the Kingdom of Saud is in BIG TROUBLE. That is why they are trying to sell an IPO to raise much needed funds.

As Saudi Arabia continues to liquidate more of its foreign exchange reserves, it means serious trouble for the PetroDollar system. Again… without “SURPLUS” funds, the Saudi’s can’t purchase U.S. Treasuries. Actually, for the past three years, Saudi Arabia has been selling a lot of its U.S. Treasuries (foreign exchange reserves) to supplement the shortfall in oil revenues.

If the oil price continues to trend lower, and I believe it will, Saudi Arabia and the PetroDollar system will be in more trouble. The collapse of the PetroDollar system would mean the end of the U.S. Dollar supremacy and with it, the end of gold market intervention.

Source: SRSrocco Report

@Shotgunner51 , decline in KSA reserves is very telling. One can't help but ask, is the recent sudden Saudi "discovery" of Qatar's bedding with terrorists (right after Trump visit) really about a sincere dislike toward terrorism? Or does it have to do with KSA-USA mutual concern of financial woes?

@GS Zhou , @Dungeness

 

[TaiShang]

Russia Has Doubts About the Almighty US Dollar

The printing presses will be working as we approach 2018 to allow for operational continuity within the US financial system. Meanwhile, Russia will keep buying gold.

Paul Goncharoff
5 hours ago | 1510 Comments


St. George gold coins issued by the Central Bank of Russia

Sometimes you just have to take a pause in the constant whirlwind of news, take a break from picking apart what you feel is ‘fake vs; real’ and in stepping back take in the bigger picture of any given topic.

These past months have seen both China and Russia painted in villainous colors. Even respected professionals like Oliver Stone have been dissed by talking heads for his Putin interviews, even while some of his critics openly admit to not having watched the interviews… I for one think that is a step too far even for today’s norms.

It is apparent that trust is rapidly eroding both in the news media and in the geopolitical arena. Currencies ultimately are an agreement based on trust and confidence, and tend to erode if either confidence or trust in the currency’s issuing government is questioned.

In this hurly burly soap opera of perceptions, the subject of gold and central banks keeps popping up with greater frequency, especially because both Russia and China have been steadily buying and storing ever greater amounts of it. There is a saying among market professionals “the trend is my friend”.

This is a truism with a caveat – which trend? Most news focuses on the daily rise and fall of technical numbers, with both amateurs and pro’s glued to their trading screens, twitching along with the ticks rising and falling. That is not a trend; it is just ‘punting’. However when you step back months, then years, then decades and get out of the ‘noise’ zones trends tend to clarify.

Perhaps Russian Central Bank Head Elvira Nabiullina has done just that in a proactive way. After all, she was honored recently as the European Central Bank “Chairman of the year”. Perhaps she is aware that her CB numbers among the 60% of all central banks that have stated their intention to increase their gold holdings over the foreseeable years, while just over 10% are committed to hanging on to what they currently have. The rest are in the unenviable position where they can only respond to outside pressures and react, i.e., they are not the drivers of their own bus.

Both Russia and China have been steadily buying and storing ever greater amounts of gold
As a matter of historic record, the greatest amount of gold ever held by official (central banks) holdings was 52 years ago when all the worlds foreign currency reserves assessed were valued at $69 billion. That was in 1965, and at that time, fully 65% of those currency reserves were backed by physical gold holdings. Fast forwarding to 2017 when world foreign currency reserves are estimated to now be $11 trillion, only 12% of those reserves are backed by physical gold holdings.

Just as an exercise, consider if the central banks tried to achieve that 65% currency reserve level today. They would need to scamper and find an additional 46,501,000,000 troy ounces (46.5 Billion tr/oz.) to add to their current reserve holdings. That would represent three quarters of all refined gold there is.

Seems doubtful that it would be possible, nor would the various owners be pleased to part with their shiny possessions. Therefore, that leaves the market to adjust to the value of Gold in such a case. To achieve the same reserve balance of 65%, gold would have to be valued at just over $6,500 per troy ounce (todays value is approx. $1,250). Take the exercise further, even in smaller increments, say 24%, 48% and so on the trend remains the same.

The behavior of the Central banks and gold has come full circle over the past decade. The sales by the US and European central banks have indeed slowed but have not stopped. At the same time purchases by the CB’s of emerging market countries, Latin America, the Middle East and Asia are growing. Since 2010, these emerging and other central banks have been net buyers of gold, and their desire is growing from less than 2% of total world demand in 2010 to approximately 16+% today.

Notice a trend?

This change clearly acknowledges the benefits gold brings to CB reserve portfolios. Some CB’s have bought gold to diversify away from overweight US dollar denominated assets, with which gold has a strong negative correlation. In addition the CB’s see gold as a hedge against currency risks and because of gold’s inflation-hedging characteristics.

Getting back to Russia and Ms. Nabiullina’s conservative Central Bank, so far this year the following monthly increases were made to Russia’s official gold holdings: JAN = +1,000,000 oz, FEB = +300,000 oz, MAR = +800,000 oz, APR = +200,000 0z, and MAY = +700,000 oz.

This comes to 93.3 tons (3,000,000 troy ounces) in the first five months of 2017. It may be of interest to note that of the estimated 106 metric tons of gold produced by Russia between January and May 2017, the CB added 93 mt to their official gold reserves. Contrast that with the U.S., which produced 96 mt in the same period, adding nothing to official reserves. In sum, the addition to reserves between January and May 2017 represents 88% of Russia’s domestic mine supply. At the same time, the United States is continuing as before to export all of its gold supply.

One of the key reasons the US is not increasing its reserves is because it continues to run and suffer from both fiscal and trade deficits. If a country is running deficit’s it cannot add gold to its reserves; that can only happen when there are surpluses. Hence, this adds one more reason to the probability of continued US Dollar printing, QE, helicopter money, or whatever name we will call it when we do it.

Call it what you will, the printing presses will be working as we approach 2018 and 2019 to allow for operational continuity within the US financial system domestically as it operates today. Fed rate adjustments notwithstanding.

The question remains, will the trend allow the United States to do so? That is worth some dispassionate, apolitical thought.

Paul Goncharoff is Chairman, Disciplinary Committee, National Association of Corporate Directors, Russia

http://russia-insider.com/en/politics/russia-has-doubts-about-almighty-us-dollar/ri20199

@Han Patriot , @Shotgunner51 , @powastick , @vostok

 

[TaiShang]

The Only Russia Story That Matters - Dedollarization

And it's the one Russia story the MSM is not covering. Russia is hoarding gold, has developed a SWIFT alternative, and is getting ready to sell oil to China for gold-backed yuan

Jim Rickards



The World Gold Council has reported that the Central Bank of Russia has more than doubled the pace of its gold purchases, bringing its reserves to the highest level since Putin took power 17 years ago.

Russia’s desire to break away from the hegemony of the U.S. dollar and the dollar payment system is well-known. Over 60% of global reserves and 80% of global payments are in dollars.

The U.S. is the only country with veto power at the International Monetary Fund, the global lender of last resort.

Perhaps Russia’s most aggressive weapon in its war on dollars is gold. The first line of defense is to acquire physical gold, which cannot be frozen out of the international payments system or hacked.

With gold, you can always pay another country just by putting the gold on an airplane and shipping it to the counterparty. This is the 21st-century equivalent of how J.P. Morgan settled payments in gold by ship or railroad in the early 20th century.

Russia has now tripled its gold reserves from around 600 tonnes to 1,800 tonnes over the past 10 years and shows no signs of slowing down. Even when oil prices and Russian reserves were collapsing in 2015, Russia continued to acquire gold.

But Russia is pursuing other dollar alternatives besides gold.

For one, it’s been building nondollar payments systems with regional trading partners and China.

The U.S. uses its influence at SWIFT, the central nervous system of global money transfer message traffic, to cut off nations it considers to be threats.

From a financial perspective, this is like cutting off oxygen to a patient in the intensive care unit. Russia understands its vulnerability to U.S. domination and wants to reduce that vulnerability.

Now Russia has created an alternative to SWIFT.

The head of Russia’s central bank, Elvira Nabiullina, has reported to Vladimir Putin that “There was the threat of being shut out of SWIFT. We updated our transaction system, and if anything happens, all SWIFT-format operations will continue to work. We created an analogous system.”

Russia is also part of a reported Chinese plan to install a new international monetary order that excludes U.S. dollars. Under that plan, China could buy Russian oil with yuan and Russia could then exchange that yuan for gold on the Shanghai exchange.

Now it appears Russia has another weapon in its anti-dollar arsenal.

Russia’s development bank, VEB, and several Russian state ministries are reportedly teaming up to develop blockchain technology. They want to create a fully encrypted, distributed, inexpensive payments system that does not rely on Western banks, SWIFT or the U.S. to move money around.

This has nothing to do with bitcoin, which is just another digital token. The blockchain technology (now often referred to as distributed ledger technology, or DLT) is a platform that can facilitate a wide variety of transfers — possibly including a new Russian-state cryptocurrency backed by gold.

“Putin coins,” anyone?

The ultimate loser here will be the dollar. That’s one more reason for investors to allocate part of their portfolios to assets such as gold.

Source: Daily Reckoning

 

[TaiShang]

De-Dollarization Continues: China, Iran to Eliminate Greenback From Bilateral Trade

The circle is complete. What began as efforts between Russia and Iran, and Russia and China, is joined by efforts between Iran and China.

Tyler Durden



The more Washington lashes out in anger at those who will not bow to the unipolar world order, the more the rest of the world fights back. As the launch of its Yuan/Gold-settled oil futures looms, China is escalating its de-dollarization scheme further by seeking a bilateral rial-yuan agreement with Iran.

As a reminder, nothing lasts forever...

The World Bank's former chief economist wants to replace the US dollar with a single global super-currency, saying it will create a more stable global financial system.

"The dominance of the greenback is the root cause of global financial and economic crises," Justin Yifu Lin told Bruegel, a Brussels-based policy-research think tank.

"The solution to this is to replace the national currency with a global currency."

The writing is on the wall for dollar hegemony. As Russian President Vladimir Putin said almost two months ago during the BRICs summit in Xiamen,

“Russia shares the BRICS countries’ concerns over the unfairness of the global financial and economic architecture, which does not give due regard to the growing weight of the emerging economies. We are ready to work together with our partners to promote international financial regulation reforms and to overcome the excessive domination of the limited number of reserve currencies.”

As Pepe Escobar recently noted, 'to overcome the excessive domination of the limited number of reserve currencies' is the most polite way of stating what the BRICS have been discussing for years now; how to bypass the US dollar, as well as the petrodollar.

Beijing is ready to step up the game. Soon China will launch a crude oil futures contract priced in yuan, and now, as RT reports, Tehran and Beijing are determined to find ways to avoid using the US dollar as a settlement currency in trade, according to a report by Iranian economic daily Financial Tribune.

The topic of de-dollarization was raised at a meeting between leading Chinese government political adviser Chen Yuan and Iranian central bank officials in Tehran.

“Rial-yuan’s bilateral monetary agreement can have a significant role in increasing the volume of trade between the two countries and in this regard, we have conducted a series of negotiations with the central bank of the Republic of China’s president,” said the Central Bank of Iran’s Governor Valiollah Seif.

Tehran has been pursuing the goal of eliminating the dollar in its trade and has been trying to sign currency swap agreements with a few target countries.

Chen said that Iran and China should develop their banking links and also underlined the unfairness of the existing financial system, dominated by a few developed countries. He added that other nations would do better if the unfair system is eliminated.

“We could use the experiences of European countries in establishing the euro as a common currency between many countries, which is not exclusively controlled by a single country. But until then, we need to utilize the maximum available capacities to expand our banking relations,” he was quoted as saying by the Iranian daily.

As Federico Pieraccini previously noted, until a few decades ago, any idea of straying away from the petrodollar was seen as a direct threat to American global hegemony, requiring of a military response. In 2017, given the decline in US credibility as a result of triggering wars against smaller countries (leaving aside countries like Russia, China, and Iran that have military capabilities the likes of which the US has not faced for more than seventy years), a general recession from the dollar-based system is taking place in many countries.

In recent years, it has become clear to many nations opposing Washington that the only way to adequately contain the fallout from the collapsing US empire is to progressively abandon the dollar. This serves to limit Washington’s capacity for military spending by creating the necessary alternative tools in the financial and economic realms that will eliminate Washington's dominance. This is essential in the Russo-Sino-Iranian strategy to unite Eurasia and thereby render the US irrelevant.

De-dollarization for Beijing, Moscow and Tehran has become a strategic priority. Eliminating the unlimited spending capacity of the Fed and the American economy means limiting US imperialist expansion and diminishing global destabilization. Without the usual US military power to strengthen and impose the use of US dollars, China, Russia and Iran have paved the way for important shifts in the global order.

The US shot itself in the foot by accelerating this process through their removal of Iran from the SWIFT system (paving the way for the Chinese alternative, known as CIPS) and imposing sanctions on countries like Russia, Iran and Venezuela. This also accelerated mining and acquisition of physical gold by Russia and China, which is in direct contrast to the situation in the US, with rumors of the FED no longer possessing any more gold. It is no secret that Beijing and Moscow are aiming for a gold-backed currency if and when the dollar should collapse. This has pushed unyielding countries to start operating in a non-dollar environment and through alternative financial systems.

For China, Iran and Russia, as well as other countries, de-dollarization has become a pressing issue.

Source: Zero Hedge

 

[TaiShang]

Nightmare for Petrodollar as Petroyuan Futures Due to Launch

China to launch crude oil futures denominated in yuan before the year is over.

RT
17 hours ago



China has successfully completed its fifth round of yuan-backed oil futures testing, and 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 volume,” 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.

The rise of the petro-yuan: China is aiming to overthrow US dollar as currency of choice for oil markethttps://t.co/zAWwWmjFiM pic.twitter.com/LPuJDfb2W6

— RT (@RT_com)
October 29, 2017

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 that 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: RT

***

A new year gift from China?

Big stuff is happening. Perhaps it is good to have the West distracted by foolish moves in this critical period.

 

[TaiShang]

Oil-Yuan-Gold: China Has a Plan to Break the Petrodollar

Beijing is launching yuan-denominated oil futures fully convertible into gold.

Pepe Escobar



Petrodollars have dominated the global energy markets for more than 40 years. But now, China is looking to change that by replacing the word dollars for yuan.

Nations, of course, have tried this before since the system was set up by former US Secretary of State Henry Kissinger in tandem with the House of Saud back in 1974

Vast populations across the Middle East and Northern Africa quickly felt the consequences when Iraq’s Saddam Hussein decided to sell oil in euros. Then there was Libya’s Muammar Gaddafi’s pan-African gold dinar blueprint, which failed to create a splash in an oil barrel.

Fast forward 25 years and China is making a move to break the United States petrodollar stranglehold. The plan is to set up oil-futures trading in the yuan, which will be fully convertible into gold on the Shanghai and Hong Kong foreign exchange markets.

The Shanghai Futures Exchange and its subsidiary, the Shanghai International Energy Exchange (INE), have already run four simulations for crude futures.

It was expected to be rolled out by the end of this year, but that looks unlikely to happen. But when it does get off the ground in 2018, the fundamentals will be clear – this triple oil-yuan-gold route will bypass the mighty greenback.

The era of the petroyuan will be at hand.

Still, there are questions on how Beijing will technically set up a rival futures market in crude oil to Brent and WTI, and how China’s capital controls will influence it.

Bejing has been quite discreet on this. The petroyuan was not even mentioned in the National Development and Reform Commission documents following the 19th National Congress of the Communist Party last October.

What is certain is that the BRICS, the acronym for Brazil, Russia, India, China and South Africa, did support the petroyuan move at their summit in Xiamen earlier this year. Diplomats confirmed that to the Asia Times.

Venezuela is also on board. It is crucial to remember that Russia is number two and Venezuela is number seven among the world’s Top 10 oil producers. Beijing already has close economic ties with Moscow, while it is distinctly possible that other producers will join the club.

“This contract has the potential to greatly help China’s push for yuan internationalization,” Yao Wei, chief China economist at Societe Generale in Paris, said, hitting the nail firmly on the head.

An extensive report by DBS in Singapore also hits most of the right notes, linking the internationalization of the yuan with the expansion of the grandiose Belt and Road Initiative.

Next year, six major BRI projects will be on the table.

Mega infrastructure developments will include the Jakarta-Bandung high-speed railway, the China-Laos railway and the Addis Ababa-Djibouti railway. The other key projects will be the Hungary-Serbia railway, the Melaka Gateway project in Malaysia and the upgrading of Gwadar port in Pakistan.

HSBC has estimated that the expansive Belt and Road program will generate no less than an additional, game-changing US$2.5 trillion worth of new trade a year.

It is important to remember that the “belt” in BRI is a series of corridors connecting Eastern China with oil-gas rich regions in Central Asia and the Middle East. The high-speed rail networks, or new “Silk Roads”, will simply traverse regions filled with, what else, un-mined gold.

But a key to the future of the petroyuan will revolve around the House of Saud, and what it will do. Should the Crown Prince, Mohammad bin Salman bin Abdulaziz Al Saud, also known as MBS, follow Russia’s lead? If it did, this would be one of the paradigm shifts of the century.

Yet there are signs of what could happen. Yuan-denominated gold contracts will be traded not only in Shanghai and Hong Kong but also in Dubai. Saudi Arabia is also considering issuing so-called Panda bonds, with close ally, the United Arab Emirates, taking the lead in the Middle East for Chinese interbank bonds.

Of course, the prelude to D-Day will be when the House of Saud officially announces that it accepts the yuan for at least part of its exports to China. But what is clear is that Saudi Arabia simply cannot afford to alienate Beijing as one of its top customers.

In the end, it will be China which will dictate future terms. That may include extra pressure for Beijing’s participation in Aramco’s IPO. In parallel, Washington would see Riyadh embracing the petroyuan as the ultimate red line.

An independent European report pointed to what might be Beijing’s trump card – “an authorization to issue treasury bills in yuan by Saudi Arabia” as well as the creation of a Saudi investment fund and a 5% share of Aramco.

Nations hit hard by US sanctions, such as Russia, Iran and Venezuela, will be among the first to embrace the petroyuan. Smaller producers, such as Angola and Nigeria, are already selling oil and gas to the world’s second-largest economy in Chinese currency.

As for nations involved in the new “Silk Roads” program that are not oil exporters, such as Pakistan, the least they can do is replace the dollar in bilateral trade. This is what Pakistan’s Interior Minister Ahsan Iqbal is currently mulling over.

Of course, there will be a “pushback” from the US. The dollar is still the global currency, even though it might have lost some of its luster in the past decade.

But the BRICS, as well as the Shanghai Cooperation Organization, or SCO, which includes prospective members Iran and Turkey, are increasingly settling bilateral and multilateral trade by bypassing the greenback.

In the end, it will not be over until the fat (golden) lady sings. When the beginning of the end of the petrodollar system becomes a fact, watch out for a US counterpunch.

Source: Asia Times

 

[Beast]

US shall attack China immediately. I dare her

 

[TaiShang]

US shall attack China immediately. I dare her

Mutually assured destruction makes it impossible for the US to go rogue against China.

They better get used to it.

I feel that after the US continues to recklessly alienate nations (the last example is their shrill behavior at the UNGA), China's alternative global regimes (mostly economic now) appear more attractive.

I think the US began to really lose when they failed to rein in the AIIB. So, let's not put all the blame on Trump. Obama generated no less hubris.

 

[terranMarine]

US shall attack China immediately. I dare her

We saw what happened to Saddam and Gadaffi, is it China's turn now? We are waiting for the US armada to show up in front of our door. Our DF-21D, DF-26 and infinite missiles will do the talking. But something tells me it's a no go zone

 

[TaiShang]

The Petro-Yuan Bombshell and Its Relation to the New US Security Doctrine

"Russia and China ... have concluded that pumping the US military budget by buying US bonds ... is an unsustainable proposition ..."

Pepe Escobar

The new 55-page “America First National Security Strategy (NSS), drafted over the course of 2017, defines Russia and China as “revisionist” powers, “rivals,” and for all practical purposes strategic competitors of the United States.

The NSS stops short of defining Russia and China as enemies, allowing for an “attempt to build a great partnership with those and other countries.” Still, Beijing qualified it as “reckless” and “irrational.” The Kremlin noted its “imperialist character” and “disregard for a multipolar world.” Iran, predictably, is described by the NSS as “the world’s most significant state sponsor of terrorism.”

Russia, China and Iran happen to be the three key movers and shakers in the ongoing geopolitical and geo-economic process of Eurasia integration.

The NSS can certainly be regarded as a response to what happened at the BRICS summit in Xiamen last September. Then, Russian President Vladimir Putin insisted on “the BRIC countries’ concerns over the unfairness of the global financial and economic architecture which does not give due regard to the growing weight of the emerging economies,” and stressed the need to “overcome the excessive domination of a limited number of reserve currencies.”

...

That was a clear reference to the US dollar, which accounts for nearly two-thirds of total reserve currency around the world and remains the benchmark determining the price of energy and strategic raw materials.

And that brings us to the unnamed secret at the heart of the NSS; the Russia-China “threat” to the US dollar.

The CIPS/SWIFT face-off

The website of the China Foreign Exchange Trade System (CFETS) recently announced the establishment of a yuan-ruble payment system, hinting that similar systems regarding other currencies participating in the New Silk Roads, a.k.a. Belt and Road Initiative (BRI) will also be in place in the near future.

Crucially, this is not about reducing currency risk; after all Russia and China have increasingly traded bilaterally in their own currencies since the 2014 US-imposed sanctions on Russia. This is about the implementation of a huge, new alternative reserve currency zone, bypassing the US dollar.

The decision follows the establishment by Beijing, in October 2015, of the China International Payments System (CIPS). CIPS has a cooperation agreement with the private, Belgium-based SWIFT international bank clearing system, through which virtually every global transaction must transit.

What matters, in this case, is that Beijing – as well as Moscow – clearly read the writing on the wall when, in 2012, Washington applied pressure on SWIFT; blocked international clearing for every Iranian bank; and froze $100 billion in Iranian assets overseas as well as Tehran’s potential to export oil. In the event that Washington might decide to slap sanctions on China, bank clearing though CIPS works as a de facto sanctions-evading mechanism.

Last March, Russia's central bank opened its first office in Beijing. Moscow is launching its first $1 billion yuan-denominated government bond sale. Moscow has made it very clear it is committed to a long-term strategy to stop using the US dollar as their primary currency in global trade, moving alongside Beijing towards what could be dubbed a post-Bretton Woods exchange system.

Gold is essential in this strategy. Russia, China, India, Brazil & South Africa are all either large producers or consumers of gold – or both. Following what has been extensively discussed in their summits since the early 2010s, the BRICS countries are bound to focus on trading physical gold.

Markets such as COMEX actually trade derivatives on gold, and are backed by an insignificant amount of physical gold. Major BRICS gold producers – especially the Russia-China partnership – plan to be able to exercise extra influence in setting up global gold prices.

The ultimate politically charged dossier

Intractable questions referring to the US dollar as the top reserve currency have been discussed at the highest levels of JP Morgan for at least five years now. There cannot be a more politically charged dossier. The NSS duly sidestepped it.

The current state of play is still all about the petrodollar system; since last year, what used to be a key, “secret” informal deal between the US and the House of Saud, is firmly in the public domain.

Even warriors in the Hindu Kush may now be aware of how oil and virtually all commodities must be traded in US dollars, and how these petrodollars are recycled into US Treasuries. Through this mechanism, Washington has accumulated an astonishing $20 trillion in debt – and counting.

Vast populations all across MENA (Middle East-Northern Africa) also learned what happened when Iraq’s Saddam Hussein decided to sell oil in euros, or when Muammar Gaddafi planned to issue a pan-African gold dinar.

But now it’s China who’s entering the fray, following through on plans set up way back in 2012. And the name of the game is oil-futures trading priced in yuan, with the yuan fully convertible into gold on the Shanghai and Hong Kong foreign exchange markets.

The Shanghai Futures Exchange and its subsidiary, the Shanghai International Energy Exchange (INE) have already run four production environment tests for crude oil futures. Operations were supposed to start at the end of 2017, but even if they start sometime in early 2018, the fundamentals are clear: this triple win (oil/yuan/gold) completely bypasses the US dollar. The era of the petro-yuan is at hand.

Of course, there are questions on how Beijing will technically manage to set up a rival mark to Brent and WTI, or whether China’s capital controls will influence it. Beijing has been quite discreet on the triple win; the petro-yuan was not even mentioned in National Development and Reform Commission documents following the 19th CCP Congress last October.

What’s certain is that the BRICS countries supported the petro-yuan move at their summit in Xiamen, as diplomats confirmed to Asia Times. Venezuela is also on board. It’s crucial to remember that Russia is number two and Venezuela is number seven among the world’s Top Ten oil producers. Considering the pull of China’s economy, they may soon be joined by other producers.

Yao Wei, chief China economist at Societe Generale in Paris, goes straight to the point, remarking how “this contract has the potential to greatly help China’s push for yuan internationalization.”

The hidden riches of “belt” and “road”

An extensive report by DBS in Singapore hits most of the right notes linking the internationalization of the yuan with the expansion of BRI.

In 2018, six major BRI projects will be on overdrive; the Jakarta-Bandung high-speed railway, the China-Laos railway, the Addis Ababa-Djibouti railway, the Hungary-Serbia railway, the Melaka Gateway project in Malaysia, and the upgrading of Gwadar port in Pakistan.

HSBC estimates that BRI as a whole will generate no less than an additional, game-changing $2.5 trillion worth of new trade a year.

It’s important to keep in mind that the “belt” in BRI should be seen as a series of corridors connecting Eastern China with oil/gas-rich regions in Central Asia and the Middle East, while the “roads” soon to be plied by high-speed rail traverse regions filled with – what else - un-mined gold.

A key determinant of the future of the petro-yuan is what the House of Saud will do about it. Should Crown Prince – and inevitable future king – MBS opt to follow Russia’s lead, to dub it as a paradigm shift would be the understatement of the century.

Yuan-denominated gold contracts will be traded not only in Shanghai and Hong Kong but also in Dubai. Saudi Arabia is also considering to issue so-called Panda bonds, after the Emirate of Sharjah is set to take the lead in the Middle East for Chinese interbank bonds.

Of course, the prelude to D-Day will be when the House of Saud officially announces it accepts yuan for at least part of its exports to China.

A follower of the Austrian school of economics correctly asserts that for oil-producing nations, higher oil price in US dollars is not as important as market share: “They are increasingly able to choose in which currencies they want to trade.”

What’s clear is that the House of Saud simply cannot alienate China as one of its top customers; it’s Beijing who will dictate future terms. That may include extra pressure for Chinese participation in Aramco’s IPO. In parallel, Washington would see Riyadh embracing the petro-yuan as the ultimate red line.

An independent European report points to what may be the Chinese trump card: “an authorization to issue treasury bills in yuan by Saudi Arabia,” the creation of a Saudi investment fund, and the acquisition of a 5% share of Aramco.

Nations under US sanctions, such as Russia, Iran and Venezuela, will be among the first to embrace the petro-yuan. Smaller producers such as Angola and Nigeria are already selling oil/gas to China in yuan.

And if you don’t export oil but are part of BRI, such as Pakistan, the least you can do is replace the US dollar in bilateral trade, as Interior Minister Ahsan Iqbal is currently evaluating.

A key feature of the geoeconomic heart of the world moving from the West towards Asia is that by the start of the next decade the petro-yuan and trade bypassing the US dollar will be certified facts on the ground across Eurasia.

The NSS for its part promises to preserve “peace through strength.” As Washington currently deploys no less than 291,000 troops in 183 countries and has sent Special Ops to no less than 149 nations in 2017 alone, it’s hard to argue the US is at “peace” – especially when the NSS seeks to channel even more resources to the industrial-military complex.

“Revisionist” Russia and China have committed an unpardonable sin; they have concluded that pumping the US military budget by buying US bonds that allow the US Treasury to finance a multi-trillion dollar deficit without raising interest rates is an unsustainable proposition for the Global South. Their “threat” – under the framework of BRICS as well as the SCO, which includes prospective members Iran and Turkey – is to increasingly settle bilateral and multilateral trade bypassing the US dollar.

It ain’t over till the fat (golden) lady sings. When the beginning of the end of the petrodollar system – established by Kissinger in tandem with the House of Saud way back in 1974 – becomes a fact on the ground, all eyes will be focused on the NSS counterpunch.

http://russia-insider.com/en/petro-yuan-bombshell-and-its-relation-new-us-security-doctrine/ri22044

 

[Beast]

Trump is losing control of US. US in background is run by Neocon. US is going into a dangerous direction.

 

[my2cents]

China's Yuan-for-Oil Deals Are a Direct Assault on the US Dollar

Yuan-for-oil will entirely change the monetary dynamics of global energy flows

Bryon King


If Saudi begins accepting yuan for oil, all bets are off on the petrodollar

Editor's note: Russia and China have already inked energy deals in yuan. The fact that the Saudis are inching closer to a similar agreement with Beijing should be front page news.

China is currently modifying the terms of its oil trade with Saudi Arabia. Specifically, China is working on a deal to pay for Saudi oil using Chinese yuan. This effort poses a direct threat to the security of the dollar.

If this China-Saudi deal happens — yuan for oil — it’s another step closer to the grave for the petrodollar, which has dominated global finance since 1974. You can revisit Jim Rickards article about the Assault on the Dollar, here.

To recap, the petrodollar is weakening because the dollar is losing power as the world’s reserve currency. This is similar to the way pounds sterling gradually fell out of favor during the decline of the British Empire. The decline may take a long time, but what we’re seeing today is another step in the death march of the dollar.

I’ll tell you how to protect your wealth in dollars after I explain this shift.

Since 1974, Saudi has accepted payment for almost all of its oil exports — to all countries — in dollars. This is due to an agreement between Saudi and the U.S., dating back to the days of President Nixon.

Beginning about 15 years ago, China ceased being self-sufficient in oil, and began buying Saudi oil. As per all Saudi customers, China had to pay in dollars. Even today, China still pays for Saudi oil in U.S. dollars and not yuan, which perturbs China’s leaders.

Since 2010, China’s total oil imports have nearly doubled. According to Bloomberg News, China has surpassed the U.S. as the world’s largest oil importing nation. Here’s a chart, showing the trend.

As China imports more and more oil, the idea of paying for that oil in yuan instead of dollars becomes more critical. China does not want to use dollars to buy oil. So, China is beginning to squeeze Saudi over the form of currency in which their oil trade is conducted. China is doing this by steadily lowering its oil purchases from Saudi.

Presently, China’s three top oil suppliers are Russia, Saudi Arabia and the West African nation of Angola. Backing-up these three key suppliers are a combination of sources in Iran, Iraq and Oman, which help to diversify China’s oil-supply chain.

In the past few years, China has shifted oil purchases away from Saudi, and Russia’s oil exports have risen from 5% to 15% of the Chinese total.

China imports more oil from Russia, Iran, Iraq and Oman; less from Saudi.

Saudi’s share of Chinese imports has dropped from over 25% in 2008, to under 15% now. Meanwhile, Saudi competitors Russia, Iran, Iraq and Oman are selling more oil to China.

Saudi would like to reverse this declining trend of oil-trade with China. However, these kind of major oil flows don’t just happen in a vacuum.

There’s a good reason why Russian oil sales to China are increasing. As you’ll see in Nomi’s article, trade and financial services are often closely linked. Over the past few years, China has deepened its trading roots with Russia — now, China pays for Russian oil in yuan. Russia, in turn, uses yuan to buy goods from China.

Beyond trade in goods, within the past six months Russia has set up a branch of the Bank of Russia in Beijing. From there, Russia can use its Chinese yuan to buy gold on the Shanghai Exchange. In a sense, Chinese-Russian oil trade is now backed-up by a “gold standard.”

Looking ahead, Saudi Arabia will find itself more and more locked-out of the Chinese oil market if it won’t sell oil for yuan. But to do this, the Saudis must move away from U.S. dollars— and from petrodollars — if Saudi wants to maintain and increase access to China’s oil market.

We’ll know more about the likelihood of this after Donald Trump’s tour of the Middle East.

If Saudi begins accepting yuan for oil, all bets are off on the petrodollar. Yuan-for-oil will entirely change the monetary dynamics of global energy flows. I expect the U.S. dollar to weaken severely when that news breaks.

Much of this oil-for-yuan news is public information. Yet, for some strange reason, there’s a form of blindness within western policymaking and media circles concerning the implications of yuan-for-oil. The idea is so “off-the-wall” that many policy leaders simply ignore it.

Ignore away. But we could wake up one morning in the midst of a massive currency crisis, in which dollar values are falling and oil prices in dollars are soaring.

Source: Daily Reckoning

@Shotgunner51 , @AndrewJin , @Han Patriot , @terranMarine , @Dungeness

You still have huge dollar reserves. How are you going to spend it??

Every year your surplus trade with US and the rest of the world is only going to increase your dollar reserves.

 

[TaiShang]

You still have huge dollar reserves. How are you going to spend it??

Every year your surplus trade with US and the rest of the world is only going to increase your dollar reserves.

I think one way is to move from low-yield US treasury bonds to high-value asset purchases. For instance, China has been targeting semiconductor, AI, and robotics assets to increase its industrial portfolio.

The near-to-medium term plan is not really to do away with the USD. But, introduce alternative medium to reduce US influence and control.

Trump is losing control of US. US in background is run by Neocon. US is going into a dangerous direction.

Trump may be scared of being assassinated. So he is doing all he can to comply, including the funny anti-China, anti-Russia circus.

 

[Yingluck]

For a long time, the world suffers under the USD hegemony. From time to time, USA will create financial crisis in countries, forcing these hapless states to sell their prize assets to elite western financial institutions. The wealth of Goldman Sachs is built upon the prostitution of daughters, and enslavement of sons of 3rd world countries.

De-dollarization in one perspective is swapping debts own to USA, and move on to owning debts to China in RMB.

For example, Venezuela by using currency swap with China, in reality prevented default in USD, by converting all her CNY to USD -- then return them to western creditors.

Next thing, China will help Venezuela to repay the debt by developing the country.

In this sense, China is the most benevolent superpower in the world.

 

[TaiShang]

Surging Russia/China Trade Further Undermines Petro-Dollar

Russian/Chinese bilateral trade soars to $84.1 billion in 2017 way ahead of schedule

Tom Luongo
Jan 12, 2018

The latest trade figures on Chinese/Russian trade should be further warning to the U.S. that economic sanctions do not work. In May 2017 Russian and China agreed to increase bilateral trade to $80 billion by the end of 2018.

Well, they’re a year ahead of schedule.

The official figures for 2017 came in at $84.07 billion.

They did more than $8.1 billion in business in December alone. With the opening of the new ESPO oil pipeline connecting Siberia to China doubling the amount of oil China can import to 600,000 barrels per day we’ll see those numbers continue to accelerate.

And that’s the key. Remember, the massive $400 billion gas deal China made with Gazprom in 2014 hasn’t begun delivering gas. The first Power of Siberia pipeline isn’t due to be completed until 2019. The second Power of Siberia pipeline is on the table after this one.

And the two countries just agreed to a third pipeline to bring gas in from Russia’s far east last month.

So, despite back-biting from western media about the profitability of these projects, they are going forward and the two countries continue to strengthen fundamental ties to one another.

Greasing the Skids

We are now just a week away from trading yuan-denominated oil futures on the Shanghai International Energy Exchange(INE). Trading begins January 18th.

And while that won’t change the face of oil futures overnight, it will begin shifting price discovery away from U.S. dollar markets. It will also improve external yuan liquidity as well as visibility for Russian oil on the global market.

The Shanghai contract is for Medium Sour crude which is closer to the type of oil mainly produced by Russia. Russian Urals crude is considered Medium Sour. Saudi Arabia’s and most of OPEC is sour oil (higher in sulfur with a lower pH). With the OPEC production cuts which Russia agreed to emulate, mostly hit this market.

Both WTI and Brent crude are benchmarks for Light Sweet Crude like that of the U.S. shale producers, Venezuela, Nigeria and Libya. So, this contract is designed to properly price other grades of oil not tailored to U.S. refinery needs.

And for that reason alone it will be a major competitor in the long run. The current oil market is heavily fragmented because there is no direct futures market for Sour grades of crude.

Shanghai’s contract is changing that game. Between this and that profits from it can be converted to gold via the Shanghai Gold Exchange, gives this market immediate credibility.

The effects of this have been over-stated on the one hand by hard-money advocates and under-stated on the other by entrenched financial analysts.

The important takeaway is that China has created the first unassailable and above-ground challenge to the petro-dollar oil trade. To break the world’s use of the dollar as the sole settlement currency for oil required the right contract issued by a country the U.S. can’t immediately invade and conduct a regime change operation in – like in Iraq and Libya.

Russia wins here because now there is a path for its Urals grade to become an international benchmark like WTI and Brent. And since Gazprom prefers to price its long-term gas contracts based on underlying oil prices rather than the more volatile natural gas price, this is also a win in the long run for them.

Gold convertibility is a means to deepen China’s sovereign debt markets by making it less risky to hold Chinese bonds. The lack of true yuan convertibility is the big impediment to people holding them. So, gold convertibility creates a viable exit route.

A Means to an End

Increasing trade between Russia and China has to and will go far beyond energy for its partnership to thrive. The oil trade is simply a means to building the underlying capital flow between the two countries. It makes it easier for Russian businesses to get access to Chinese capital and vice versa.

And this rapid acceleration of bilateral trade is necessary in the face of more severe U.S. economic sanctions against Russia likely coming next month. The way to avoid sanctions is to build alternate means to do business.

We will continue to target Russian banks and financial oligarchs with the idea of curtailing economic growth by cutting out their ability to source overseas capital. And again, this is why China is so important to Russia.

Because the more we push them away the more they can turn to their Chinese partners for assistance and the U.S. doesn’t dare sanction China, no matter how much President Trump bloviates about it.

China announced last week that it would not longer be accumulating U.S. treasury assets. Presumably, this mean that it will no longer recycle its trade surplus with the U.S. to halt appreciation of the Yuan versus the dollar.

It’s had to over the past year with the dollar weakening like it has. But that wave is coming to an end with a reversal of Fed policy and Trump’s tax cut bill. Rising rates in the U.S. will allow China to divest its Treasury holdings at its leisure without overly affecting the Yuan while it also deepens Yuan liquidity through its now gold-convertible bond market.

Those trade dollars will be spent in pursuit of China’s One Belt, One Road initiative and overseas where it has business. I’m sure if Russia gets into another dollar-funding crisis with new sanctions China will be there to provide dollar liquidity, just like in 2015.

Both countries understand the stakes and continue to make the right moves to support the changing macroeconomic environment. With U.S. bonds on the verge of entering a bear market conditions are ripe for China to deploy its massive savings to resume remaking the Asian continent.

http://russia-insider.com/en/surging-russiachina-trade-further-undermines-petro-dollar/ri22179