Just days after Beijing officially launched Yuan-denominated crude oil futures which are expected to quickly become the third global price benchmark along Brent and WTI, China took the next major step in the challenging the Dollar's supremacy as global reserve currency when on Thursday Reuters reported that China took the first steps to paying for crude oil imports in its own currency instead of the US Dollars.
A change in the default crude oil transactional currency - which for decades has been the "Petrodollar", blessing the US with global reserve currency status - would have monumental consequences for capital allocations and trade flows, not to mention geopolitics: as Reuters notes, a shift in just a small part of global oil trade into the yuan is potentially huge.
Superficially, for China it would be a matter of nationalistic pride to see oil trade transact in Yuan: "Being the biggest buyer of oil, it's only natural for China to push for the usage of yuan for payment settlement. This will also improve the yuan liquidity in the global market," said one of the people briefed on the matter by Chinese authorities.
The danger, of course, is that such a shift would also boost the value of the Yuan, hardly what China needs considering it was just two a half years ago that Beijing launched a controversial Yuan devaluation to boost its exports and economy.
Which is why restructuring oil fund flows may be the best first step: as of this moment, China is the world's second-largest oil consumer and in 2017 overtook the United States as the biggest importer of crude oil; its demand is a key determinant of global oil prices.
As Rueters notes, China's plan to use yuan to pay for oil comes amid a more than year-long gradual strengthening of the currency, which looks set to post a fifth straight quarterly gain, its longest winning streak since 2013.
The potential for greater foreign ownership of Chinese assets is therefore not impacted by CNY oil invoicing and would require instead oil exporters to recycle their proceeds in local assets, for example.
https://www.zerohedge.com/news/2018-03-31/china-plans-pay-oil-imports-yuan-instead-dollars
A change in the default crude oil transactional currency - which for decades has been the "Petrodollar", blessing the US with global reserve currency status - would have monumental consequences for capital allocations and trade flows, not to mention geopolitics: as Reuters notes, a shift in just a small part of global oil trade into the yuan is potentially huge.
Superficially, for China it would be a matter of nationalistic pride to see oil trade transact in Yuan: "Being the biggest buyer of oil, it's only natural for China to push for the usage of yuan for payment settlement. This will also improve the yuan liquidity in the global market," said one of the people briefed on the matter by Chinese authorities.
The danger, of course, is that such a shift would also boost the value of the Yuan, hardly what China needs considering it was just two a half years ago that Beijing launched a controversial Yuan devaluation to boost its exports and economy.
Which is why restructuring oil fund flows may be the best first step: as of this moment, China is the world's second-largest oil consumer and in 2017 overtook the United States as the biggest importer of crude oil; its demand is a key determinant of global oil prices.
As Rueters notes, China's plan to use yuan to pay for oil comes amid a more than year-long gradual strengthening of the currency, which looks set to post a fifth straight quarterly gain, its longest winning streak since 2013.
The potential for greater foreign ownership of Chinese assets is therefore not impacted by CNY oil invoicing and would require instead oil exporters to recycle their proceeds in local assets, for example.
https://www.zerohedge.com/news/2018-03-31/china-plans-pay-oil-imports-yuan-instead-dollars
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