Sep 062017
By Paul Ebeling on September 6, 2017 China Begins Resetting The World’s Reserve Currency System $GLD, $OIL, $CNY It is a strategic move swapping Crude Oil for Gold, rather than for US Treasuries, which can be printed at will. A report released by the Nikkei Asian Review indicates that China is prepared to release a RMB Yuan denominated Crude Oil futures contract that is convertible, aka backed by physical Gold. The contract will enable China’s largest Crude Oil suppliers to settle Crude Oil sales in RMB Yuan, rather than in USDs, and then convert the RMB Yuan into Gold on exchanges in Hong Kong and Shanghai. This is a significant step in removing the global reserve currency status of USD, and resetting the global economic and geopolitical “landscape.” Over the past several years, China has quietly established RMB Yuan-based currency exchange facilities, which has set up the ability to implement this new non-USD trade settlement financial instrument. According to the Brookings Institute, 34 Central Banks around the world have signed bi-lateral local currency swap agreements with the PBOC (Peoples Bank of China) as of the end of September 2016, including the major Crude Oil-producing countries. With this new contract, China’s largest Crude Oil suppliers will now be able to transact directly with China, and other Crude Oil importing countries, using RMB Yuan which are directly convertible into Gold to settle the trade. This is a mechanism which is likely to appeal to Crude Oil producers that prefer to avoid using USDs, and are not ready to accept that being paid in RMB Yuan for Crude Oil sales to China is a good idea yet. Since Y 1973, OPEC Crude Oil has been quoted and traded using USDs, otherwise known as “Petrodollars.” The “recycling” of petrodollars into US Treasuries has been the life-blood of the US economic and political system. In addition to reducing a major source of funding for the US Government’s enormous deficit spending, the introduction of a Gold-backed RMB Yuan Crude Oil futures contract is an important step toward removing the USD as the world’s reserve currency. More significantly it re-introduces Gold into the global monetary system. As the new Gold-backed “Petroyuan” will allow Crude Oil producers to sell Crude Oil for Gold rather than US Treasuries. Furthermore, it reduces the ability of the US Government to impose its will on the rest of the world. And is a strategic step toward not only ridding the (more…)
Dec 212013
Source: “When push comes to shove… [central] bankers turn on the monetary taps. The result has been a loss of confidence in the dollar.” – The Economist, July 2010 As we near the end of the first quarter of 2011, the potential for a widening of the uprisings in North Africa and the Middle East has pushed oil prices past the $100 mark. Long before the riots began, commodity prices had risen to uncomfortable levels, having soared over 30 percent in a matter of months. Currency creation by emerging market central banks was, and is, a major factor behind the rise in oil prices. Egypt’s M2 money supply, for example, rose 13.3 percent during 2010, while China’s M2 money supply increased by 17 percent and India’s M3 money supply increased by 15 percent. When currency creation outpaces GDP growth, too many artificially created rupees and yuan and pounds and euros chase too few goods, and price inflation results (Figure 1). In an economy largely propped up by quantitative easing and money supply expansion, three dominant factors are likely to impact gold and precious metals prices in 2011. They are: Movement away from currencies Central bank buying China Factor 1: Movement Away From Currencies Major currencies, including the US dollar, have been declining in purchasing power for years, but now the rate of depreciation is accelerating. Investors are losing confidence in the ability of the world’s largest economy to lift itself out of its $14 trillion debt. When (not if) interest rates rise from their artificially low levels, interest paid on the debt will soar. The Washington Post estimates it will quadruple by 2014. “When governments reach the point where they are borrowing to pay the interest on their borrowing they are coming dangerously close to running a sovereign Ponzi scheme,” says economist Nouriel Roubini. The US is rapidly approaching that point, and investor anxiety is increasing in concert with the realization that currency creation for bailout purposes – the knee-jerk monetary response to the financial crisis – is no longer a temporary matter. As quantitative easing becomes institutionalized, the “safe haven” US dollar continues its decline, sending precious metals prices higher. The Petrodollar Dilemma As the world’s reserve currency, the US dollar has enjoyed special status. Since 1973, the dollar has been the only currency in which oil could be traded, a key reason the US has been able to amass over (more…)