The world’s top oil importer, China, is preparing to launch a crude oil futures contract denominated in Chinese yuan and convertible into gold, potentially creating the most important Asian oil benchmark and allowing oil exporters to bypass U.S.-dollar denominated benchmarks by trading in yuan, Nikkei Asian Review reports.
The crude oil futures will be the first commodity contract in China open to foreign investment funds, trading houses, and oil firms. The circumvention of U.S. dollar trade could allow oil exporters such as Russia and Iran, for example, to bypass U.S. sanctions by trading in yuan, according to Nikkei Asian Review. To make the yuan-denominated contract more attractive, China plans the yuan to be fully convertible in gold on the Shanghai and Hong Kong exchanges.
Last month, the Shanghai Futures Exchange and its subsidiary Shanghai International Energy Exchange, INE, successfully completed four tests in production environment for the crude oil futures, and the exchange continues with preparatory works for the listing of crude oil futures, aiming for the 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.
Yes, the rules are changing. Welcome to a truly multi-polar world, where nations no longer have to be shackled to the dollar.
China’s pricing of assets in yuan – coupled with the Hong Kong Stock Exchange’s plan to sell physical gold contracts priced in the currency – will create a system where countries can sidestep the US banking system, Tinker said in an Aug 30 note.
“Having accepted payment for oil or gas in yuan, the seller, be it Russia or Saudi Arabia or anyone else for that matter, does not have to worry about having excess yuan, they can simply trade it back into gold,” Tinker said.
“We are moving to a multi-polar world.”