China recently opened up crude oil futures trading this past Monday to a very enthusiastic market interest with its first day seeing nearly $3 billion, giving a considerable boost to the value of the Yuan on the international market. The opening of this new futures market is a bid to hedge price volatility and obtain greater pricing power in the crude business, given that China is the world’s largest importer.
Generally speaking, any country that wants to buy oil needs to buy dollars first, with which to accomplish the commodity purchase, which is a major aspect of the dollar’s global hegemony in international trade.
Needless to say, the use of the gold backed Yuan as a major trade currency could also increase China’s standing while reducing it’s dependence on the currency of a major economic and strategic competitor. As the dollar has consistently dropped in value over the course of the past year, and now into its fifth consecutive quarter, this new market may just escalate its decline.
Together with its regional One Belt One Road Initiative, China is opening up trade routes across Eurasia, the Middle East, and Africa, to increase the prominence, usage, and international value of the Yuan, while providing a trade network that is independent of Western dominated trade routes and “protection”.
As the largest importer of crude, China’s crude business is consequently a large chunk of the petrodollar’s market share. With the transition to the Yuan in progress, this move from China stands to knock a major leg out from under the dollar’s international prominence and value. The dollar’s outlook begins to dim even more major oil producing nations coming under fire from US sanctions, such as Iran, Russia, and Venezuela, as the option to drop the dollar and trade in China’s Yuan provides them both a way out of some of the damage caused by these sanction.
The US, in attempting to maintain its global hegemony has been resorting to international bullying in its sanctions and financial practices, which have naturally resulted in its own undoing by forcing these regions to take such measures as a means of ensuring their own economic survival without the need to capitulate to America’s toxic interests. By continuing down this path, the US is only ensuring its eventual irrelevance on the global economical stage.
The statements, views and opinions expressed in this column are solely those of the author and do not necessarily represent those of The Duran.