Friday, June 8, 2018

How is the Petro Yuan Contract Doing?

Not long ago, the so called petro yuan contracts began trading for oil. This allowed traders to buy and sell oil contracts based on yuan rather than US dollars. Many observers are interested to see if this event begins to impact the US dollar in its role as the global reserve currency. 

This article on provides an update on how well yuan based contracts are doing in their startup phase. It looks like that so far the trading volume is still far below the US dollar based contracts, but is picking up some steam as time goes by. Below are a couple of excerpts.

"China’s new oil futures contract is gaining some momentum as a fixture on the global oil market, although hurdles remain before it can become a key benchmark for Asia.

China launched its yuan-denominated oil benchmark in March to much fanfare, after years of planning and delays. The logic of starting up an oil futures contract in China is obvious. China is the largest crude oil importer in the world, and its growing appetite for crude has increased the urgency to establish a contract based on local supply and demand conditions. Importing such heavy volumes at dollar-denominated prices exposes Chinese refiners and consumers to currency risk. A yuan contract mitigates some of that risk.

Beyond those concerns, the yuan contract also augments the global status of the Chinese currency. China is the world’s second largest economy and shifting more global trade into yuan advances Chinese influence.

However, the new contract on the Shanghai International Exchange still has to overcome some hurdles before . . . . . . ."

Added comments: We have noted that there are ongoing efforts by many nations led by China and Russia to reduce the role of the US dollar as the global reserve currency. The process continues all time in slow incremental steps. As we can see from this article on, China is always looking for ways to increase the use of the yuan around the world. Here is a quote from the article illustrating that fact:

"The Chinese yuan comes under the spotlight Tuesday and Wednesday when 17 top central bank and government officials from 14 countries in eastern and southern Africa meet in Harare to discuss its possible use as a reserve currency for the region."

Lately, many are predicting ramping up of sanctions against Iran may force Iran to look for ways to conduct oil trading outside the US dollar which could speed up the process of yuan based oil contracts increasing their share of use in global trade.

This recent article appearing on is interesting. It talks about how gold was used to bypass the sanctions against Iran in the past. It even shows a hand drawn diagram on how to do it.

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