China's 'petro-yuan': The end of the dollar hegemony? [Reuters/Aljazeera]

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Exclusive - China taking first steps to pay for oil in yuan this...

HONG KONG/BEIJING (Reuters) - China is taking its first steps towards paying for imported crude oil in yuan instead of the U.S. dollar, three people with knowledge of the matter told Reuters, a key development in Beijing’s efforts to establish its currency internationally.

Shifting just part of global oil trade into the yuan is potentially huge. Oil is the world’s most traded commodity, with an annual trade value of around $14 trillion, roughly equivalent to China’s gross domestic product last year.

A pilot programme for yuan payment could be launched as early as the second half of this year, two of the people said.

(the yuan has now appreciated 3.4 percent against the dollar so far this year, with solid gains in recent sessions.)

Regulators have informally asked a handful of financial institutions to prepare for pricing China’s crude imports in the yuan, said the three sources at some of the financial firms.

“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.

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.

Under the plan being discussed, Beijing could possibly start with purchases from Russia and Angola.

Both Russia and Angola, like China, are keen to break the dollar’s global dominance. They are also two of the top suppliers of crude oil to China, along with Saudi Arabia.

China's 'petro-yuan': The end of the dollar hegemony?
China, the world's biggest oil importer buys around nine million barrels of oil every day and it wants to use its own currency to price the world's most-traded commodity.

The US dollar has been the main currency for oil futures contracts, so launching a contract in its domestic currency is a sign that China wants the yuan to play a bigger role in global oil trading.

China is also taking on the world's most used oil benchmarks, Brent and WTI crude, which are both priced in dollars. But Shanghai-traded oil is still far away from earning benchmark status and taking on the petrodollar won't be easy.

This change only affects the sale of oil futures, but in order for China's' footprint in the currency exchange sector to expand, "Meidan explains that the Chinese yuan would have to become "freely convertible, we would need other countries to open up to settlement in the renminbi; but the primary issue will be currency convertibility. And for now, the Chinese government is very reluctant to loosen currency controls and to give it up to free trade."



When are rubles gonna take on the petro dollar?

Remind me why Russia is portrayed as a bigger threat than china...