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The End of the PetroDollar-Is It
Finally Here & What Will it Mean for Americans?
A new
financial instrument gives oil-exporting nations their long-sought alternative
to the petrodollar.
China will soon
introduce a crude oil futures contract denominated in yuan and convertible into
gold, the Nikkei
Asian Review reported on September 1. Analysts say that since China
is the world’s largest oil importer, the move could deal a major blow to the
global influence of the United States dollar.
The contract will allow oil-exporting
nations such as Russia, Iran and Venezuela to conduct sales in yuan, instead of
in U.S. dollars, and to then change the yuan into gold on both the Hong Kong
and Shanghai exchanges. It will also allow these countries, which often fall
afoul of American foreign policy, to circumvent sanctions based on the U.S.
dollar.
The Chinese government has been
developing the gold-backed futures contract for years, and Oilprice.com reports
that it is expected to launch this year. It will be China’s first commodities
futures contract available to foreign entities. Analysts expect many
oil-exporting nations and firms to find it appealing.
‘Black Liquid to Yellow Metal’
Leaders of oil-exporting nations,
such as Russia, Iran and Venezuela, have often expressed the desire to bypass
the U.S. dollar. But avoiding the greenback has proved challenging, largely due
to the size of America’s economy, the dominance of U.S. markets, and the
momentum of long-standing global finance practices. As much as these nations
would like to close the curtain on the U.S.-dominated economic order, the
Chinese yuan and other currencies have not garnered enough international
confidence to be viewed as trustworthy alternatives.
But China’s new futures contract
allays those fears by making the yuan fully convertible into gold.
“It’s a transfer of holding their
assets in black liquid to yellow metal,” said Grant Williams, a finance expert
who advises Vulpes Investment Management. “It’s a strategic move swapping oil
for gold, rather than for U.S. Treasuries, which can be printed out of thin air”
(ibid).
Alasdair Macleod of Goldmoney Inc.
told the NikkeiAsian
Review that the gold conversion option is “likely to appeal to oil
producers that prefer to avoid using dollars and are not ready to accept that
being paid in yuan for oil sales to China is a good idea either” (ibid).
The Asia Times said, “The new
triad of oil, yuan and gold is actually a win-win-win” for China and the
oil-exporting nations. “No problem at all if energy providers prefer to be paid
in physical gold instead of yuan. The key message is the U.S. dollar being
bypassed” (September 5).
The bypassing of the U.S. dollar
would be a win for China and many oil exporters. For the American economy, it
could represent a catastrophic loss.
Black Eyes for the Greenback
The dollar has dominated
international markets since the end of World War ii in 1945. Since 1973, the
Organization of the Petroleum Exporting Countries (opec) has priced, quoted, traded and settled oil sales in U.S.
dollars, also known as “petrodollars.” The widespread conversion of these
petrodollars into U.S. Treasuries has been a vital artery for the American
economy and has helped finance the nation’s vast deficit expenditures. The
Chinese contract could dry up the flow through that artery, withering or
possibly even severing it.
“In addition to reducing a major
source of funding for the U.S. government’s enormous deficit spending, the
introduction of a gold-backed yuan oil futures contract is an important step
toward removing the dollar as the world’s reserve currency,” wrote Investment
Research Dynamics. “More significantly, it reintroduces gold into the global
monetary system” (September 3).
After such a reintroduction of the
precious metal into the world system, the anemia of America’s fiat currency
would contrast starkly with the ruddy currencies of economies that are
healthier and/or backed by something besides consumer confidence. This would
rapidly fade the dollar’s global reserve currency status.
Bolt From the Blue?
The appeal of the new Chinese futures
contract may go beyond the usual suspects on the list of American adversaries.
Back in July, the Trumpet
called attention to reports saying that China would become the main investor in
the forthcoming initial public offering of Aramco, Saudi Arabia’s state-owned
oil company. Aramco will be worth about $2 trillion; it will be the
highest-valued firm on the globe.
If this sale goes through as planned,
Macleod said the Chinese would be in a position to switch the pricing of Saudi
oil from dollars to yuan. “[I]f China can tie in Aramco, with Russia, Iran et
al., she will have a degree of influence over nearly 40 percent of global
production, and will be able to progress her desire to exclude dollars for
yuan,” Macleod said (Nikkei Asian Review, op cit).
Such a dramatic and unexpected shift
by Riyadh would also erode the very foundations of the U.S.-Saudi Arabia
relationship.
Red Flags for the Status Quo
Whether the Saudis sign up for the
Chinese futures contract or not, the development is expected to be a game
changer for the global oil industry.
Investment Research Dynamics said
China’s new contract “is a significant step in removing the global reserve
currency status of the dollar and resetting the global economic and
geopolitical ‘landscape’” (op cit).
James Corbett, founder of the Corbett Report,
called the development “earthshaking” and said it is “potentially ominous for
what it portends for the near future.”
Corbett said: “If this really is the
shot across the bow, then those kinds of shots can turn into real shots very quickly.
… Over the course of the next year, I think we are going to be seeing some
pretty tectonic shifts taking place monetarily, geopolitically and, as a
result, potentially militarily. And, well, that could kick off any day
presumably” (September 6).
A Golden Age
For five decades, the Trumpet
and our forerunner magazine the Plain Truth have warned that a
catastrophic financial crisis centered in the U.S. will send deep
reverberations across the planet and help recolor the entire geopolitical
landscape.
If China’s new oil futures contract succeeds in pushing
oil-exporting nations away from the dollar and toward the gold-backed Yuan
option—as numerous experts believe it is certain to do—this development will
precipitate the dollar’s demise and set the international stage for this
prophesied siege to take place.
Yours for
smarter living,
Bruce ‘the
Poor Man’
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