China Challenges the Petrodollar

This will be the second of a series of meet ups dedicated to the changes in world economic governance likely to occur as a result of the geopolitical shifts set in motion by the rise of China. This time we will look at China's bid to replace (or reform?) our current international monetary system based on the petrodollar. On September 6th 2017, China announced the launch of a gold-backed, yuan-denominated oil futures contract. The move potentially creates a way for oil exporters to circumvent the dollar by trading in yuan, and China is making the prospect attractive by granting the convertibility of the yuan into gold in the Shanghai and Hong Kong exchanges.

An article in the Nikkei Asian Review explains the significance of this move: 'The contract could become the most important Asia-backed crude oil benchmark, given that China is the world's biggest oil importer.'

https://asia.nikkei.com/Markets/Commodities/China-sees-new-world-order-with-oil-benchmark-backed-by-gold

Now China needs to get as many oil exporting countries as possible on board, if its bid to displace the dollar is to succeed. Being able to convert oil into gold should be a powerful incentive, yet we know that trying to abandon the petrodollar can turn out to be the kiss of death....

We will outline a brief history of the petrodollar agreement and how it has been kept in place over the years, and then we'll move on to look at how China is trying to win over as many oil exporting countries as possible. What will be the likely outcome? You are welcome to join the discussion!