Oil trading in Yuan: How will it change the oil & gas business
Over the last few weeks there has been a lot of hype about the new Chinese crude oil futures contract launched by the Shanghai International Energy Exchange. 8Many experts have heralded this as a world-changing event, with headlines predicting a shift in the global financial system that could threaten US dollar hegemony. 8Shifting just part of the global oil trade to yuan, they argue, would improve the liquidity of the yuan in the global market and promote its use in global trade (one of the country’s key long-term goals). 8Further, they argue that expanding futures trading to include other commodities would require central banks and government treasuries around the world to reduce their dollar holdings and build their store of Chinese yuan. At present, the yuan only represents around 1 per cent of the global reserve currency, while the dollar accounts for 63 per cent, according to International Monetary Fund estimates. 8Finally, it would also reduce China’s dollar holdings, and the corresponding need to ‘round trip’ them back into the US in the form of treasury purchases. 8These three points, they argue, could create the conditions for the yuan to challenge the dollar, by increasing the role of the yuan as a global trading currency and reducing the dollar’s importance. Click on Reports for more on how the intricacies will work.