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Is Gold Backed Petro-Yuan a threat to USD?

Is Gold Backed Petro-Yuan a threat to USD?

This year, history was made. There is now a new way to trade oil and the impact it could have on the global oil market and especially the US dollar who’s been dominating the industry as the international reserve currency since the 1970s.
 
Let’s go back to that period of history, more specifically to the oil crisis era where prices swiftly raised causing a stir and making the greenback the sole opportunist to set stability to the market. This is how it became the hegemonic force for oil exporting countries.
 
China is the world’s biggest oil importer buying approximately 9 million barrels of oil every day and is now aspired to use its own currency to put a price tag on the world’s most traded commodity. We have all heard of the petrodollar but what about the petro-yuan? The US dollar has always been by default, the main currency for future oil contracts, therefore suggesting such alternative is a sign that China wants the yuan to play a bigger role in global oil trading.
 
Chinese president Xi Jinping had given mention to such initiative naming it “one belt, one road” that consists in developing ties across Europe, the Middle East and Asia. China also wants to challenge the world's most used oil benchmarks, Brent and WTI crude, which are simultaneously priced in USD. As a reality check though, Shanghai-traded oil is still miles away from reaching benchmark status and tackling the petrodollar will not be a piece of cake.
 
So what backlash could it have on the United States?
 
The US dollar has been continuously crumbling for quite a while. A large number of countries now seek in straightening out overseas transactions using reciprocal exchange understandings. This pattern is relied upon more and more to wind up more typical as countries endeavor to circumnavigate the US dollar in exchange bargains due to the regularly expanding number of sanctions the United States is setting on countries. As an immediate consequence of this, the already tremendous (yet manufactured) interest for 
 
US dollars has started to fall and the thump on impacts, which might be found in the nation, thus, will be significant. The Petrodollar in a roundabout way fills the United States' expense as Treasuries support it. In this way, a fall in the utilization of the Petrodollar will bring about a lessening in one key driver of financial development; government allocation. Notwithstanding the effect on economic progress, the dollars’ worth significantly relies upon its utilization as worldwide oil trade currency. 
 
An expel of such request as well as a solid decrease in the dollar's value will occur. It is fair to accept that this will build the rate at which countries walk out on the dollar, rather inclining toward the Yuan similar to a magnetic effect. Not to mention the Arab states of the Persian Gulf who key players in the industry.

13.04.2018

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