China Begins To Reset The World’s Reserve Currency System

It’s a strategic move swapping oil for gold, rather than for U.S. Treasuries, which can be printed out of thin air.  – Grant Williams

A report released by the Nikkei Asian Review indicates that China is prepared to release a yuan-denominated oil futures contract that is convertible (backed by) physical gold.  The contract will enable China’s largest oil suppliers to settle  oil sales in yuan, rather than in dollars, and then convert the yuan into gold on exchanges in Hong Kong and Shanghai.

This is a significant step in removing the global reserve currency status of the dollar and resetting the the global economic and geopolitical “landscape.”  Over the past several years, China has quietly established yuan-based currency exchange facilities, which has set up the ability to implement this new non-dollar trade settlement financial instrument. According to the Brookings Institute, 34 Central Banks around the world have signed bilateral local currency swap agreements with the PBoC as of of the end of September 2016, including the major oil-producing countries.  With this new contract, China’s largest oil suppliers will now be able to transact directly with China, and other oil importing countries, using yuan which are directly convertible into gold to settle the trade.

As Alasdair Macleod asserts, “It is a mechanism which 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.”

Since 1973, OPEC oil has been quoted and traded using to U.S. dollars, otherwise known as “petrodollars.”  The “recycling” of petrodollars into U.S. Treasuries has been the life-blood of the U.S. economic and political system.  In addition to reducing a major source of funding for the 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. More significantly it reintroduces gold into the global monetary system.

While the new gold-backed “petroyuan” will allow oil producers to sell oil for gold rather than Treasuries. Furthermore, it reduces the ability of the U.S. Government to impose its will on the rest of the world.  It’s a strategic step toward not only ridding the world of its dependence on dollars, but also of reducing the ability of the U.S. to exert global economic and financially tyranny.   I would also argue that it’s one of the primary reasons behind the inability of the western Central Banks to drive the price of gold lower recently.

38 thoughts on “China Begins To Reset The World’s Reserve Currency System

    1. Folks this is fake news and the alt media has fallen for it hook, line and sinker. The article comes from oil.com sourced from a Japanese website. There is absolutely no mention of a timetable or the naming of any Chinese officials. Actually I can’t one one article in China making this claim. This is all part of the pump and dump scheme that is currently going on pushed by the FED, the big banks, Greenspan and Rickards all working to create dollar weakness and stop the capital flight out of Europe flooding into the dollar and dollar based assets. The only thing remotely true about the article is that China is testing now on the Shanghai Exchange a crude futures contract traded in yuan. If China made the yuan fully convertible as the article implies on both the Shanghai Exchange and the Hong Kong Exchange this would cause massive yuan strength and collapse their exports and then their economy in addition to collapsing their new silk road project. The Chinese are not stupid. This would allow the US to convert the much stronger dollar to the yuan and then buy gold draining China of all its reserves. Simply not going to happen. In fact the yuan was pegged to the basket of currencies including the dollar but because of the strength of the dollar for over a year the dollar was removed from the basket. In other wards they want a weaker yuan and not a stronger one. Another problem with this is that China has over $22 trillion in liquidity and all of this would have to be backed. The total amount of all gold ever mined is from $7 to $9 trillion at today’s prices. Where are they going to get the gold from? Still another problem is that an economy needs a constant flow of new liquidity to grow so a country must always buy gold not to mention replacing what went out the gold window. There is simply no country on the planet that can afford to do this at today’s prices. The US was forced off the standard when gold was only at $35 and fixed as they could no longer afford to keep buying the metal. So many have fallen for this crap and most simply do not have the ability anymore to think thru and research what they read on the net. Common Core has been one great success!

      1. It comes from the Nikkei Asian Review and I included the link in my post. Whatever your wrote after your first couple of sentences was a waste of time for anyone who reads it. I did not. When you discredit a source and don’t even have proper source, everything you assert after that is useless.

      2. “If China made the yuan fully convertible as the article implies on both the Shanghai Exchange and the Hong Kong Exchange this would cause massive yuan strength and collapse their exports”

        How so? I get tired of hearing a weak currency is somehow a good thing. The U.S. was the #1 exporter in the world when our currency was gold and silver.

  1. This is all good news, not the end game, but more piling on to subvert the petrodollar. Gold may not go to the moon yet, but I imagine it will get a tremendous boost. Maybe the crypto crowd may take their winnings and plow it into physical. I spot a trend.

    China and Russia are incredibly patient, with China slowly building up the financial infrastructure to handle the new payments system, while Russia re-engineers the geo-political structure by having military successes. They don’t want an abrupt transition and to be seen to have overtly caused the reset, though they must be mightily pissed at us.

    As the dollar tanks, what will we do? Go to war or go the table to negotiate new global terms, albeit as a newly enfeebled superpower?

    It’s hard to imagine our hubris being moderated, yet when we fall, practical business minds may emerge.

    1. How is this a good thing for America? Yes, our murderous empire would collapse over time and deservedly so, but Americans will suffer more than anyone from a dollar collapse. We truly will turn into a third world country that will be at the mercy of a new superpower. The globalists will relish in the demise of the American empire so that they can usher in their satanic one world government. How anyone thinks that this will be a good thing is beyond me….

      1. You’re seeing posts by some who may be invested in precious metals who are excited about a reset higher.
        To answer your question, in the short run a dollar collapse will be a very hard thing for Americans, but these Americans have been living above their means due to the dollars reserve status and use for petroleum purchases. The government and the Federal Reserve have caused the problem with their reckless behavior. Ever since Nixon severed the dollar from gold in seventyone the world’s currencies have floated, with no intrinsic value. A return to sound money will be painful but is unavoidable, as every fiat currency in history has eventually reached its intrinsic value of zero.

  2. Hi Dave, could you elaborate on that please ?

    ” I would also argue that it’s one of the primary reasons behind the inability of the western Central Banks to drive the price of gold lower recently”

    What would be the mechanism preventing central banks to continue manipulating the gold “paper” market ?

    1. physical demand in anticipation of this event is greater than they can control with paper suppression. They can’t short paper to infinity because enough of those buyers will demand delivery and if they can’t deliver then they default. If they default, it’s game over and first the Comex then the dollar collapses.

    2. Like admin says, the demand for physical gold increases to the point that it overwhelms the criminal and fraudulent paper shorting schemes. The shorts have no gold, only paper, so when delivery of physical is demanded
      the shorts have to close their positions or procure metal to deliver. It was always just a matter of time before this occurred, mainly because the shorts are gaming the system to the detriment of precious metal investors.

  3. So the plot thickens and most likely another reason we are threatening to “NUKE” North Korea. The Bag O Pricks in DC still refuse to accept reality is thangs be a changing.

    Gold re-asserts itself as the go to asset. Going to be a rough ride but it has to happen….humble pie coming

  4. I have a business that imports industrial goods from South Korea; how can I create a gold-backed yuan trade mechanism? Do I need an SK bank and will they allow a Canadian corporation establish such a tool?

  5. Here comes crazy Jim Willie’s gold trade note. PCR has stated more than once that the world does not need a reserve currency, what we need is a reserve asset to balance trade. It has always been about gold for oil. Gold will be used as the global reserve to value one currency against another and to settle trade. This is about settling trade between nation states and currency zones, it is much much bigger than us little guys and our stack. Us little guys will be able to reap the wind fall when the final reset of the system arrives. A massive devaluation of currency against gold to recapitalize the system is on deck. The reset is picking up steam. Hopefully we don’t end up vaporized charcoal dust before it happens.
    BTW, I think crazy Jim Willies shit dollar will be arriving before to long as well.

  6. Great post, once again, Dave. The other component that is accelerating the demise of the dollar are economic sanctions being levied by the idiots in Washington, which only encourage more independence from the West. Concerning North Korea, the media is stumbling over itself to explain why none of its ideas have worked to discourage nuclear proliferation. Not that we have any business telling any country what to do with their military, but it’s clear by now that the U.S. is done for as a superpower. They Hence, PTB are scrambling to blanket the country in as much propaganda as possible.

  7. A very interesting development indeed but I see this as a first step IF they take it. For a long time China is planning this move to only push it forward in time. The problem is that China will be bleeding gold instead of accumulating it (is this why Russia recently started selling 80-100 tons a year via the SGE??). This because China wont demand (yet?) that her trade suplus with other nations sould be settled in gold. If this is the only move China makes, it makes no sense to me to be honest.

    If I understand monetary history well the opium wars were started by the English / West because they could not beat the Chinese competition and China was accepting only silver and gold as payment. Iam sure they did not forget that lesson.

    I would like to hear your opinion on this Dave! If you want me to elaborate my thoughts, let me know. Thanks.

    Regards,
    Hugo

    1. No. China accumulates gold at a much greater rate than their “official” public disclosure indicates. It’s estimated by several different sources that the PBoC has at least 25,000 tonnes

      1. Correct me if I’m wrong but isn’t this ability to convert ie a choice…(you can keep yuan and transact or convert to gold) the most free market concept for the price of gold. The more China trades with others in yuan, the greater the potential bid for gold. The gold they source for delivery could come from anywhere, right? Or am I wrong on this? Thanks. Also, from what I have read China is not keen on letting physical gold leave the country.

        1. There’s stiff regulations. I’ve got an inquiry into someone who will be able to find out how the rules apply w/regard to this new contract

    2. Even if China did become a net-seller of gold, you have to understand that it’s a form of savings, and eventually everyone spends their savings on something down the line, whether for emergency purposes or investment. Hopefully, in this case, it’s to become even more productive in the future…as opposed to what the West did by criminally leveraging its supply for disgusting military ventures and other pointless spending schemes.

      Personally, unless the East contracts case of the Stupid, I find it unlikely that China will ever export gold in the near future. Perhaps even for the next decade or more. Fact remains, the East hasn’t just been accumulating precious metals; it’s also been accumulating capital in many forms, especially land from many accounts, so there may not be much left for the West to barter with when this economic paradigm completely shifts. Probably what may happen is a sale of state-secrets and intellectual capital (think Operation PaperClip, but eastward). Otherwise, the U.S. and its close allies will be left to fend for themselves for quite a while with little, to no, gold to use as a unit-of-account.

      But there is one unit-of-account that we have plenty of! Aluminum cans! I tell you, those hobos are ahead of the game!

    3. Guys… you are missing the point: China’s gold will not bleed anywhere near as fast if it is significantly repriced.

      Assuming a constant price for oil to illustrate the point… gold at USD 13,500 will buy 10 times more oil than it does today…. at USD 40,000 it will buy 30 times more oil and so on.

      Those with the gold make the rules.

      Just keep stacking.

  8. There aren’t many nations that have enough surplus oil to export. For instance the U.S. Produces 10 million barrels of oil annually, but consumes 18 million. If China creates a gold trade note for oil, then the U.S. and other nations with large Dollar reserves could be cut off from the international oil markets. If that happened what would the U.S. export with an 8 million barrel annual oil deficit? Everything from food production, heavy transport, clean water, infrastructure maintenance, the war machine…I mean everything would be impacted. Without cheap oil we wouldn’t have any products to produce for export. Without exports we can’t get cheap oil. By winning the gold game China will have destroyed the majority of exporters that don’t have a gold stock pile to purchase cheap oil in order to keep their manufacturing bases competitive with China. The oil producers may want gold, but are also likely to want finished goods as well. Do you want an ounce of gold or a refrigerator ? How about a car? In the U.S. We will be energy starved and no longer a player or exporter of manufactured goods. The Dollar would be screwed and a lot of people with it.

  9. Judging by the latest COT, these assholes think they’ll always roll 7’s. Looks to me like it’s hammer time. I’ve always believed that it’s the PM suppression racket that will ultimately break these crooks. Game on!

  10. I believe George Soros is behind the breaking of the Gold Cartel right now and making gold go up in price. Just like he shorted and broke the British Pound. Soros is a shark and smells blood. Soros will go up against the central banks when time and price is right. Like I said, Soros is a shark.

  11. Since China runs a trade surplus with other nations a gold backed yuan will NOT drain gold reserves from China. The dollar would get hammered badly, once the petrodollar dies the dollar will cease being the world’s reserve currency. The yuan would strengthen, which would lower China’s cost for her oil imports. The worlds currency markets would be shaken up, but in the long run this would benefit most people having money again backed by gold or gold equivalents.

    1. Hi Bill,

      IF i understand the propsed deal well this is not the case. China offers full confertability for oil producers but does not demand that the countries she exports her goods to allow China to also settle that in gold. That is why I speculated in my post that this is only their first step. This means there will be a (long term) drain on the gold reserves of China, yes they are huge reserves but still not sustainable in the very long term. Something China will not do since if simple me can get it, they surely do.

      I still hold the thesis that the world (ex america) is working towards a new global NWO like monetary system. To be clear, I dont mean NWO in a conspiracy kind of way. Just killing the reserve currency status so no country has it kills +500 years of precent and thus empires based on that.

      In case you did not notice, most currencies of the EUrasian landmass are backed by gold. China joined last year. You can look at the ECB their website and see their balance sheet. The first item they list on their balance sheet as an asset is…… I kid you not, gold! Sadly also gold receibables. Good thing is they are marked to market. Fake paper market or not, at a certain point during the Euro crisis their gold assets were above 80% of their liabilities. Now they are way less then half of that. Hows that for a gold backing? The market decides how big a % of goldbacking they like for the currency.

      Elegant I say. Especially considering human nature. Finally the monetary world and real world have a connection that is as good as gold (smile)

      Tip, really look into the Iran vs gold oil trade during the height of the sanctions applied by america. We had currency trial runs here, There they gotten a great deal of experience in setteling trade differences in gild. Dont you find it amazing ppl there can board a plane with many kilos of gold during that time in quite some countries and here not even $10,000?

      Ah well, this is just an old man rambeling. Anyway, hope you enjoyed.

      Regards, Hugo

      Regards,
      Hugo

    2. Truth be told though, it is a little silly to speculate on whether China will retain its gold holds or not. We all know that gold (while wealth in itself for some ) is primarily acquired to be a medium of exchange, and as such differences in quantity don’t really matter when, in the end, prices will settle everything. Remember, gold is highly divisible; even grains are traded effectively in 3rd world countries for basic necessities. And if not gold, we can simply use silver, copper, etc, to settle our accounts (albeit, at the cost of convenience).

      For purposes of Industry though…that’s a different story. Gold is used in jewelry, electronics, medical devices, etc. So if China’s PTB wanted to have an industrial advantage against the West with respect to the production of gold-intensive products…accumulating artificially-cheap bullion would be the way to do it. Obviously, we don’t need more gold-plated smart-phones, but surely there is a far more valuable industrial use for all that sparkly stuff.

      To put that into perspective…I recall reading on how Platinum was instrumental in the production of the atom bomb during WWII. My moral outrage notwithstanding, this was a precious metal being used for a very serious strategic purpose. I’m not saying that China plans on taking over the world, but if they have as much gold as we believe…they’re going to put it to serious use. And I don’t think it’ll necessarily be for buying imports. I’m thinking…the next stage of energy-production.

  12. Hi Hugo,
    Since China net exports more than she imports she has plenty of foreign currencies to pay for imports. If the yuan rises in value China can purchase gold more cheaply. Their purchases combined with their massive gold mining output means China can easily replace any gold that leaves the country. Historically, capital always goes where its treated best. China, by backing their currency with gold, is treating capital very well indeed. The reason the US bled gold when the dollar was convertible was because the US was printing too many dollars and the rest of the world figured it out. Don’t take my word for it though, watch what happens; and don’t hold on to too many dollars.

    1. Hi Bill,

      Agreed that China has more then enough foreign currencies to pay for import. Iam curious what you mean with if the Yuan rises in value? I assume vs other fiats? If I understand it well, China’s gold production is falling. Just as in many other jurisdictions/countries.

      I agree on your capital goes where its treated best. Iam not sure if that is China. ”Internal capital” is not really treated well since you cannot move it freely to where once wants to move it to. ”External capital” is treated way better. Capital that is used in trade is treated best by China.

      For gold to work its magic really well the world must rebalance its trade flows so gold can settle the inbalances that occur every now and then. That means that China must stop its merchantalistic economic policies. Iam not sure if China is ready for that yet. Hence my speculation that this is only step one and more must follow if a fair multi polar world can emerge.

      Thanks for your advise on Dollars, I hold exactly 0 of them since Iam from Holland, a small country in EUrope (smile). To be clear, I dont hold many Euros either. I am amazed so many people in the West save in fiat, after all, the central banks openly state the are debasing the currencies and want to debase them more. I guess normalacy bias still rules.

      Regards,
      Hugo

  13. China losing its gold is an overblown concern. The futures contract is designed to purchase and sell oil, not gold. It’s not a gold arbitrage contract and it is certainly not convenient to purchase and sell oil contracts for the sake of obtaining gold. The gold convertibility permits the oil seller’s surplus to be turned into gold instead of U.S. treasuries, in the same way that the Saudis formerly converted and recycled their surplus into U.S. treasuries. The petrodollar system safeguarded the U.S. from the effects of spending / importing far beyond its means (not working too well any more because countries are decreasing the amount of this recycling) because the excess dollars were “sterilized” and warehoused inside of Treasuries, without the threat of massive inflation that would have occurred if trade imbalances were ultimately actually settled in something other than an infinite supply of digital fiat. The new Chinese contract may finally formally inject a competing reserve into the world financial system, namely gold, as a way to store surplus until it is needed and to settle trade imbalances. Likely the dollar will decrease in value as a result if the volume of the yuan oil contracts is high enough, the U.S. reserve currency “credit card” will be subject to a competing constraint and this will begin forcing the U.S. to live within its means, i.e., have its imports and exports roughly balance over a reasonable period of time instead of running a perpetual capital account deficit.

  14. Hi Hugo, yes, I believe if the yuan becomes gold convertible it will rise in value vs other currencies. I think it’s also becoming clear that the new US president, Trump will no longer allow China to get away with its unfair trade practices of the past. This North Korea issue could hasten this action by Trump, and the Chinese are starting to figure this out.

    I too am amazed at the number of people who save in fiat currencies. I think the book “When Money Dies “, the story of the 1922 1923 German hyperinflation should be required reading for all high school students.

    I visited your wonderful country back in the early 80s, and still have a few guilders around here somewhere. I found the Dutch to be very hospitable and honest.

  15. Hi Hugo,

    You wrote “China offers full confertability for oil producers but does not demand that the countries she exports her goods to allow China to also settle that in gold. .. This means there will be a (long term) drain on the gold reserves of China, ”

    I have a different view. Let’s do the math. In 2016, China imported 7.6 million bbl of crude oil per day. That was worth US$138.7 billion per year or equivalent to 3,450 metric tons of gold at an average price of say US$1,250 an oz in 2016.

    But the total amount of gold traded at the Shanghai Gold Exchange in 2016 was a record 24,338 metric tons.

    Assuming these were two way trades, the total amount of physical gold traded in 2016 at the SGE was 12, 169 metric tons which exceeded the 3,450 metric tons of gold needed to pay for oil imports in 2016. So there was no drain on physical gold from China then.

    The reason is that in the SGE there were international members like the Perth Mint and UBS and others who were selling gold. Oil sellers like Iran or Saudi Arabia can exchange their yuan with the gold from the Perth Mint or from UBS etc and not necessarily from China.

    But the other reason is that oil sellers like Iran and Saudi Arabia need yuan to buy Chinese consumer goods and they may not fully convert their yuan into gold.

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