Petro yuan versus Dollar, place your bets
There is a new sheriff in town
China’s historic issuance of ‘future’ oil contracts negotiated in yuan has provoked an interesting debate among analysts about the future of the dollar as the ruler of oil markets.
China’s strategy to internationalize the yuan as currency does not only include the petroyuan, but also the signing of currency swap agreements with other central banks and the installation of settlement centers abroad to open deposit accounts.
The International Monetary Fund (IMF) announced in 2015 the incorporation the yuan in special drawing rights in its basket of currencies, which gives the yuan a new category of “world currency”.
Experts believe that, over time, future contracts in yuan may become a global reference point in the oil trade.
The main difference and also an advantage over the dollar resides in the fact that since not all of the big traders of oil around the world need large reserves of the Chinese currency, they can convert them into gold, which is kind of impossible to do with the dollar.
How will this affect the dollar?
Until this week the dollar maintained the monopoly as the only currency in which oil future contracts could be negotiated, which gave the dollar an almost unbreakable solidity since it guaranteed the need to acquire this currency as an exchange value throughout the world.
Remember that the true value of the dollar does not come from its gold backing since during the presidency of Richard Nixon the United States abandoned the gold standard as the pattern of support for the North American currency.
However, since there is an alternative to the dollar as the only valid currency to negotiate oil contracts, which also allows changing that currency in gold if the trader requires it, the dollar will not only be affected in terms of its value, because the markets are going to want to ensure their capitals in something other than mere paper.
Now, the dollar does not have a gold support, and little by little, it will lose the attraction that until now it has maintained artificially, remember that there is nothing more cowardly than an investor trying to protect his capital is and will always bet on the safest stake.