Petroyuan System

The Petroyuan is a Chinese oil contract system that is backed by gold and provides an alternative to the US dollar.

More About Petroyuan

Petroyuan - A China Petrodollar Alternative (2018)
  • China has launched an oils future contract that is denominated in Yuan
  • However, there is limited demand from oil producers for Yuan
  • To make this contract attractive, China setup the futures contracts so that holders could convert yuan into physical gold
  • The contract thus allow anyone to trade oil for gold

Implications
  • Allows Oil Exporters to bypass the traditional Petrodollar System (US Dollar and US Financial System)
  • Provides a way for companies that are sanctioned by the US to sell their oil (Russia, Iran, etc.)
  • Could destabilize the US Dollar if it becomes popular

More Details
  • The contracts can be converted to gold through exchanged in Shanghai or Hong Kong
  • PetroChina and Sinopec will be initial buyers of the contracts (to supply liquidity)
  • First Chinese commodities futures contract open to foreigners

Why It Makes Sense (for the Chinese)
  • Chinese GDP and Oil Demand is rapidly growing
  • China will eventually becomes the world's largest oil importer
  • Helps China escape from US Control of the worldwide financial system
  • Allows China to print yuan to pay for imports

Why It Makes Sense for Other Countries to Use
  • Avoid control from the US government
  • Avoid sanctions and US monitoring
  • Reduce risk of USD inflation

China Gold Background
  • China is currently the largest gold miner and buyer in the world
  • China has been rapidly accumulating gold reserves
  • Shanghai has the worlds largest physical gold market