USD is dead: China caps its dollar holdings & plans crude oil futures priced in yuan

Dollar and Euro banknotes

China’s central bank has said it no longer sees any benefit in increasing its $3.66 trillion foreign currency reserves – already the world’s largest. China will cap its purchases of US dollars in an effort to limit the depreciation of the yuan.

“It’s no longer in China’s favor to accumulate foreign-exchange reserves,” Bloomberg quoted Yi Gang, a deputy governor at the central bank as saying Tuesday.

Decreasing the influence of the dollar and other currencies is a step closer to reaching China’s 2015 goal to “float” its currency and according to the People’s Bank of China will help the everyday Chinese citizen.

Between July and September 2013 China’s increased its foreign – currency holdings by $166 billion, boosting it to the world’s highest of $3.66 trillion. This is also more that the Gross domestic product of Germany – the Europe’s biggest economy, Bloomberg reports.

This will “basically” end the interference of foreign currency in the Chinese market, and widen the yuan’s daily trading range.

The move also provides a buffer to China from future US Federal Reserve stimulus tapering, which, even just as it looms, has had severe ripple effects on emerging market currencies in Brazil and India.

Tuesday minutes from the Fed’s policy meeting said it could start tapering its monthly $85 billion bonds purchases in the “coming months”, if the job market improves further. Fed members also weighed the possibility of slowing the purchases even without clear evidence of a strengthening job market. The news sent Asian stocks lower on Thursday, Japan an exception.

Hong Kong’s Hang Seng shed 0.7 percent to 23,539.83 and China’s Shanghai Composite decreased 1.1 percent to 2,183.50.

Once the yuan is set to free float, international transactions will be carried out in the Chinese currency, and it will become common in global trade, in league with the euro and dollar.

The Chinese yuan currently is the 13th most-used currency in the world for international payments.

The yuan has been dubbed a “hermit currency”, isolating itself from foreign investment and setting its own rules, but is now slowly entering world currency markets.

China’s planned crude oil futures may be priced in yuan – SHFE

The Shanghai Futures Exchange (SHFE) may price its crude oil futures contract in yuan and use medium sour crude as its benchmark, its chairman said on Thursday, adding that the bourse is speeding up preparatory work to secure regulatory approvals.

China, which overtook the United States as the world’s top oil importer in September, hopes the contract will become a benchmark in Asia and has said it would allow foreign investors to trade in the contract without setting up a local subsidiary.

“China is the only country in the world that is a major crude producer, consumer and a big importer. It has all the necessary conditions to establish a successful crude oil futures contract,” Yang Maijun, SHFE chairman, said at an industry conference.

SHFE Shanghai Futures Exchange

Yang’s presentation slides at the conference stated that the draft proposal is for the contract to be denominated in yuan and use the type of medium sour crude that China most commonly imports.

Industry participants with direct knowledge of the plan have said the contract would be priced in the yuan, otherwise known as the renminbi, and the U.S. dollar. Yang would not say whether yuan pricing was only for Chinese investors.

“The yuan has become more international and more recognised by the financial market,” Chen Bo, Chinese trading firm Unipec’s executive general manager, told Reuters.

“I don’t think it would be unacceptable for the world to use the renminbi for commodities trading.”

The contract pricing will exclude custom tariffs and value-added tax and allow for physical delivery in bonded storage areas, Yang said.

The SHFE is awaiting Beijing’s final approval to launch the contract. That may come soon as the bourse has set up an international energy trading platform in the Shanghai free-trade zone, which is touted as a testing ground for China’s financial reforms, especially on yuan convertability and interest rates.

The SHFE has previously said the contract has support from China’s top economic planner, the National Development and Reform Commission, the State Administration of Foreign Exchange and the China Securities Regulatory Commission.

A successful launch could pave the way for the opening of other Chinese commodities futures to more foreign investment.

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  1. Killing USD and its enormous abuse will bring peace by avoiding the piling up of armements and options for wars designed since 1905 to control the tap of the world cheapest oil, Mesopotamia (Iraq today). I have been the one to convince Iraq to quote its oil in Euro instead of USD. Libya was ready too. Iran is prepared. It will also bringa period of socio-economic distress but all will recover. At least distress will been also born by US citizens-still unconscious voters, instead of being concentrated on oil-rich and resisting countries-Iraq-Iran-Syria and on Palestine, which have been devastated by the oil &gas based empire.

  2. Of course, the reality is that, it’s really the $ that holds up the yuan. The Chinese Communists, (Communism under any name) are playing the game of “rival” to the $, but what do you think is going to hold them up when the $ falls?

    The U.S. had a true backing for the $, the rich Natural Resources and the freedom to think and true and expreiment on new ideas and carry them through. The poor Chinese “peasants” never had any of this, even and ESPECIALLY under their emperors, and the strict hierarchy of Confucionism. The old emperors have gone, but the new emperors of their government and iron-fist control is STILL there. Nor does China have any Natural resources left, they’ve done away with even their wild animals. And the trees and forests are gone, because these – even today, have NOT been replanted.

    All those innovations: the super train and the skyscrapers on the coast, are just a veneer, of advancement, as the interior of the country, is still functioning, under a feudalistic system. And CERTAINLY, the every-day Chinese has NO concept of plumbing, and hygiene. That’s the only method that will advance the culture into true high technology.

    Every “advancement” of Mainland China, has come from the U.S. and the West. They do NOT have the “Know-How”. Ever since the days of Clinton, when that scum handed the Communists original U.S. Patents, on a silver platter. The Commies don’t even know how to make shoes. And all other items they import are poison.and worthless, as the Chinese have no Quality Control.

    No, the yuan will fail right behind the $ that holds the yuan up.

    • Norma,

      I don’t have any problem with your criticisms of China, but I sure take issue with lobbying rocks their way when the United States is a house made of nothing but glass.

      Are you REALLY ignorant of the ills of the US? Starting with a money system that is debt, thanks to the mostly silent takeover in 1913 with the creation of the Fed.

      You refer to communism. Why don’t you define it by referencing its planks and then proceed to examine the degree to which the US has adopted them.



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