China’sgold-backed yuan oil contract is now a reality. The contract is trade on the Shanghai International Energy Exchange (INE). The Petro-Yuan is challenging the predominance of the petro-dollar in the oil market. This competition can’t be neglected because it will create a monumental shift in the world international market. The objective of the Petro-Yuan is to end the supremacy of the US dollar as the standard currency in the oil trade. Development of the Yuan oil trading will help increase the use of the Chinese currency in global trade. Currently the Yuan represent less than 3% of global trade. About 90 % of all transactions in the $5 trillion/day FX markets are made in US dollar, but the Yuan represent only 4% of this global trade. These 2 factors explain why the competition between the Petro-Dollar and the Petro-Yuan is a long-term challenge. They are among the many factors that explain why the beginning of the Petro-Yuan is not very strong. OPEC state “the extent to which the INE contract is independent from government interference is currently the main risk factor facing western investors, which is in addition to a currency risk, given that the INE is settled in yuan” (OPEC-April monthly oil market report).But, this reality could change very quickly. About 60% of China’s crude oil import come from OPEC. According to OILPRICE, on March 27, 2018 the Petro-Yuan oil futures volume was bigger than Brent crude oil futures volume. This performance demonstrate that the Petro-Yuan will be the world 3rd global price benchmark for crude oil. Many countries are trading oil in Yuan, this is the case of Russia (world number 2 oil producer), Iran, Venezuela, ect. In the future, when Saudi Arabia will accept the Yuan as the currency of payment of its oil export to China, the balance of power between the Petro-Dollar and Petro-Yuan will dramatically change.Saudi Arabia is the world biggest exporter of crude oil and China is now the world biggest importer of crude oil.On January 2018, the Chinese import reach of 9.61 million b/d. The Yuan a isgovernment-controlled currency, but it is one of the 5 global currencies in the IMF’s Special Drawing Rights (SDR) basket. Value of the oil market is about $14 trillion, it is bigger than the Chinese economy. The Petro-Dollar is the essential instrument of the supremacy of U.S in the world economy. Growth of the Petro-Yuan will weaken this domination and create a huge transformation of the world capital allocations and trade flows.
On Thursday February
15, 2018 when "Black Panther" will
start showing in US movie theaters, the film will reach new high of
profitability of black films. "Black
Panther" opening week end will
bring more than $200 million and break all records. "Black Panther" is a billion-dollar
franchise and a tectonic shift in the financing of black films. The film will
have enormous positive impact on the career of black talents and their future
earnings in Hollywood. Worldwide box office will be more than $1 billion.
PETRO-DOLLAR vs PETRO-YUAN In 2018, the 1st yuan-denominated oil futures contract could be reality in China. This possibility is the result of the internationalization of the Yuan and the weakening of the dollar as the world reserve currency. It will totally change the architecture of the world financial market with emergence of the “petro-yuan”. China surpassed the United States as the world biggest importer of crude oil in April 2015 with 7.4 million barrels per day. Chinese import of crude oil is today about 9 million barrels per day. Now Asia is the world center oil consumption. This new dynamic could help China succeed to establish an alternative pricing and trading mechanism for the global oil trade. But, the “petro-yuan” could be only one of the multiple “petro-currencies” that will compete against the petrodollar. Among the future “petro-currencies” we can name the “petro-gold” and “petro-ruble”. Russia would like to create a ruble-based trading and pricing mechanism for its oil exports. The Urals oil futures traded on the Saint-Petersburg International Mercantile Exchange could be the instrument. The Trump administration disengagement from world leadership will help the emergence “petro-yuan”.
US trade deficit with China is intolerable! This deficit is an expression of the failure of bipartisanship and financial capitalism in United States. It is time for the re-industrialization of America and the manufacturing of "made in America" as the best global product. The United States became the world number one super power by creating "made in America" with strong industrial fabric and middle class. This model of economic growth by industrial-capitalism is the best model created in modern human history and financial capitalism can not reach this level of performance. The US financial capitalism is a limitation to value creation in the American society, this is why our trade deficit with China represent more than $ 350 billion in 2015. This dynamic of limitation of value creation in United Stated has created a transfer of economic growth from our country to China. The destruction of our industrial fabric has created the industrial fabric of China.
In December 2008 margin debt was
$186,710 000 000, but increases to $461,200 000 000 in December 2015(nyxdata.com).
This is a growth of 247%. Our debt is bigger today than during the world financial
of 2007-2008. In December 1990, margin debt was $28,320 000. Sub-capitalism is a degradation of capitalism transforms
into financial-capitalism. Sub-capitalism is characterized by an exponential
increase of debt. Global debt was $142 trillion (269% of GDP) in 2007, but
represent $199 (286% of GDP) in 2014 (mckinsey.com). Global derivative market is more than $1.2
quadrillion but during the last financial crisis, this unregulated market was evaluated
at $ 587 trillion. According to the International Swaps and Derivative
Association (ISDA), average daily notional volume of interest rate derivative
was $ 421 trillion in Q42015,
but the world GDP is 78 trillion. Global
derivative market is 15 times biggest than the world GDP, this is why
deleveraging is not for tomorrow. US debt to GDP ratio is now 103%, but it is
282% for China. The conditions for a new financial crisis are here. Capitalism
is based on predictable activities, but sub-capitalism is based on
unpredictable activities this is why financial crisis will be more frequent.