This past week saw the release of Saxo Bank’s famous Outrageous Predictions for 2018. Some of these are more fanciful than realistic. Yet others have both great relevance and a significant chance of coming true. One of these is their prediction for a new Petro-Renminbi or Petro-Yuan as a rival to the United States based Petrodollar.
There is a lot of reason to be concerned about what such a new petro-currency would mean for dollar holders. For decades now, the world markets for oil trading and futures settlement have been based on one of two U.S. dollar denominated benchmarks. These are the WTI West Texas Intermediate and the Brent Crude. Between the two of them, in excess of two billion barrels turns over per day. It amounts to an incredible 20 times the global oil demand for an average day.
The last few years have witnessed the diminishing importance of the United States-based WTI oil benchmark and contract. This has not materially harmed the dominance of the American Petrodollar as the benchmark was largely replaced by the London-based North Sea Brent crude oil benchmark and contract. Despite its location and more international nature, it is still denominated in U.S. dollars.
Today Brent crude dominates and keeps nations of the world trading oil in U.S. dollars, but as Saxo Bank has predicted, this may all be about to change. China has grown into the biggest importer of crude oil in the world by far. Already a number of important oil exporters including both Russia and Iran have begun trading their oil for Chinese yuan.
One of the reasons for this is that China has addressed concerns about devaluing its rising star currency. Besides that, many countries like Russia are today at odds with the United States. They do not want to use the dollar currency to help prop up the U.S. economy.
In nations where they are exporting their oil for yuan, the reserve managers at the central banks have been able to sell off their dollar reserves in favor of the Chinese currency. It is easier for them to justify as China is keeping its currency value both high and stable. This chart shows the countries China imports its oil from:
The breaking point for the U.S. Petrodollar could come as the Chinese decide to launch an oil benchmark and contract of their own. There is a precedence for such a move on their part. In the last several years, they have successfully launched a metals exchange and online trading portals like the Shanghai Metals Market.
Last year, they got their own gold transacting market up and running as the Shanghai Gold Exchange, complete with an international trading platform. Since mid 2016, it has exploded into the biggest physical gold trading exchange around the globe. As much as 52 times the physical gold withdrawals occur here as on the U.S. based COMEX.
Is Your Retirement Portfolio Protected from the Decline of the Petrodollar?
If the Chinese do move forward successfully with this Yuan settled oil contract, there will be dramatic consequences for the U.S. dollar denominated global oil trade. Saxo Bank predicts that the Yuan could rise over 10 percent against the U.S. dollar. It would be the first time that the currency pair USD/CNY dropped below 6.0. It would also spell the end of the highly valued dollar and ability of the U.S. government to print and borrow as much money as it needs cheaply.
This is the reason that you need to diversify away from the dollar and into gold with some of your assets. Gold is not denominated in any single currency and cannot be controlled by any one government. Click here today to get your no-cost, no-obligation gold IRA rollover kit from the award-winning gold company Regal Assets. This will get the information you need to insure your retirement accounts through a partial diversification of your IRA assets into physically held gold.