China’s ‘Petro-Yuan’: The End of the Dollar Hegemony? | Counting the Cost

• Al Jazeera English Published on Mar 31, 2018
  In an attempt to reshape the global oil market, the Shanghai International Energy Exchange has launched the first crude futures contracts priced in Chinese reminbi, or yuan. China, the world’s biggest oil importer buys around nine million barrels of oil every day and it wants to use its own currency to price the world’s most-traded commodity. The US dollar has been the main currency for oil futures contracts, so launching a contract in its domestic currency is a sign that China wants the yuan to play a bigger role in global oil trading. China is also taking on the world’s most used oil benchmarks, Brent and WTI crude, which are both priced in dollars. But Shanghai-traded oil is still far away from earning benchmark status and taking on the petrodollar won’t be easy.
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  “For now, it doesn’t mean many changes. Oil is still going to trade in the US dollar, but increasingly over time, there will be more transactions … but this is not a gamechanger, yet,” Michal Meidan, Asia analyst for Energy Aspects, tells Counting the Cost. “The goal is for China to establish an Asian benchmark that will reflect Chinese consumption and more broadly Asian demand patterns”, but he believes “it’s highly unlikely” that the yuan will challenge the dollar in the near future. Meidan explains that the Chinese yuan would have to become “freely convertible, we would need other countries to open up to settlement in the renminbi; but the primary issue will be currency convertibility. And for now, the Chinese government is very reluctant to loosen currency controls and to give it up to free trade.” “It’s unlikely China will loosen the reigns on their currency”, says Meidan, “It’s very hard to see that happening in the coming five years.
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  They still have a lot of domestic challenges that they need to meet and the government and Xi Jinping are in agreement that the state and the party needs a very firm control over that [currency]. If liberalisation was the trend in the 1990s, I think we’re very much seeing a reversal of that. China is very much willing to become a global player, but under its own terms. And whether the global market or global investors are happy to take that on – I think we’re not seeing a huge amount of appetite for that yet.”

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