7 ms·

China sees new world order with oil benchmark backed by gold

54 points by mbgaxyz 9y ago

godzillabrennus 9y ago
Meanwhile Wall Street is building its own block chain. Should be an interesting transition off Brenton Woods.
- readams 9y ago
  Bretton Woods was over in 1971...
Fjolsvith 9y ago
Won't cryptocurrency allow them to circumvent the dollar ?
mahrain 9y ago
Last one to try to circumvent the petrodollar was Ghadaffi. It seems China now takes the opportunity of the current political climate to try it themselves. (Petrodollar principle is explained well by Adam Curtis' documentary "Bitter Lake")
- barry-cotter 9y ago
  Qaddafi's mistake was in giving up WMDs not trying to price oil in something other than dollars. Saddam is gone, Qaddafi is gone, Kim, Assad and Iran are still there. Never, ever give up WMDs.
  - appleflaxen 9y ago
    that is an amazing point. the lesson to future authoritarians is clear, isn't it.
SCAQTony 9y ago
Note, the whole purpose is to game sanctions the US has on Russian trade and other hostile regimes. But how profitable will this be? "...Russia's 2013 nominal GDP was $2.1 trillion, and Italy's was $2.07 trillion, according to the World Bank. ... Italy's 2013 GDP per capita (per person) was $34,619, and Russia's was $14,612.Jul 27, 2014..." http://www.politifact.com/truth-o-meter/statements/2014/jul/27/lindsey-graham/graham-russia-has-economy-size-italy/ http://www.politifact.com/truth-o-meter/statements/2014/jul/... Sounds like China is backing the wrong horse[s]
- latch 9y ago
  'game', or sovereign states exercising their sovereignty?
- pcnonpc 9y ago
  What does Italy have that China cannot produce itself? Brand name products, basic machines and chemicals which Italy exports are not important to their development. Russia has oil, minerals and iron which China needs to grow.
njarboe 9y ago
"China's move will allow exporters such as Russia and Iran to circumvent U.S. sanctions by trading in yuan. To further entice trade, China says the yuan will be fully convertible into gold on exchanges in Shanghai and Hong Kong." It is not clear if the gold conversion can be into physical gold and shipped out of China. I would tend to doubt it, but would be a big deal if true.
- igravious 9y ago
  Nationally they have > 1,800 tonnes[0] of the stuff as of 2017 – fifth in the world behind the US, Germany, Italy, France. Is that enough? Probably it would be simpler to do the transaction electronically in yuan but I would understand if people wanted something a bit more tangible. So the question is then, are there precedents to this flavo(u)r of trading setup/arrangement? [0] https://www.statista.com/statistics/267998/countries-with-the-largest-gold-reserves/ https://www.statista.com/statistics/267998/countries-with-th...
  - fspeech 9y ago
    Gold should just be an instrument of accounting. These exchanges are not the central bank and the central bank's holding is not very relevant. This should be meant to alleviate traders' concerns with capital control and RMB convertibility. While this scheme may facilitate trading in Shanghai as domestic speculators no longer need to deal with forex risk, the countries with large petrol surpluses still need to decide what currencies to ultimately hold.
igravious 9y ago
The American Empire had a nice run. Continuously rising inequality at home and anti-hegemonic strategies (like this one) abroad signal that the end is nigh. What remains to be seen is how ugly things get during the transition.
- adventured 9y ago
  Meanwhile, back in reality, the US median income is among thh highest on earth, US disposable income is among the highest on earth, US economic productivity is among the highest on earth, US technology advancement is among the best on earth, US unemployment is low, US wages have been typically climbing twice as fast as in the EU, American companies dominate the planet (outside of China), and in the last ten years that Europe has been mostly treading water economically the US added an economy the size of Germany.
  - igravious 9y ago
    This is all true. I don't disagree with you. But. (There's always a but.) I'm not disputing that the US isn't a great economic powerhouse. What I'm getting at is, at what cost. If the middle-class gets gutted and relative and absolute poverty keeps increasing then we're not really creating a just society, are we? In one of the wealthiest, if not the wealthiest nation ever if we still haven't figured out how to protect the most vulnerable among us then we've a bit of a problem. As some have suggested, maybe basic income is a solution? But to others you may as well have suggested that that dude Stalin may have made a nice omelette even though he broke a few eggs. And outside the US, what the untenable situation where two countries (neither of which are the US) have to trade oil in dollars. For just how long do you think that arrangement will last? It could be, and has been, argued that some part of the might of the US comes from having its currency as the world currency and part of that is dollar-denominated trade. Cease that and the landscape alters. China knows that. Others know that.
    - ddorian43 9y ago
      China also knows that you get bombed/hacked/etc to oblivion for trying it.
forapurpose 9y ago
I read someplace that political power is constant. If you withdraw, then the power doesn't go away - it remains for others to seize. Perhaps it's the law of conservation of political power. For example, it happened in Iraq when the U.S. eliminated the people holding power, Hussein and the Baathists, and didn't have realistic plans for anyone to seize it. Iran, Shiite religious authorities, and Sunni insurgents all jumped for it. The mess still hasn't been resolved. It's happening on a much larger, more significant scale globally as the U.S. withdraws. Others aren't sitting still; they are coming in and seizing the power for themselves. It is very hard won and the most valuable thing in the world; who would walk away from it?
- ilaksh 9y ago
  The US is not withdrawing. The US did have a plan for Iraq and executed it. The plan was to take out the regime and establish a military presence and prevent a strong regime from taking the old one's place. A mess accomplishes that. The US is still surrounding Iran with operations in Afghanistan and Iraq. The US still operates (indirectly?) in Syria against Russia. When Gaddafi tried to circumvent the petrodollar his country was wiped out. The sanctions against North Korea continue. The big problem for me is that all of these things have been predicted well in advance and explained in detail by the 'crazy conspiracy theorists'. One of the predictions is that North Korea is a strong candidate for initiating World War III. The main thing I worry about now is if China really considers North Korea an ally when it comes down to it, if there is some missile launch at Japan, a US retaliation, and then China gets involved. It seems absolutely crazy but so are all of the other wars. News about China circumventing the US dollar is much more frightening for me than hearing about all of the latest North Korea threats. Because this gives China a reason to back North Korea if the US effectively blocks China's oil benchmark plans.
  - ViktorV 9y ago
    I'm just curious: could you give me an example where a 'crazy conspiracy theorists' explain and predict the war against Afghanistan, Iraq etc..? I mean articles which predate the situations.
ForFreedom 9y ago
Five banks of the BRICS Interbank Cooperation Mechanism (ICM) have agreed to establish local currency credit lines and develop cooperation on credit ratings in the run-up to the forthcoming BRICS summit in China. So the entire East part of the world will trade with China
- drawkbox 9y ago
  They are building the New Silk Road [1]. This is part of the reason South China Sea is so hot, 2/3rd of world trade goes through there. Also the reason we haphazardly threw together the TPP which was not as generous to trading partners as China's deal which includes tons of investment to partner countries. We in the US have to get better at remembering how we helped re-build countries after WWII, we need to understand that economics wins all wars again. We need to get the authoritarians out of power that don't believe that. China gets it all too well. Extremism is rooted out when people have comfort from a good economy. [1] http://www.npr.org/sections/parallels/2017/05/16/528611924/for-chinas-new-silk-road-ambitious-goals-and-more-than-a-few-challenges http://www.npr.org/sections/parallels/2017/05/16/528611924/f...
  - ForFreedom 9y ago
    >We in the US have to get better at remembering how we helped re-build countries after WWII In the interest of the US
whytaka 9y ago
I think this is the reason China and Russia have been hoarding gold and backing cryptocurrencies. They are waging an economic war against US hegemony by attacking their currency. It is strategically timed too considering the US just spent the last 10 years printing money and expanding the balance sheet by 350%.
- seanmcdirmid 9y ago
  China and Russia are also big producers of gold. But if gold truly comes back, it will give a huge boost to Africa, which has most of the reserves.
  - barry-cotter 9y ago
    That's true only of the well governed African states with inclusive rather than extractive institutions. Gabon's oil hasn't done much to boost the standard of living of anyone outside the Presidential circle though GDP has gone up a lot.
    - seanmcdirmid 9y ago
      Yes. The money is likely not to be spent well.
- pcr0 9y ago
  That doesn't check out. Why would China try to push down the US dollar when the US is their largest export market? That would also damage all the effort they put in trying to devalue the yuan.
  - whytaka 9y ago
    Good point. Perhaps the Chinese feel secure their transition into a consumer economy is on good footing. I've noticed my China stocks go up 50% in the last month or two. Confidence is way up.
decentralised 9y ago
Why would this be a bad thing?
patrickg_zill 9y ago
So far, between 1971 and now, any country attempting to get past the petro dollar has been stopped by revolution, war, etc. What pressure or leverage can the USA put on China? My view is: more pressure is wanted , than is available...
- ilaksh 9y ago
  The only pressure unfortunately that I know of is the most massive, deadly, and technologically advanced military the world has ever seen. I worry that since supposedly North Korea is nominally an ally of China, all of these North Korea nuclear/atomic weapon headlines are aimed towards an eventual trigger for World War III. They will say its about an evil dictator and a bomb or something, but really it will be about the petro dollar and global power.
drawkbox 9y ago
A gold backed currency, rather than a fiat currency, gives control to a physical resource. The ones who control the physical resource and mining dictate the market. It is a very bad idea but probably good for the biggest gold producers in the world, they happen to be China, Russia and Australia (US is #4) [1]. A non-fiat currency is a single point of failure and since it is locked to a physical resource, it will cause many economic downturns with no lever to adjust. If a gold backed petro currency or oil is backed by gold, crypto currencies will explode exponentially. [1] https://en.wikipedia.org/wiki/List_of_countries_by_gold_production https://en.wikipedia.org/wiki/List_of_countries_by_gold_prod...
pcnonpc 9y ago
China's shifting to domestic consumption and strong Yuan is better than weak Yuan. Strong currency will also reduce capital flight from the country and increase its financial powers to buy world resources such as mining rights and companies abroad. They understand how the dollar status as reserve currency helps strengthen American power. Many Chinese leaders understand the power of finance. They have used it to develop export-oriented economy and they are now using it to expand their power abroad. China is now confident it is strong enough and has resources and relationships to counter US pressure.
kartickv 9y ago
I don't understand why US-embargoed countries can't simply get paid in gold. Transporting a billion dollars worth of gold costs nothing compared to transporting a billion dollars worth of oil. And no third country can intervene in transaction between two governments, which is exactly what the two governments should want.
- nradov 9y ago
  The embargoed countries are mostly poor and don't have much gold reserves. And the US might be able to seize or destroy gold shipments in transit. Moving physical gold is far more risky than a wire transfer.
  - kartickv 9y ago
    But China is rich and has tons of gold reserves to pay Iran with. Moving gold is risky for individuals, but manageable for governments, certainly big powerful ones like China or India. The question is not whether it's more risky than a wire transfer but whether, when a wire transfer isn't possible, gold is workable. I don't think the US would try to sieze shipments being made by another country, say by shooting down a Chinese or Indian air force plane. That will have major consequences, and be treated an act of war.
nradov 9y ago
This is a non-story. There won't be any physical gold actually backing the Yuan or any fixed gold exchange rate. The same limitation applies to the oil contacts. The only change they're making is to allow gold trading denominated in Yuan in a couple of Chinese exchanges. You can already freely trade gold in every other major fiat currency so nothing new here. And if you buy a large quantity of gold with Yuan, good luck on taking delivery of physical metal and getting it out of the country.

54 points by mbgaxyz 9y ago

godzillabrennus 9y ago

Meanwhile Wall Street is building its own block chain. Should be an interesting transition off Brenton Woods.

readams 9y ago
Bretton Woods was over in 1971...

Fjolsvith 9y ago

Won't cryptocurrency allow them to circumvent the dollar ?

mahrain 9y ago

Last one to try to circumvent the petrodollar was Ghadaffi. It seems China now takes the opportunity of the current political climate to try it themselves. (Petrodollar principle is explained well by Adam Curtis' documentary "Bitter Lake")

barry-cotter 9y ago
Qaddafi's mistake was in giving up WMDs not trying to price oil in something other than dollars. Saddam is gone, Qaddafi is gone, Kim, Assad and Iran are still there. Never, ever give up WMDs.
- appleflaxen 9y ago
  that is an amazing point. the lesson to future authoritarians is clear, isn't it.

SCAQTony 9y ago

Note, the whole purpose is to game sanctions the US has on Russian trade and other hostile regimes. But how profitable will this be? "...Russia's 2013 nominal GDP was $2.1 trillion, and Italy's was $2.07 trillion, according to the World Bank. ... Italy's 2013 GDP per capita (per person) was $34,619, and Russia's was $14,612.Jul 27, 2014..." http://www.politifact.com/truth-o-meter/statements/2014/jul/27/lindsey-graham/graham-russia-has-economy-size-italy/ http://www.politifact.com/truth-o-meter/statements/2014/jul/... Sounds like China is backing the wrong horse[s]

latch 9y ago
'game', or sovereign states exercising their sovereignty?
pcnonpc 9y ago
What does Italy have that China cannot produce itself? Brand name products, basic machines and chemicals which Italy exports are not important to their development. Russia has oil, minerals and iron which China needs to grow.

njarboe 9y ago

"China's move will allow exporters such as Russia and Iran to circumvent U.S. sanctions by trading in yuan. To further entice trade, China says the yuan will be fully convertible into gold on exchanges in Shanghai and Hong Kong." It is not clear if the gold conversion can be into physical gold and shipped out of China. I would tend to doubt it, but would be a big deal if true.

igravious 9y ago
Nationally they have > 1,800 tonnes[0] of the stuff as of 2017 – fifth in the world behind the US, Germany, Italy, France. Is that enough? Probably it would be simpler to do the transaction electronically in yuan but I would understand if people wanted something a bit more tangible. So the question is then, are there precedents to this flavo(u)r of trading setup/arrangement? [0] https://www.statista.com/statistics/267998/countries-with-the-largest-gold-reserves/ https://www.statista.com/statistics/267998/countries-with-th...
- fspeech 9y ago
  Gold should just be an instrument of accounting. These exchanges are not the central bank and the central bank's holding is not very relevant. This should be meant to alleviate traders' concerns with capital control and RMB convertibility. While this scheme may facilitate trading in Shanghai as domestic speculators no longer need to deal with forex risk, the countries with large petrol surpluses still need to decide what currencies to ultimately hold.

igravious 9y ago

The American Empire had a nice run. Continuously rising inequality at home and anti-hegemonic strategies (like this one) abroad signal that the end is nigh. What remains to be seen is how ugly things get during the transition.

adventured 9y ago
Meanwhile, back in reality, the US median income is among thh highest on earth, US disposable income is among the highest on earth, US economic productivity is among the highest on earth, US technology advancement is among the best on earth, US unemployment is low, US wages have been typically climbing twice as fast as in the EU, American companies dominate the planet (outside of China), and in the last ten years that Europe has been mostly treading water economically the US added an economy the size of Germany.
- igravious 9y ago
  This is all true. I don't disagree with you. But. (There's always a but.) I'm not disputing that the US isn't a great economic powerhouse. What I'm getting at is, at what cost. If the middle-class gets gutted and relative and absolute poverty keeps increasing then we're not really creating a just society, are we? In one of the wealthiest, if not the wealthiest nation ever if we still haven't figured out how to protect the most vulnerable among us then we've a bit of a problem. As some have suggested, maybe basic income is a solution? But to others you may as well have suggested that that dude Stalin may have made a nice omelette even though he broke a few eggs. And outside the US, what the untenable situation where two countries (neither of which are the US) have to trade oil in dollars. For just how long do you think that arrangement will last? It could be, and has been, argued that some part of the might of the US comes from having its currency as the world currency and part of that is dollar-denominated trade. Cease that and the landscape alters. China knows that. Others know that.
  - ddorian43 9y ago
    China also knows that you get bombed/hacked/etc to oblivion for trying it.

forapurpose 9y ago

I read someplace that political power is constant. If you withdraw, then the power doesn't go away - it remains for others to seize. Perhaps it's the law of conservation of political power. For example, it happened in Iraq when the U.S. eliminated the people holding power, Hussein and the Baathists, and didn't have realistic plans for anyone to seize it. Iran, Shiite religious authorities, and Sunni insurgents all jumped for it. The mess still hasn't been resolved. It's happening on a much larger, more significant scale globally as the U.S. withdraws. Others aren't sitting still; they are coming in and seizing the power for themselves. It is very hard won and the most valuable thing in the world; who would walk away from it?

ilaksh 9y ago
The US is not withdrawing. The US did have a plan for Iraq and executed it. The plan was to take out the regime and establish a military presence and prevent a strong regime from taking the old one's place. A mess accomplishes that. The US is still surrounding Iran with operations in Afghanistan and Iraq. The US still operates (indirectly?) in Syria against Russia. When Gaddafi tried to circumvent the petrodollar his country was wiped out. The sanctions against North Korea continue. The big problem for me is that all of these things have been predicted well in advance and explained in detail by the 'crazy conspiracy theorists'. One of the predictions is that North Korea is a strong candidate for initiating World War III. The main thing I worry about now is if China really considers North Korea an ally when it comes down to it, if there is some missile launch at Japan, a US retaliation, and then China gets involved. It seems absolutely crazy but so are all of the other wars. News about China circumventing the US dollar is much more frightening for me than hearing about all of the latest North Korea threats. Because this gives China a reason to back North Korea if the US effectively blocks China's oil benchmark plans.
- ViktorV 9y ago
  I'm just curious: could you give me an example where a 'crazy conspiracy theorists' explain and predict the war against Afghanistan, Iraq etc..? I mean articles which predate the situations.

ForFreedom 9y ago

Five banks of the BRICS Interbank Cooperation Mechanism (ICM) have agreed to establish local currency credit lines and develop cooperation on credit ratings in the run-up to the forthcoming BRICS summit in China. So the entire East part of the world will trade with China

drawkbox 9y ago
They are building the New Silk Road [1]. This is part of the reason South China Sea is so hot, 2/3rd of world trade goes through there. Also the reason we haphazardly threw together the TPP which was not as generous to trading partners as China's deal which includes tons of investment to partner countries. We in the US have to get better at remembering how we helped re-build countries after WWII, we need to understand that economics wins all wars again. We need to get the authoritarians out of power that don't believe that. China gets it all too well. Extremism is rooted out when people have comfort from a good economy. [1] http://www.npr.org/sections/parallels/2017/05/16/528611924/for-chinas-new-silk-road-ambitious-goals-and-more-than-a-few-challenges http://www.npr.org/sections/parallels/2017/05/16/528611924/f...
- ForFreedom 9y ago
  >We in the US have to get better at remembering how we helped re-build countries after WWII In the interest of the US

whytaka 9y ago

I think this is the reason China and Russia have been hoarding gold and backing cryptocurrencies. They are waging an economic war against US hegemony by attacking their currency. It is strategically timed too considering the US just spent the last 10 years printing money and expanding the balance sheet by 350%.

seanmcdirmid 9y ago
China and Russia are also big producers of gold. But if gold truly comes back, it will give a huge boost to Africa, which has most of the reserves.
- barry-cotter 9y ago
  That's true only of the well governed African states with inclusive rather than extractive institutions. Gabon's oil hasn't done much to boost the standard of living of anyone outside the Presidential circle though GDP has gone up a lot.
  - seanmcdirmid 9y ago
    Yes. The money is likely not to be spent well.
pcr0 9y ago
That doesn't check out. Why would China try to push down the US dollar when the US is their largest export market? That would also damage all the effort they put in trying to devalue the yuan.
- whytaka 9y ago
  Good point. Perhaps the Chinese feel secure their transition into a consumer economy is on good footing. I've noticed my China stocks go up 50% in the last month or two. Confidence is way up.

decentralised 9y ago

Why would this be a bad thing?

patrickg_zill 9y ago

So far, between 1971 and now, any country attempting to get past the petro dollar has been stopped by revolution, war, etc. What pressure or leverage can the USA put on China? My view is: more pressure is wanted , than is available...

ilaksh 9y ago
The only pressure unfortunately that I know of is the most massive, deadly, and technologically advanced military the world has ever seen. I worry that since supposedly North Korea is nominally an ally of China, all of these North Korea nuclear/atomic weapon headlines are aimed towards an eventual trigger for World War III. They will say its about an evil dictator and a bomb or something, but really it will be about the petro dollar and global power.

drawkbox 9y ago

A gold backed currency, rather than a fiat currency, gives control to a physical resource. The ones who control the physical resource and mining dictate the market. It is a very bad idea but probably good for the biggest gold producers in the world, they happen to be China, Russia and Australia (US is #4) [1]. A non-fiat currency is a single point of failure and since it is locked to a physical resource, it will cause many economic downturns with no lever to adjust. If a gold backed petro currency or oil is backed by gold, crypto currencies will explode exponentially. [1] https://en.wikipedia.org/wiki/List_of_countries_by_gold_production https://en.wikipedia.org/wiki/List_of_countries_by_gold_prod...

pcnonpc 9y ago

China's shifting to domestic consumption and strong Yuan is better than weak Yuan. Strong currency will also reduce capital flight from the country and increase its financial powers to buy world resources such as mining rights and companies abroad. They understand how the dollar status as reserve currency helps strengthen American power. Many Chinese leaders understand the power of finance. They have used it to develop export-oriented economy and they are now using it to expand their power abroad. China is now confident it is strong enough and has resources and relationships to counter US pressure.

kartickv 9y ago

I don't understand why US-embargoed countries can't simply get paid in gold. Transporting a billion dollars worth of gold costs nothing compared to transporting a billion dollars worth of oil. And no third country can intervene in transaction between two governments, which is exactly what the two governments should want.

nradov 9y ago
The embargoed countries are mostly poor and don't have much gold reserves. And the US might be able to seize or destroy gold shipments in transit. Moving physical gold is far more risky than a wire transfer.
- kartickv 9y ago
  But China is rich and has tons of gold reserves to pay Iran with. Moving gold is risky for individuals, but manageable for governments, certainly big powerful ones like China or India. The question is not whether it's more risky than a wire transfer but whether, when a wire transfer isn't possible, gold is workable. I don't think the US would try to sieze shipments being made by another country, say by shooting down a Chinese or Indian air force plane. That will have major consequences, and be treated an act of war.

nradov 9y ago

This is a non-story. There won't be any physical gold actually backing the Yuan or any fixed gold exchange rate. The same limitation applies to the oil contacts. The only change they're making is to allow gold trading denominated in Yuan in a couple of Chinese exchanges. You can already freely trade gold in every other major fiat currency so nothing new here. And if you buy a large quantity of gold with Yuan, good luck on taking delivery of physical metal and getting it out of the country.