Let’s be honest: the fiat monetary system that has plagued the planet since Bretton Woods is a failed experiment. Currency devaluations, record-high debt levels, printing presses to fund every single exorbitant endeavor: a fiat hegemony has contributed to all these developments.
For years, there has been talk of one country or anonther abandoning unbacked money. Libya ostensibly wanted a gold-backed dinar. Mexico has flirted with a silver-backed peso. Malaysia’s Kelantan state is mulling over an Islamic gold dinar currency. And now it looks like China is embracing the return to real money.
Is China Embracing Gold?
According to the Nikkei Asian Review, the Chinese government is working on a crude oil futures contract that is not only priced in the yuan renminbi (RMB), but is also convertible into gold. Analysts are already turning their heads and pronouncing it a game-changer for the industry.
Since crude oil is generally priced to dollar-denominated West Texas Intermediate (WTI) or Brent futures, this could become the most important benchmark of Asia-based crude oil, as China is the biggest oil importer in the world.
Here is the big kahuna: to encourage greater trade, Beijing will allow the yuan to be fully convertible into the yellow metal on the Hong Kong and Shanghai exchanges. If China does move ahead with the trading instrument, this would be the nation’s first commodities contract open to foreigners.
Alasdair Macleod, head of research at Goldmoney, told the media outlet:
“The existence of yuan-backed oil and gold futures means that users will have the option of being paid in physical gold. It is a mechanism which is likely to appeal to oil producers that prefer to avoid using dollars, and are not ready to accept that being paid in yuan for oil sales to China is a good idea either.”
But some are skeptical that the People’s Bank of China (PBOC) would install a fixed-price of gold in yuan through an oils contract. Seeking Alpha’s Koos Jansen opined that gold will probably be used as a trading margin as opposed to actually backing a contract.
That said, the Shanghai International Energy Exchange (SIEE) is reportedly already training users and commencing a series of tests. Following several delays, China is eyeing a June or July launch date.
Exporters Can Circumvent Sanctions
Some of the world’s largest oil exporters have been slapped with sanctions by the U.S. and other western powers.
Russia has been crippled by U.S.-led sanctions over the Crimea annexation and allegations of meddling in the 2016 election. Iran has faced restrictions for decades. Venezuela has recently become the target of punishment for its human rights violations and dubious elections.
If a yuan-denominated gold contract is successful, then these crude exporters could evade U.S.-led sanctions — something Washington isn’t going to like.
Analysts believe that most oil producers would be satisfied in transferring their product for gold. This would destroy the dollar as an instrument of retribution for failing to adhere to U.S. foreign policy.
Simply put: a Qatar regime or a Russian government would no longer be beholden to the whims of the West.
A U.S. Dollar Hegemony at Risk?
As Liberty Nation reported last month, many nations are already veering away from the greenback.
The Kremlin mandates the ruble as the primary currency of exchange at all Russian seaports by 2018. Venezuela is converting oil transactions into euros instead of dollars. Middle Eastern leaders are reviewing dollar pegs of their currencies.
All of this suggests that the U.S. dollar’s days as the global reserve currency are numbered.
Grant Williams, an adviser to Vulpes Investment Management, may have said it best when he averred that most oil-rich nations would prefer to transfer their Texas Tea into the precious metal rather than for Federal Reserve Notes that are printed out of thin air.
In the end, countries like China are merely serving market demand. As we have seen with the rise and acceptance of cryptocurrencies, consumers want an alternative to fiat money like the greenback. Foreign interventions, an indebted government, and a reckless Fed have all contributed to the world’s gradual disregard of the Thomas Jeffersons and Benjamin Franklins. Whether by gold or bitcoin, the U.S. dollar is under attack, and the central bank will need to adapt to remain relevant in the ever-changing global marketplace.
Is the world in the beginning stages of gold-backed money? Let us know in the comments section!