China to start trading in oil futures settled in yuan on 18 January

As you know, the yuan oil future contract has been a very important topic, and I was one of the first analysts to anticipate their introduction. See here for the back story.

This is a major development, and follows a meeting announced by the Peoples Bank of China:

“ On December 27, 2017, Governor Zhou Xiaochuan met with Mohammed Al-Jadaan, Minister of Finance of Saudi Arabia. They exchanged views on strengthening financial cooperation between China and Saudi Arabia.”

It is clear the announcement of the start date for the yuan oil future is connected with that meeting. What we are seeing is the end of the Nixon/Faisal agreement that created the petrodollar in 1974. Putting to one side political ramifications (part of the deal was the US would tolerate and protect Saudi Arabia from outside interference), the monetary aspect is as revolutionary for the dollar as the creation of the original agreement.

I expect this to be the start of an accelerated plan by China to do away with the dollar entirely for its own purposes. It is, in effect, the beginning of the end of dollar hegemony, and can be expected to lead to a weaker dollar and higher commodity prices. The current strength in the gold price refers.

Happy New Year

Alasdair Macleod