China Russia Energy Business Transactions in Gold Threaten the Petrodollar
Russia’s largest bank, state-owned Sberbank, announced that its Swiss subsidiary had begun trading in Gold on the Shanghai Gold Exchange.
Russian officials have signaled that they plan to conduct transactions with China using Gold as a means of marginalizing the power of the USD in bi-lateral trade between the 2 powerful nations.
The formation of a BRICS Gold marketplace could bypass the US Petrodollar in bi-lateral trade in the energy sector.
According to a report published by Reuters: “Sberbank was granted international membership of the Shanghai exchange in September last year and in July completed a pilot transaction with 200 kg of gold kilobars sold to local financial institutions, the bank said.
Sberbank plans to expand its presence on the Chinese precious metals market and anticipates total delivery of 5-6 tonnes of Gold to China in the remaining months of Y 2017.
Gold bars will be delivered directly to the official importers in China as well as through the exchange, Sberbank said.”
Notably, Russia’s 2nd-largest bank VTB is also a member of the Shanghai Gold Exchange.
There is a transformation underway of the global monetary system.The implications of this transformation are profound for US policy in the Middle East, which for nearly 50 years has been underpinned by its strategic relationship with Saudi Arabia.
The USD was established as the global reserve currency in Y 1944 with the Bretton Woods agreement, commonly referred to as the Gold Standard. The US leveraged itself into this power position by holding the largest reserve of Gold in the world. The “Buck” was pegged at $35 oz, and freely exchangeable into Gold.
By the 1960’s, a surplus of USDs caused by foreign aid, military spending, and foreign investment threatened this system, as the US did not have enough Gold to cover the volume of Buck in worldwide circulation at the rate of $35 oz, the result was and overvalued USD.
America temporarily embraced a new paradigm in Y 1971, as USD became a pure fiat (paper) currency decoupled from any physical store of value sans the GDP of the US, until the petrodollar agreement was concluded by President Nixon in Y 1973.
The quid pro quo was that Saudi Arabia would denominate all Crude Oil trades in USDs, and in return, the US would agree to sell Saudi Arabia military hardware and guarantee the defense of The Kingdom.
A report by the Centre for Research on Globalization clarifies the implications of these most recent moves by the Russians and the Chinese in an ongoing drive to replace the US petrodollar as the global reserve currency.
In March of Y 2017 the Russian Central Bank opened its 1st overseas office in Beijing as an early step in phasing in a Gold-backed standard of trade. This would be done by finalizing the issuance of the 1st federal loan bonds denominated in RMB Yuan and to allow Gold imports from Russia.
The Chinese government wishes to internationalize RMB Yuan, and conduct trade in RMB Yuan as it has been doing, and is beginning to increase trade with Russia.
They have been taking these steps with bi-lateral and native trading systems.
When Russia and China agreed on their bi-lateral $400-B pipeline deal, China wished to, and did, pay for the pipeline with RMB Yuan treasury bonds, and then later for Russian Crude Oil in RMB Yuan.
This breakaway from the reign of the USD monetary system is taking many forms, but one of the most threatening is the Russians trading Chinese RMB Yuan for Gold.
The Russians are already taking RMB Yuan, made from the sales of their Crude Oil to China, back to the Shanghai Gold Exchange to then buy Gold with RMB Yuan-denominated Gold futures contracts or a barter system or trade.
The Chinese are hoping that by starting to assimilate the RMB Yuan futures contract for Crude Oil, facilitating the payment of Crude Oil in in RMB Yuan, the hedging of which will be done in Shanghai, it will allow the RMB Yuan to be perceived as a primary currency for trading Crude Oil.
China is the world’s Top importer of Crude Oil and Russia is the world’s Top exporter, the 2 are taking steps to convert payments into Gold. This is a known fact.
The Big Q: Who would be the greatest asset to lure into trading Crude Oil for RMB Yuan?
The Big A: The Saudis.
The Chinese need the Saudis to sell them Crude Oil in exchange for RMB Yuan. If Saudi Arabia decides to pursue that exchange, all of the GCC petro-monarchies will follow, and then Nigeria, and on and on.
This action fundamentally threatens the Petrodollar.
According to a report by the Russians, significant progress has been made in promoting bi-lateral trade in RMB Yuan, between the 2 nations, as the 1st step towards an even more a ambitious plan, using Gold to make transactions:
A Key measure now under consideration is the joint organization of trade in Gold. In recent years, China and Russia have been the world’s most active buyers of the precious Yellow metal.
On a visit to China last year, deputy head of the Russian Central Bank Sergey Shvetsov said that the 2 countries want to facilitate more transactions in Gold between the 2 countries.
In April, Sberbank expressed interest in financing the direct import of Gold to India, India is a BRICS member.
To be sure a BRICS Gold marketplace could be used to bypass USD in bi-lateral trade, and undermine the control enjoyed by the US petrodollar as the global reserve currency.
Strategic risk consultant F. William Engdahl writes, “In 2014 Russia and China signed two mammoth 30-year contracts for Russian gas to China. The contracts specified that the exchange would be done in Renminbi [yuan] and Russian rubles, not in dollars. That was the beginning of an accelerating process of de-dollarization that is underway today,”
The take away: Russia and China are creating a new paradigm for the world economy and paving the way for a global de-dollarization. – Paul Ebeling
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