
China sees new world order with oil benchmark backed by gold - mbgaxyz
https://asia.nikkei.com/Markets/Commodities/China-sees-new-world-order-with-oil-benchmark-backed-by-gold
======
drawkbox
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_prod...](https://en.wikipedia.org/wiki/List_of_countries_by_gold_production)

------
njarboe
"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
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-
th...](https://www.statista.com/statistics/267998/countries-with-the-largest-
gold-reserves/)

~~~
fspeech
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.

------
SCAQTony
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/...](http://www.politifact.com/truth-o-
meter/statements/2014/jul/27/lindsey-graham/graham-russia-has-economy-size-
italy/)

Sounds like China is backing the wrong horse[s]

~~~
latch
'game', or sovereign states exercising their sovereignty?

------
mahrain
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
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
that is an amazing point. the lesson to future authoritarians is clear, isn't
it.

------
igravious
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
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
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
China also knows that you get bombed/hacked/etc to oblivion for trying it.

~~~
nl
Iran hasn't been bombed or hacked to oblivion for trying it[1]. Russia hasn't
been bombed or hacked for trying to kill it[2]

[1]
[https://en.wikipedia.org/wiki/Iranian_oil_bourse](https://en.wikipedia.org/wiki/Iranian_oil_bourse)

[2]
[http://www.nytimes.com/2008/02/25/business/worldbusiness/25i...](http://www.nytimes.com/2008/02/25/business/worldbusiness/25iht-
place.4.10379176.html?mcubz=3)

------
whytaka
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%.

~~~
pcr0
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
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.

------
ForFreedom
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
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/f...](http://www.npr.org/sections/parallels/2017/05/16/528611924/for-
chinas-new-silk-road-ambitious-goals-and-more-than-a-few-challenges)

~~~
ForFreedom
>We in the US have to get better at remembering how we helped re-build
countries after WWII

In the interest of the US

------
forapurpose
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
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
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.

~~~
forapurpose
I believe it was Cheney and possibly Rumsfeld whose organization, in the late
1990s, published a paper advocating invasion of Iraq.

------
patrickg_zill
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
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.

------
pcnonpc
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.

------
nradov
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.

------
Fjolsvith
Won't cryptocurrency allow them to circumvent the dollar ?

------
kartickv
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
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
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.

------
decentralised
Why would this be a bad thing?

------
godzillabrennus
Meanwhile Wall Street is building its own block chain.

Should be an interesting transition off Brenton Woods.

~~~
readams
Bretton Woods was over in 1971...

