For the past year and half a major topic throughout the alternative press has been the new Chinese oil futures contract settled/priced in yuan. The fact that China is directly challenging the Federal Reserve Note, U.S. dollar, is quiet a significant change. For those that have been paying attention this new futures oil contract is nothing more than the next step in China moving completely away from the Federal Reserve Note, and the “world reserve currency” system and towards a multi-polar world with several currencies being used for international trade.
Ken Schortgen, Jr., The Daily Economist, recently penned an article about Nigeria approving a currency swap agreement with China, stating,
It has been a little more than a month since China officially began offering oil futures contracts denominated in the Yuan currency, but early results continue to be positive for this contract to over time take more and more market share from the West and the Petrodollar. And with Iran, Qatar, and even Venezuela having already agreed to buy and sell their oil in currencies other than the dollar, a new currency swap agreement signed on May 3 between Nigeria and China could mean that a fourth OPEC nation could also soon be leaving the Petrodollar.
The Central Bank of Nigeria (CBN) has signed a currency swap deal worth about $2.5 billion with the People’s Bank of China to provide adequate local currency liquidity for transactions between national businesses, The Punch newspaper reported on Thursday, citing a high-ranking official from the Central Bank of Nigeria (CBN). Sputnik News
While China pursued currency swaps as far back as 1997, during the “Asian financial crisis”, none of the agreements were ever activated. That all changed with the global financial meltdown in 2008. China began actively pursuing, and instituting, direct currency swaps and even went so far as to open “Renminbi Clearing Centers” around the world including Canada, the backyard of the U.S..
Beyond the moderate progress in Asian regional financial cooperation, China has signed swap agreements with approximately 30 countries since 2008 (see Table 1). The People’s Bank of China (PBOC) stated that those swap agreements were intended not only to “stabilize the international financial market,” but also to “facilitate bilateral trade and investment.”
Table 1: China’s swap agreements and its counterparties
# Countries Signing Date Swap Amount (RMB billion) Trade volume (RMB billion) RMB Clearing Center RQFII 1 Belarus May 2015 7 8.94 2 Malaysia Apr 2015 180 652.66 √ 3 South Africa Apr 2015 30 401.25 4 Australia Apr 2015 200 839.84 √ √ 5 Armenia Mar 2015 1 1.19 6 Suriname Mar 2015 1 1.24 7 Pakistan Dec 2014 10 87.46 8 Thailand Dec 2014 70 438.29 √ 9 Kazakhstan Dec 2014 7 175.93 10 Hong Kong Nov 2014 400 2,465.25 √ 11 Canada Nov 2014 200 335.01 √ √ 12 Qatar Nov 2014 35 62.60 √ √ 13 Russia Oct 2014 150 549.15 14 South Korea Oct 2014 360 1,687.19 15 Sri Lanka Sep 2014 10 22.27 16 Mongolia Aug 2014 15 36.66 17 Switzerland July 2014 150 367.42 √ √ 18 Argentina July 2014 70 91.28 19 New Zealand Apr 2014 25 76.20 20 EU Oct 2013 350 N.A. 21 Iceland Sep 2013 3.5 1.37 22 Albania Sep 2013 2 3.44 23 Hungary Sep 2013 10 51.72 24 UK Jun 2013 200 430.79 √ 25 Brazil Jun 2013 190 554.90 26 Singapore Mar 2013 300 466.94 √ 27 Ukraine Jun 2012 15 68.43 28 Turkey Feb 2012 10 136.79 29 UAE Jan 2012 35 284.45 30 Uzbekistan Apr 2011 0.7 28.00 31 Indonesia Mar 2009 100 420.54 Total – 3,137.2 10,747.2 – –
The chart above, from CogitAsia, was produced in 2015 and does include Japan, Nigeria or France all of which are conducting direct currency swaps with China. All three nations bring something unique, economically speaking, to the table that will prove beneficial for both sides of the trade.
China now has direct currency swaps with more than 30 nations, including some of the largest economies in the world, like Japan, France, Australia to name but a few. This is all part and parcel to circumventing the world reserve currency system which punishes other nations, while at the same time strengthens the U.S. economy. What’s terrible for the rest of the world is awesome for the U.S..
China, along with a great many other nations, are ready for this system to change and balance the economic scale. When you announce to the world that your currency is someone else’s problem, the people that have the problem usually find a way to mend the problem and eliminate the situation creating the problem.
Even the gloomiest pessimists accept that a steep dollar depreciation would inflict more suffering on China and other Asian economies than on the United States. John Snow’s counterpart in the Nixon administration once told his European counterparts that “the dollar is our currency, but your problem.” Snow could say the same to Asians today. If the dollar fell by a third against the renminbi, according to Nouriel Roubini, an economist at New York University, the People’s Bank of China could suffer a capital loss equivalent to 10 percent of China’s gross domestic product. For that reason alone, the P.B.O.C. has every reason to carry on printing renminbi in order to buy dollars. NY Times
This is exactly where we stand today. China, along with Russia, understand this scenario all too well. These two nations, along with 30+ other nations, are making moves to be rid of the problem known as the Federal Reserve Note, U.S. dollar. Once this “problem” is corrected the U.S. economy will change dramatically. Inflation, and according to some economist like John Williams of Shadow Stats, hyperinflation will reign down on the U.S. economy like the world has never seen or experienced before. At this juncture we can only hope cooler heads prevail and a major war doesn’t manifest to announce the coming change in our global monetary system.