The international order has been changing slowly but surely over the last 30 years, but especially quickly over the last 10 years. The financial crisis led the world to re-evaluate the American Empire and dollar acceptance for real goods. Venezuela has created the Petro, an oil-backed cryptocurrency that citizens can exchange dollars for. The hyperinflation of the bolivar certainly would create more demand for black market dollars at a time when the U.S. could freeze Venezuela out of the SWIFT payment system. That’s where the Petro comes in and allows them to bypass sanctions from the U.S. Iran does trade in gold outside of the SWIFT system to avoid sanctions from the U.S. Then there are China and Russia, who are accumulators of gold for wealth preservation, trade, and a negotiation tool. Isn’t it interesting how many of our so-called enemies are big gold advocates? It makes sense in a multilateral world where nations are beholden to the dollar in the near-term but not long-term. The petrodollar is what keeps us afloat here in America, and what are the chances that Trump’s tariffs are coming at the same time that the crude oil for yuan contracts goes live on March 26th? America’s trade deficit hit $375 billion in 2017. The tariffs will effect 100 products and roughly 13% of imports.It seems to me that there are no coincidences in regards to financial matters amongst the largest nations in the world.
Imperial China has a plan to internationalize the yuan to an extent, as this is just another step in the process. Chinese suppliers will now take yuan for oil, and a futures contract allows hedging of the yuan for other currencies, including gold. Hedging to gold is available via dual matching contracts in Dubai and Hong Kong, which are physically settled, unlike COMEX contracts. With consultation from Singapore, Dubai and Hong Kong are setting up vaulting facilities in Qianhai that can hold 1,500 tons. This contract was certainly set up in the anticipation of more gold demand coming out of Asia. The increased demand for yuan is likely, but the currency objectives of China understood by the international community may be misunderstood. China will do what they see fit. A reserve currency status for China would mean more currency floating around the world. A reserve currency status would mean that China would need to run much larger trade deficits while the yuan circles the globe for trade settlement. That option doesn’t seem likely, as China would rather control their finances within the country. State-owned banks are much more likely to be ready to provide liquidity for the new crude oil contracts, rather than put more yuan into the international order. For the first time in decades, there is truly a competitor to the dollar, in the form of the yuan that is convertible to gold.