NOT THE END OF THE DOLLAR, YET! PETRO-YUAN A GAMECHANGER
Channel: Value Investing with Sven Carlin, Ph.D.
Date: 29/03/2018

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A yuan-denominated future oil contract could be a historical game changer. A future oil contract is one where you buy a certain amount of oil at a future date. Since Monday March 26, future contracts have started trading at the Shanghai International Energy Exchange. The Exchange is in a free trade zone which means that foreigners can trade on that market too. 

Some say it is the end of the Petrodollar while others say it won’t be able to compete due to the easiness the Chinese government interferes with free markets especially one where there is a lot of speculation that you never lack in oil markets and because the Yuan is a government-controlled currency. Nevertheless, we have to see this from a realistic investment perspective. The petrodollar will not disappear but if China, who is the largest global customer for oil manages to bend the market at least a bit, the dollar will definitely see increased competition from a new and rising economy and currency. Chinese companies can now buy oil without feeling the risk of fluctuations is foreign currencies.

Where is the game changer here? Well, up till now, if you wanted to buy oil you had to have U.S. dollars, thus buy the U.S. denominated IOUs. Now, if the market slowly turns to the Yuan, there will be less demand for the dollar and thus the actual value and image of the reserve currency will slowly weaken over time. 
Some have been putting fake news out that the petro-yuan will be backed by gold but I have not been able to find any official source so that is something not to take for official. 

 What happens if the dollar loses its dominance?