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Title: Unraveling the Petrodollar: The Rise of the Petro Yuan
Description: Delve into the intricate dynamics of global monetary markets as the Petro Yuan challenges the dominance of the petrodollar. Explore the historic shifts from the Bretton Woods agreement to the rise of the Petro Yuan, impacting major players like China, the US, Russia, and Saudi Arabia, and potentially reshaping the landscape of international oil trade.
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© 2019 JETIR January 2019, Volume 6, Issue 1 www.jetir.org (ISSN-2349-5162)
‘Petro- Yuan’: A Game Changer in the Petrodollar
World Order
Diksha Verma- Student, Symbiosis Centre for Management Studie...
Keywords- Petro- Yuan, Petrodollar, crude oil, reserve currency
Introduction
Crude oil has been an engine of growth for the past few decades, and has fuelled the global economy, meeting half of the ...
The dollar’s reign over the crude oil market has lasted for over four decades now, but for the first time its hegemony faces a real
threat. China has been growing at a rapid rate over the past few yea...
fact:
Crude oil is the world's most traded commodity with an annual trade value of $14 trillion. The discussion now includes the introduction of Yuan-denominated crude oil futures in Shanghai and the possible implications on global economies.
(Objectives Of The Bretton Woods System
JETIR1901962 | Journal of Emerging Technologies and Innovative Research (JETIR) www.jetir.org 433 © 2019 JETIR January 2019, Volume 6, Issue 1 www.jetir.org (I...
fact:
The United States Federal Reserve printed dollars on a large scale to fund increased military spending during the Vietnam War, leading to a major budget deficit and price inflation in the late 1960s.
In response to this,
it completely detached itself from the Bretton Woods agreement, marking the end of the international gold standard. Now that the dollar had no firm support, it was left ‘floating’...
context:
The text now discusses the United States detaching itself from the Bretton Woods agreement, marking the end of the international gold standard. The dollar transitioned into fiat money with no firm support, leading to it 'floating' in the global monetary market.
The rise of the Petrodollar
Born of the fear of these consequences and the threat of losing its grip on other economies, was the petrodollar. Existing papers
point out that using dollars as the mediu...
fact:
Prior to the 1973 embargo imposed by Arab nations in retaliation for US support of Israel in the 'Yom Kippur War', US imports from Saudi Arabia were close to zero, leading to significant social and economic consequences.
(Arab oil embargo, n.d.) This
was a political move from Saudi’s side and resulted in large social consequences in the Western Countries which included a huge
surge in the oil prices leading to an ener...
fact:
The Arab oil embargo in 1973, as a reaction to US support of Israel, resulted in a surge in oil prices, an energy crisis, and a decrease in oil production. This was a political move from Saudi’s side and resulted in large social consequences in the Western Countries which included a huge surge in the oil prices leading to an energy crisis due to decrease in oil production. This conflict was solved through negotiations which resulted in the rise of Petrodollar recycling and led to a sharp increase in the crude oil demand from the United States.
However, the most prominent increase in the value of dollar was around the 1970’s, the birth year of the petrodollar. Along with
JETIR1901962 | Journal of Emerging Technologies and Innovative Researc...
However, for China to realise its dream and take over the role that the United States has been playing for the past several decades
since World War 2, it still has one feat yet to be accomplished. No ...
context:
The Bretton Woods system is discussed, including how the US dollar was pegged to gold at $35 per ounce and other currencies were pegged to the dollar, allowing the dollar to be as good as gold. The system favored the United States until the early 1970s when it started facing challenges like major budget deficits and price inflation. The text now discusses the United States detaching itself from the Bretton Woods agreement, marking the end of the international gold standard. The dollar transitioned into fiat money with no firm support, leading to it 'floating' in the global monetary market. The discussion now includes the introduction of Yuan-denominated crude oil futures in Shanghai and the possible implications on global economies.
fact:
However, the most prominent increase in the value of the dollar was around the 1970’s, the birth year of the petrodollar. Along with the increase in the ‘artificial’ value of the petrodollar came inflation of 11.04% as compared to 6.22% (Petroleum & Other Liquids, n.d.) in the previous year. This was due to the excessive spending done by the United States in order to improve its economy as the petrodollar increased the inflow of foreign capital. The hopes of making the Yuan the global reserve currency may have remained just a dream if not for the launch of the crude futures market in Shanghai in March 2018. These futures may facilitate the growth of the Yuan as the means of exchange for crude oil, known as the Petro Yuan.
These futures may facilitate the growth of the Yuan as the means of exchange for
crude oil, known as the Petro Yuan. Global Times, (Ferreira-Marques, 2018) in an article, states that Shanghai Internat...
fact:
President Donald Trump has decided to increase economic pressure on Iran, with 2 major decisions in this foreign policy.
fact:
The United States backed out of a nuclear deal with Iran this year.
fact:
The United States has also implemented a wide range of sanctions on trade dealings with Iran.
fact:
This move is likely to hurt America’s case, and what is now being called the de-dollarisation movement is picking up pace.
The article states that this move is
likely to hurt America’s case, and what is now being called the de-dollarisation movement is picking up pace. In response to these moves, a number of countries hav...
China's greatest opportunity is
the upcoming IPO of Saudi Aramco, which is expected to be one of the largest ever, and a significant proportion of the funds are
expected to come from Chinese investors...
(Bateman, 2018)
Body
Benefits of the Petrodollar
Over the past four decades, the petrodollar has provided a wide range of benefits to the United States’ economy. One of the most
prominent examples ...
Fall of the Petrodollar
The extremely volatile global energy market has been pointing towards the de-facto end of the petrodollar regime. United States
monopoly over the international trade of oil is...
context:
The petrodollar regime is facing challenges, with the global energy market indicating its de-facto end. Several nations, including Russia and Saudi Arabia, major OPEC members, are opposing the United States' monopoly over international oil trade.
fact:
The United States is experiencing uncontrollable debt and political problems, diminishing investor confidence in the dollar.
fact:
The United States has high spending in foreign nations and significant investments in the military, leading to deficits in governmental budgets.
fact:
The US economy heavily relies on debt securities from Saudi Arabia, but Saudi Arabia, a major oil exporter, is considering withdrawing from the petrodollar regime.
fact:
The US dollar's status as the leading global currency is linked to the petrodollar. The US has been following a policy of low interest rates and quantitative easing, initially meant to benefit the economy but later affecting the petrodollar system.
As per the statistics, China has control over 18.6% crude oil imports as compared to the United States 13.9%
imports of the crude oil. (Workman, 2018)
The non-dollar trading has begun in several nati...
fact:
China has achieved dominance in crude oil imports, surpassing the United States with 18.6% control compared to the US's 13.9% imports of the crude oil. (Workman, 2018)
Over the past decade, China has made quantum leaps in all fields, is the second largest economy
in the world with a GDP of $12 trillion, and is now the largest oil importing nation. In addition to thi...
This can have a very significant impact on the world energy market, as China
has a sizeable public sector, with around 51000 state owned enterprises, 51% of which deal in electricity and gas, transpor...
This move is likely to
build up goodwill and further the cause of the Petro Yuan. This has already happened on a small scale as discussed earlier, where
countries which form a part of the MEFMI have a...
This new pipeline led to a
17.8% year on year increase in crude oil imported into China between the years 2017 and 2018, as per the Chinese General
Administration of Customs, (Petro-yuan helps Russia ...
China already does have some support in the OPEC cartel. Iran, which is also facing problems from sanctions levied by the
United States has agreed to make transactions from oil in Yuan. However, at th...
context:
The rise of the Petrodollar is discussed, focusing on the strategic 1974 agreement between the United States and Saudi Arabia. The hopes of making the Yuan the global reserve currency may have remained just a dream if not for the launch of the crude futures market in Shanghai in March 2018. These futures may facilitate the growth of the Yuan as the means of exchange for crude oil, known as the Petro Yuan. The petrodollar regime is facing challenges, with the global energy market indicating its de-facto end. Several nations, including Russia and Saudi Arabia, major OPEC members, are opposing the United States' monopoly over international oil trade. China already does have some support in the OPEC cartel. Iran, which is also facing problems from sanctions levied by the United States has agreed to make transactions from oil in Yuan. However, at this point, the Yuan denominated transactions are only with China, which buys about 25% of Iranian oil exports. Venezuela, another member of OPEC, has started listing all oil prices in Yuan since September 2017, quoting that this move is to get rid of the ‘tyranny of the dollar.’ The power shifts are clearly visible as United States dominance over the crude oil market is slowly eroding. Already standing at the position of the top oil importer, China has implemented the plan to make the Yuan as the reserve currency. China is already capitalizing on the evident disadvantages that United States has. The dollar due to being highly used on a global scale has an appreciated value which makes the domestic production highly expensive. This consequence adds to the inflationary state of the economy resulting in a slower economic growth as compared to China which is a threat to the United States hegemony on the oil markets.
(Petro-yuan to launch renminbi as global currency & kneecap petro-dollar, 2018) This consequence adds to the
inflationary state of the economy resulting in a slower economic growth as compared to Chin...
context:
China has started purchasing its raw materials in its own currency which a strategic move to increase the supply of its currency in the market and is encouraging its domestic oil industries to adopt the Yuan based transactions. This will also be beneficial for China as it does not have to pay an oil premium which is imposed on the Asian countries by the Middle East. Not only it will increase the demand of the currency internationally, it will also improve the liquidity of the currency. On a larger scale, China's first step is start purchasing from nations such as Russia and Saudi Arabia who are a big part of OPEC in Yuan. These are the nations which are keen on destroying the dollars domination and therefore, are highly involved in this new strategy. A strategy which was adopted by the United States is now being used by China where the Yuan will be backed by gold which is the decline of the dollar. Having the currency backed by gold, it will make it more trustable and stable as gold’s value is universally recognizable. Furthermore, now that the Yuan is backed by gold and Petro Yuan future contracts are trading in the market, other countries can easily switch from the USD to the Petro Yuan.
(Ebeling, 2018)
One of the reasons that make Petro Yuan more appealing than petrodollar to other countries is the fact that United States has
imposed tariffs on various countries. This results in neg...
fact:
One of the reasons that make Petro Yuan more appealing than petrodollar to other countries is the fact that United States has imposed tariffs on various countries.
China is slowly integrating into the global financial system as it is already
the largest trading country. It will not be an easy battle for China to make its mark globally in terms of Petro Yuan howe...
context:
China is slowly integrating into the global financial system as it is already the largest trading country. It will not be an easy battle for China to make its mark globally in terms of Petro Yuan however if China continues to increase the demand for Yuan assets in the global market.
fact:
The faith in petrodollar is slowly diminishing due to the US debt crisis and Trump policy blunder, resulting in a progressive shift in the demand for the Petro Yuan.
The current situation can be best summarized by the
line, “the U.S. dollar is a house of cards sustained by a delusion of value entangled in massive debt.” (What the Petro-Yuan
Means for the U.S., 201...
context:
The current situation involves challenges for the US dollar, as highlighted by a quote stating that the U.S. dollar's value is entangled in massive debt.
fact:
China still faces obstacles in establishing its currency as the global reserve currency, particularly in convincing OPEC nations like Saudi Arabia to adopt the Yuan for oil trade.
fact:
The dollar has remained the world's primary currency post World War 2, despite the end of the international gold standard in the 1970s.
fact:
Moving oil trade from dollars to Yuan could reduce transactions in dollars by $600-800 billion, as suggested by Carl Weinberg in 2017.
fact:
The Chinese Yuan is often associated with a 'dirty float' or managed float, potentially impacting its export sector.
fact:
Partners like Russia and Iran are likely to support China in promoting the Petro Yuan, contributing to challenges for the petrodollar.
context:
The Petro Yuan could gradually erode the dominance of the petrodollar and lead towards a shift in the global reserve currency to the Chinese Yuan.
The Petro Yuan may still take a while to
replace the hegemony that the United States tediously built up for the past decades, but it will slowly and surely chip away at the
mighty dollar and we may so...
End of the (Petro)Dollar: What the Federal Reserve Doesn’t Want You to Know. From MPN News:
https://www.mintpressnews.com/end-petrodollar-federal-reserve-doesnt-want-know/229282/
Bradley, S. (2017, J...
From Sputnik International:
https://sputniknews.com/analysis/20 180328 1062979776-russia-china-dedollarization/
JETIR1901962 | Journal of Emerging Technologies and Innovative Research (JETIR) www.jet...
From IMF:
https://www.imf.org/en/News/Articles/2016/09/29/AM 16-NA0930 16IMF-Adds-Chinese-Renminbi-to-Special-Drawing-
Rights-Basket
IMF Adds Chinese Renminbi to Special Drawing Rights Basket. (2016,...
(2018, August 23). U.S. Sanctions Wreak Havoc On Russia’s Oil Industry. From Oil Price:
https://oilprice.com/Energy/Energy-General/US-Sanctions-Wreak-Havoc-On-Russias-Oil-Industry html
Petroleum & Ot...
From Global Research: https://www.globalresearch.ca/india-joins-international-group-
dumping-us-dollars-in-oil-trades-to-bypass-us-
sanctions/5642875?utm_campaign=magnet&utm_source=article_page&cutm_m...
Here’s How Fast China’s Economy Is Catching Up to the U.S. From Bloomberg:
https://www.bloomberg.com/graphics/2016-us-vs-china-economy/
Special Drawing Rights - SDR. (n.d.). From Investopedia: https:/...
context:
The chunk includes additional resources discussing the erosion of the Petrodollar and the rise of the Petroyuan, along with references to the Bretton Woods system and predictions about the future of the US dollar.
World Bank Predicts the Demise of the US Dollar by 2025. From Oil Price:
https://oilprice.com/Finance/the-Markets/World-Bank-Predicts-The-Demise-Of-The-US-Dollar-By-2025.html
USS. Inflation Rate, $10...
From World's Top _ Exports:
http://www.worldstopexports.com/crude-oil-imports-by-country/
JETIR1901962 | Journal of Emerging Technologies and Innovative Research (JETIR) www.jetir.org 443