Olivier Perrin – The Brave Little Economist (Switzerland) –
Here is a story that has not gone better than the fervor of the unions.
Just before the weekend, the US news agency Reuters unveiled that China would start paying for its oil imports in its currency: the Yuan . 
And this, from the second half of 2018.
Today, 99% of international hydrocarbon trade is denominated in dollars … It is a market of 2 200 billion dollars, the equivalent of the GDP of France.
As a result, oil is the most traded commodity in the world, the backbone of the 40 trillion global trade in goods and services, the spearhead of globalization .
At the end of last year, China had already launched oil derivatives in Yuan but they did not give rise to physical exchanges, it was a first step and a way for the Chinese to cover a risk of exchange.
Today everything is accelerating.
Since oil is bought in dollars, if you want to import oil, you need to have … dollars .
For this, nothing easier, you just need to sell another commodity or services in dollars .
So you are going to make dollar exports so that you can buy oil, and so on, snowballing is 50% of the world’s dollar trade, $ 20 trillion .
All these dollars must first come out of the United States. And for that, you have to start with:
- Buy goods and services to US companies or else;
- Attract American investments to your home or even;
- Install a branch in the United States (hoping they will let you repatriate your dollars).
In any case, you have to pay the tax , which De Gaulle called the exorbitant dollar privilege .
That’s how the world has been subsidizing American hegemony for 70 years.
The challenge extends
Large countries are so dependent on the dollar that they are de facto at the mercy of Washington likely to suffocate them in a few months by cutting access to cash in dollars.
That’s why the Beijing movement is so important .
This means that they feel powerful enough to brave the American threats: they have enough dollars in reserve (we already knew it) and especially that they have previously persuaded a number of key partners to follow them in this adventure …
Because to buy their oil in Yuan, someone must be ready to sell it to them .
Of course, their position as the world’s largest importer of oil is an asset for the Chinese.
It seems that Saudi Arabia and Angola are ready to sell their oil in yuan, and of course Russia .
It will then happen the same way in the opposite direction: the Saudis, Russians, Angolans will end up with yuan that they will have to use to buy other goods to China first and then between countries that will have cash in yuan.
It’s a revolution in the balance of power.
Until now, the Yuan was evolving in a circuit almost closed on the Chinese territory that the Communists were well taken care not to open the 4 winds. In this new phase, the entire Chinese economy will open gradually to provide opportunities for its partners that it will pay in yuan .
But there is still a problem: the Yuan is very far from having the stature of a currency of exchange or reserve for the world.
He is not stable enough to be reserved. Not liquid enough to be currency.
The secret plan of China
It will take a long time for him to acquire this stature, which would considerably weaken the daring movement of Beijing … unless they rely on their currency on a stable and liquid asset, pure asset par excellence : gold .
You may remember that this is Olivier Delamarche’s analysis in January .
This scenario is hard to imagine as it would propel gold to stratospheric levels .
But there are clues:
- A few years ago, the Chinese were still communicating about their goal of reestablishing a gold standard . Their current silence and massive purchases of yellow metal suggest that they are implementing their plan;
- Historically, all paper currency experiments have resulted in riddles followed by a return to a gold standard . There is no reason for it to change this time. It has been less than 50 years since we abandoned the Gold Standard and we can not say that the world is better off;
- The Chinese have created their own standard of quality and format for gold : all the gold they buy is melted to hit new coins, bars and ingots … And it’s not to play the dinette.
The place of Europe
In this geostrategic game, Europe holds an uncomfortable place between:
- Russia that would be a natural partner as we depend on its gas and;
- the United States is a historical partner who does not want a Eurasian bloc that would have all the attributes of a competitor to hegemony or in any case, the weight to switch our unipolar world to a multipolar balance.
Moreover, the last budget law in the United States allocates $ 218 million to the promotion of democracy in Europe . It would be fun if it were not so unpleasant : see behind this noble cause of destabilization in Ukraine and Eastern Europe and the “promotion” technocrats above ground in Brussels which no one wants … Except the Americans to negotiate their great transatlantic free trade treaty in the utmost secrecy .
But whether they want it or not, their hegemony is under attack and their time is running out.
It is a great telluric movement of rebalancing of the world. Opportunities will close, others open . Fortunes will be made and others will be undone.
The European blindness in this sense is not to reassure me, especially since it is not new .
You can only rely on you to protect yourself.
To your good fortune,