China to bring back gold in international settlement with new oil futures

China is planning to bring back standards for payment after several decades. Being the world’s largest importer of yellow metal, China is now preparing to launch an futures contract denominated in and redeemable in  While the is not yet a global trade settlement currency, China will make the plan possible by backing the with for settling crude imports. China is also the largest importer of crude 
So far, globally, the dollar has been a major currency to pay for importing crude  China’s plan to import with backed by would be a game changer as would become the de-facto payment standard despite the fact that all contracts might not finally be converted in 
The contract, to be traded on the Shanghai Energy Exchange, will be China’s first futures contract that is open to firms for trading. There is no official word on when the contract will be launched but testing has been underway since July.
Nigam Arora, an market analyst and author of the Arora Report, said, «China’s move is the beginning of standards for trade in a new form. is becoming less of a commodity and more of a currency as the contract is backed by nothing other than  If this move takes hold, has the potential to go up by several folds.»
Another implication of the Chinese contract would be that it would create a new benchmark. Currently, Brent and WTI are two different benchmarks accepted globally for crude  Nigam said, «If this initiative is successful, it will create a new benchmark similar to Brent Crude and West Texas Intermediate in  As far as its impact on is concerned, there is not enough freely available in the world to back more than a few small initiatives. Of course, if the price of jumps many folds, the situation will change.»
According to the World Council’s data, the Chinese central bank holds 1,842.6 tonnes of as part of its reserves, although the yellow metal’s share in China’s total foreign exchange reserves is just two per cent. The US is the largest holder of with 8,133.5 tonnes in reserves. If the Monetary Fund’s holding is not considered, China is the fifth-largest holder in forex reserves, according to the WGC. WGC data show that in 2016, China’s demand stood at 915 tonnes, compared to India’s demand of 666 tonnes.
Till date, the US has been surviving on dollar-based settlements for and other trade. For completing any deal, even those not involving the US, the buyer first had to buy dollars to pay for imports. The euro has assumed a distant-second place for trade sentiment.
Surendra Mehta, the national secretary of the Indian Bullion & Jewellers Association (IBJA), said, «China is looking to upset the current petrodollar system by introducing gold-backed ‘petroyuan’ futures contracts. Since China is the largest importer of globally, this massive shift away from the petrodollar could be bad news for the US. However, it could be great news for owners.»
China has always had an interest in getting away from the dollar. In the past, their attempts have not been successful. The present initiative is inspired by US sanctions against Russia and Iran. The US has been successful in enforcing the sanctions because it has a large degree of control over the flow of dollars through the banking system. Getting away from the dollar is the best way to evade US sanctions.
However, drawing attention to some issues that might come up, Mehta said, «Despite rising concerns around the US dollar’s stability and viability, the is still too illiquid and un-established globally in comparison, causing many exporters to shy away from accepting it.» After convincing Russia, China had also attempted to deal with Saudi Arabia for yuan-based settlement but it didn’t receive a positive response. Hence, Mehta said, «China is taking things one step further with these new gold-backed futures contracts. solves the petroyuan’s concerns. Russia welcomed the petroyuan with open arms. While on a standalone basis, the might not be considered acceptable like the dollar, backing hedges that concern.»
prices will spurt if China’s contract succeeds when implemented. Will India’s prices go up too? If China’s contracts succeed, the dollar will weaken and, as a result, the rupee will strengthen. prices will shoot up sharply but the rise in Indian price will depend upon how much the rupee strengthens, said Mehta.