China has reportedly completed its fifth dry run in yuan-backed oil futures contract trading thus moving closer to what could be a revolutionary move to challenge the dominance of the US dollar.
Bloomberg in a report said 149 members of Shanghai International Energy Exchange traded 647,930 lots in the rehearsal with a total value of 268.2 billion yuan. The system met the listing requirements of crude futures after the exercise, it added.
The report quoted economists as saying that the contract had the potential to greatly help China’s push for yuan internationalization.
The success of the contract, however, would depend on the degree of freedom allowed for the capital flows related to it, Bloomberg quoted Yao Wei, chief China economist at Societe Generale in Paris, as saying.
Since the 1970s, the global oil trade has almost entirely been conducted in US dollars.
The largest energy consumer, China, is interested in having oil contracts in yuan. Beijing plans to introduce its own oil benchmark which will rival Brent or West Texas Intermediate. Analysts say Chinese authorities will need to first convince large oil producers and consumers to use the yuan and invest in the Shanghai benchmark, Bloomberg added in a report that was also carried by the website of the Russian news television channel Russia Today.
The Chinese government announced plans to start a crude oil futures contract priced in yuan and convertible into gold earlier this year. The contract will enable the country’s trading partners to pay with gold or to convert yuan into gold without the necessity to keep money in Chinese assets or turn it into US dollars.
The new benchmark will reportedly allow exporters, such as Russia, Iran or Venezuela to avoid US sanctions by trading oil in yuan.
In September, Venezuela ditched the greenback for oil payments. Caracas has ordered oil traders to convert crude oil contracts into euro and not to pay or be paid in US dollars anymore. The measure followed the rolling out of sanctions by the United States against the country.