Petroyuan is a form of the official Chinese
currency
A currency, "in circulation", from la, currens, -entis, literally meaning "running" or "traversing" is a standardization of money in any form, in use or circulation as a medium of exchange, for example banknotes and coins.
A more general ...
, the
Yuan intended at least initially for oil trading. On March 26, 2018, the Chinese government issued the first long term oil trading contracts denominated in Petroyuans. This project exists to attempt to compete with the
American petrodollar as a main currency in crude oil transactions, whose hegemony has led the market since the dollar standard was first established in 1971, replacing the gold standard and giving the US the power to manage most of the world's currency supply (around ~60%).
History
Since 1971, when President
Richard Nixon
Richard Milhous Nixon (January 9, 1913April 22, 1994) was the 37th president of the United States, serving from 1969 to 1974. A member of the Republican Party, he previously served as a representative and senator from California and was ...
ended the dollar convertibility to gold, many foreign currencies emerged trying to replicate the pre-1971 situation. An example of a petrocurrency backed by gold was a project by the Libyan dictator
Muammar Gaddafi, who released a project to create a multinational African currency, However, this project was discarded because he was overthrown in the Civil war of
Libya
Libya (; ar, ليبيا, Lībiyā), officially the State of Libya ( ar, دولة ليبيا, Dawlat Lībiyā), is a country in the Maghreb region in North Africa. It is bordered by the Mediterranean Sea to the north, Egypt to the east, Suda ...
in October 2011.
"The Worrisome Deal: China and Saudi Arabia"
Harvard Politics, 18 December 2018.
China, with a currency constantly growing on market relevance, attempted to create a dollar alternative. In June 2017, the People's Bank of China and the Central Bank of Russia signed a memorandum to facilitate the exchange of crude oil using Yuans. Months later, in September 2017, China made official the existence of the Petroyuan.
The operation was given on a context where China dominated crude oil importations, with approximately 400 million tons as of 2017 as stated by Sinopec
China Petroleum & Chemical Corporation (中国石油化工股份有限公司) or Sinopec (), is a Chinese oil and gas enterprise based in Beijing. It is listed in Hong Kong and also trades in Shanghai.
Sinopec Limited's parent, Sinopec ...
, one of China's biggest oil companies.
Characteristics
One of the reasons the Petroyuan was created was that Russia, Venezuela
Venezuela (; ), officially the Bolivarian Republic of Venezuela ( es, link=no, República Bolivariana de Venezuela), is a country on the northern coast of South America, consisting of a continental landmass and many islands and islets in th ...
and Iran
Iran, officially the Islamic Republic of Iran, and also called Persia, is a country located in Western Asia. It is bordered by Iraq and Turkey to the west, by Azerbaijan and Armenia to the northwest, by the Caspian Sea and Turkmeni ...
may be able to avoid United States
The United States of America (U.S.A. or USA), commonly known as the United States (U.S. or US) or America, is a country primarily located in North America. It consists of 50 states, a federal district, five major unincorporated territori ...
sanctions, so nations such as Saudi Arabia
Saudi Arabia, officially the Kingdom of Saudi Arabia (KSA), is a country in Western Asia. It covers the bulk of the Arabian Peninsula, and has a land area of about , making it the fifth-largest country in Asia, the second-largest in the A ...
, one of the main oil producers and extractors could avoid dollar hegemony and US pressure. The Yuan's main problems are its volatile liquidity and short scale extension, however the Chinese government intervened increasing its gold reserves to back the Petroyuan.
See also
* Petrocurrency
* Petro (Venezuelan Cryptocurrency)
References
{{Reflist
Petroleum economics
Petroleum politics