The petrodollar system has been in place pretty much since the early 1970s. The only currency in which anyone or any country can/could buy oil was the US dollar. In other words in order to buy oil on a macro level one had to first buy US dollars. This gives the USA immense power.
Since about 2000 however, a rising China (and much of the rest of the world) has been looking for an exit from the petrodollar system. It is now well on its way. And that is potentially a significant destabilizing factor.
China’s yuan-denominated crude oil futures launched today in Shanghai with 15.4 million barrels of crude for delivery in September changing hands over two and a half hours—the length of the first-day trading session for the contract.
Glencore, Trafigura, and Freepoint Commodities were among the first to buy the new contract, Reuters reports. Within minutes of the launch, the price had gone up to almost US$70.85 (447 yuan) from a starting price of US$69.94 (440.4 yuan) per barrel. The overall price jump for the short trading session came in at 3.92 percent.
Many awaited the launch eagerly, seeking to tap China’s bustling commodity markets, although doubts remain whether the Shanghai futures contract will be able to become another international oil benchmark. These doubts center on the fact that China is not a market economy, and the government is quick to interfere in the workings of the local commodity markets on any suspicion of a bubble coming.