The petro-dollar system is the heart and soul of America's domination over the global reserve currency, and their right to make all nations have to purchase U.S. dollars to be able to buy oil in the open market. Bound through an agreement with Saudi Arabia and OPEC in 1973, this de facto standard has lasted for over 41 years and has been the driving force behind America's economic, political, and military power.
But on Nov. 3 a new chink in the petro-dollar system was forged as China signed an agreement with Qatar to begin direct currency swaps between the two nations using the Yuan, and establishing the foundation for new direct trade with the OPEC nation in the very heart of the petro-dollar system.
While this new agreement between China and Qatar is only for the equivalent of $5.7 billion over the next three years, Qatar becomes the 24th nation to open its Forex market to the Chinese currency, and solidifies acceptance of the Yuan as a viable option for the future in the Middle East.
China's central bank announced Monday that it has signed a currency swap deal worth 35 billion yuan (about 5.7 billion US dollars) with the central bank of Qatar.
The three-year deal could be extended upon agreement by the two sides,said a statement on the website of the People's Bank of China (PBOC).
Also on Monday, the two sides signed a memorandum of understanding on Renminbi clearing settlement in Doha. China agreed to extend the RMB Qualified Foreign Institutional Investor scheme to Qatar, with an initial quota of 30 billion yuan.
The deal marked a new step forward in financial cooperation between the two countries, and will facilitate bilateral trade and investment to help maintain regional financial stability, the statement said. - China Daily
It is perhaps no coincidence that the term for the new agreement is set for three years, and is within the exact time frame being predicted by the director of the Finance Institute under the Development Research Center of the State Council, Zhang Chenghui for the Renminbi to become fully convertible in the global financial system.
The need for new markets and a more stable trade currency in Qatar could be tied to a new report issued yesterday by French bank BNP Paribas which showed that petro-dollar recycling has fallen to its lowest levels in 18 years, signifying that even oil producing nations in the Middle East are finding it difficult to trust the U.S. dollar, and facilitate its use in trade due to its depreciation since the advent of the Federal Reserve's massive QE programs.
Nearly every week now, China, Russia, or one of the BRICS nations are finalizing agreements that supersede the old system of dollar trade and reliance on the petro-dollar system. And as many countries begin to reject the dollar due to the exported inflation that is growing in nations that are relegated to having to hold them for global oil purchases, alternatives such as the Chinese Yuan will become a more viable option, especially now that the Asian power has taken over the top spot as the world's biggest economy.