China have announced they are launching an oil contract priced in Chinese yuan rather than U.S. dollars. The contract will be traded on the Shanghai International Energy Exchange and will compete directly with the Brent and West Texas contract. Both contracts are currently settled in U.S. dollars.
Most countries and large multi nationals hold U.S dollars in reserve for the purpose of buying and selling commodities. If U.S. dollars are no longer required its status as the world’s reserve currency will come under threat.
More and more countries are attempting to diversify away from the dollar. Only this week the Japan Bank for International Cooperation indicated they will set up a direct ruble-yen currency swap agreement enabling the two countries to trade without the need of the U.S dollar. 28 countries including the UK, Australia and Russia already have a swap agreement in place.