I recently encountered a blog post by respected commentator Mish Shedlock entitled, “Petro-Yuan Futures Launch In March: Ignore The Hype, It’s A Good Thing.” In this article, Shedlock argues that the new futures will pose no threat to the US dollar as the global reserve currency even if the futures do result in oil being priced in yuan. While Shedlock does certainly make some interesting points, I do disagree with his overall conclusion. This article will explain why.

Shedlock’s Argument

First of all, I would suggest reading the original article linked above to get a full grasp of Mr. Shedlock’s argument. The discussion here will merely be a short summary of the initial article along with my conclusions about it.

In short, Shedlock states that it does not matter what currency oil is valued in as all currencies are basically interchangeable. He does however believe that we may be nearing the end of the days of the Middle East selling their oil for US dollars but that has nothing to do with the launch of the petro-yuan oil futures. Rather, it is a direct result of the shale oil boom in the United States, which could turn the United States into a net oil exporter by the end of the decade and thus the country would no longer need to import oil from the Middle East.

Shedlock concludes however that this would have little impact on the US dollar’s status as a reserve currency and that the United States would be better off as an exporter of energy than with oil continuing to be priced in dollars.