The launch of futures on Bitcoins was rushed so quickly through the regulatory channels that the anticipation was short-lived. And as the recent price action amply demonstrates, the existence of a derivative market has not tamed the digital token’s volatility. It is still the early days, but Bitcoin futures do not look likely to change the world.

On the other hand, any day now China is expected to launch a futures contract that even otherwise sober economists are gushing over for the world-changing potential. China has been testing an oil futures contract that would be denominated in yuan and backed by gold. The mere existence of the contract, we are warned, will dethrone the US dollar. 

We are reminded of the 1975 OPEC agreement to accept only the dollar for its oil has slowly eroded at the hands of Venezuela and Iran. China is the world’s largest importer of oil, in a world of excess supply, it is a buyers’ market. An oil contract priced in yuan that can be swapped for gold is a major blow for the dollar. Reports suggest that Saudi Arabia is considering yuan as payment for its oil. Some oil companies based in Russia, Iran, and Venezuela already accept yuan payments.  

The link to petroleum trade is seen a major component of the dollar’s status in the world economy. All but 300k-350k barrels of oil a day are thought to be traded for currencies other than the dollar, of the roughly 82 mln barrel a day market. Dethroning the dollar here will push it along its inexorable death spiral.  

Yet, Russia, Venezuela, and Iran cannot quit the dollar system: They were fired. US sanctions have limited the access to dollar financing, the lifeblood of trade finance, as well as the deepest pool of liquidity. The US has gone down the path of what Benn Steil and Robert Litan dubbed “financial statecraft” (2006book) especially since 9/11.  

The sanctions appear to have a wider cooling effect even on companies that may not be directly sanctioned. An oil futures contract denominated in yuan, with an option to receive gold, is a way to circumvent the sanctions, while at the same time providing Chinese oil producers and consumers, a derivative contract that could help them manage risk.