China is preparing to pose a credible challenge to the dominance of the United States dollars in the oil market, where contracts are usually priced in U.S. dollar and the majority of the trade payments take place in the U.S. dollar. China is not the only country looking for other form payment alternative to the dollar as the United States continues to use the dominance of the dollar as a foreign policy tool and for imposing sanctions. Iran has extensively used barter systems of international trade to receive payments instead of using the dollar. However, China is the only country after entire Eurozone that might challenge dollar’s dominance.

As of December last year, data from Swift suggests that only 1.68 percent of the transactions were based on Chinese Yuan compared to Dollar’s 42.1 percent but that gives the yuan a sixth position in the whole world. In addition to that, China’s dominance in the commodity space likely to make China a credible challenger, especially for payments for imported commodities.

As China surpassed the United States as world’s biggest oil importer, it is preparing to launch a crude oil futures contract denominated in Chinese yuan and convertible into gold, potentially creating the most important Asian oil benchmark and allowing oil exporters like Iran and Russia to bypass U.S.-dollar denominated benchmarks by trading in yuan. The crude oil futures will be the first commodity contract in China open to foreign investment funds, trading houses, and oil firms. Last month, the Shanghai Futures Exchange (SHFE) and its subsidiary Shanghai International Energy Exchange, INE, successfully completed four tests in a production environment for the crude oil futures, and the exchange continues with preparatory works for the listing of crude oil futures, aiming for a launch by the end of this year.