Over the past couple of decades, the US has invaded and/or destabilized multiple countries — including Iraq, Libya, and Syria — for accepting currencies other than the dollar for oil. That’s how big a deal the petrodollar was for the Empire.
But now it’s over:
Saudi Arabia ends petrodollar agreement
(Kitco News) – The established financial world order of the past 50 years is now transitioning to a new and unknown paradigm as the petrodollar agreement between the U.S. and Saudi Arabia was allowed to expire this past Sunday.
The term ‘petrodollar’ described the U.S. dollar’s (USD) role as the currency used for crude oil transactions on the world market. It traces back to the early 1970s when the United States and Saudi Arabia struck a deal shortly after the U.S. went off the gold standard – and the agreement has had far-reaching consequences for the global economy.
The petrodollar agreement came about following the 1973 oil crisis. It stipulated that Saudi Arabia would price its oil exports exclusively in U.S. dollars and invest its surplus oil revenues in U.S. Treasury bonds. In exchange, the U.S. provided military support and protection to the kingdom.
This helped the USD cement its position as the world’s reserve currency and ushered in an era of prosperity for Americans as they enjoyed the benefits of being the preferred market for global corporations to sell their wares. Additionally, the inflow of foreign capital into U.S. Treasury bonds has supported low interest rates and a robust bond market.
All that is set to change now as Saudi Arabia is looking to move beyond an exclusive relationship with the U.S. – as evidenced by the kingdom becoming one of the newest members of the BRICS bloc.
Long-Term Impact
Is this the end of the US dollar? Absolutely not. Huge amounts of debt around the world are denominated in dollars, which means borrowers have to acquire dollars to pay the interest. And the US capital markets are the world’s deepest and most liquid, which will make the dollar an important trading currency and reserve asset for the foreseeable future.
But the end of the petrodollar does open the field for competing currencies, and the BRICS countries are already signing bi-lateral trade deals that completely bypass the dollar. This trend will gain momentum going forward.
So…four questions:
What happens to the trillions of dollars that now reside in corporate and central bank accounts that may not be needed in the future? Do they pour back into the US as holders convert them into American real estate and financial assets? Is this inflationary? In other words, does it cause the value of the dollar to decline?
Can the US government continue to run massive trade and budget surpluses if fewer foreign entities are willing to buy Treasury paper? Will Washington be faced with a choice of cutting spending (with the collapsing growth and civil unrest that “austerity” brings to overindebted systems) or having the Fed monetize everything and hope that the resulting inflation is manageable?
Will the US start lashing out at trading partners who de-dollarize too enthusiastically, causing other countries to accelerate their own transitions?
Will Europe be collateral damage as its banks and real estate companies are caught in the middle of a US-BRICS battle for financial supremacy?
The answer to all of the above is probably “yes”, and the result won’t be pretty for anyone but gold bugs.
More De-Dollarization Developments
There’s a lot more going on out there, including:
India repatriates over 100 tonnes of gold from BoE to RBI vaults, amount could double in coming months
(Kitco News) – Over 100 tonnes of gold have been moved from the United Kingdom to the Reserve Bank of India’s (RBI) vaults in one of the most ambitious transfers of the precious metal ever undertaken, and that amount could double in the coming months, according to a report from the Times of India published Friday.
Up until now, over half of the RBI’s gold reserves were being held with the Bank of England (BoE) and the Bank of International Settlements (BIS) overseas, but the Indian government has begun the process of repatriating the country’s bullion holdings.
As of March 31, 2024, the RBI’s total gold reserves were listed at 822.1 tonnes, up from 794.63 tonnes in March of 2023, and 413.8 tonnes of that total was held overseas.
Do the new US sanctions mark Russia’s final divorce from the dollar?
(RT) - The endless parade of Western sanctions on Russia barely makes the news anymore. But this week the US Treasury did manage to conjure up something that has generated attention.
In what may be the most ambitious package since the initial wave back in February 2022, the American authorities greatly increased the scope for applying secondary penalties on foreign financial institutions found working with restricted Russian entities, and placed the Moscow Exchange and its clearing house under blocking sanctions, among other measures. The exchange subsequently announced that it was suspending all settlements in dollars and euros. It’s the latter that is the most interesting and has elicited the most chatter.
“De-dollarization” seems to be the latest reason de jour - and even the raisson de jure - of why gold will maintain its value, or even gain in purchasing power.
We shall see. I happen to agree, and even think “lesser” reasons could have the same effect much earlier - loss of (misplaced) confidence in central banks and war (and especially a war in which the West/US loses) being top contenders.
But the prevailing sentiment at this time is that the dollar will die slowly - perhaps even excruciatingly slowly - and for many reasons rather than just one. Death by thousand cuts.
But I’m not so sure about that. It could flame out extremely quickly but for reasons no one seems to have cited.
For one thing, few people think the dollar might be “killed” on purpose. (Who knows, Bill O’reilly may be working on a “killing the Dollar” book as we speak to be ready for the press.)
Unlike just a few years ago it’s become almost a joke at this point to doubt “conspiracy theories”. They’ve almost become the modern day Occum’s Razor to explain things (similar to “follow the money” and “cui bono”.)
So, if one considers some of the latest conspiracy theories concerning the world of money floating around, the three main ones are “The Great Reset”, “The Great Taking”, and “Central Bank Digital Currencies.” All three of them imply and require nefarious intentions, and ironically that is probably the main reason why most people reject them - or at least doubt them.
And yet that happens all the time. All but the most willfully ignorant know that governments lie, but what’s changing is the realization that their OWN government lies. I happen to think that the number one reason things have become so messed up in the US is because Americans subliminally thought their “leaders” were statesman like the Constitutional founders allegedly were.
Furthermore, if you consider the possibility that many in government are not merely myopic and incompetent but actively subversive then the possibilities of major surprises seem much more possible. It’s now fashionable to claim the US government is captured by “Marxists” because that (conspiracy) explains a lot. If so, then the number one objective is the take down of the US. It is happening on many fronts - and has been for a long time - and perhaps the lynch pin of it all is a financial crisis. One may argue it could be something else but given the culture and social structure of the US a currency crisis would be catastrophic.
But a currency crisis can take different forms. They may ultimately lead to the same end but the pathway can differ. The most popular idea of a currency crisis is hyperinflation - or severe lose of purchasing power - but lose of purchasing power can occur in several different ways. One way is to literally take it away, aka the “Great Taking”, in which the currency might be fine it’s just you don’t have any. Another way is to declare it worthless by fiat and to replace it with something else, aka CBDCs. Everything can stay fine as long as you use a CBDC.
If either one of those things happened, it would be a de-dollarization that’s independent of all the “milkshake” ingredients.
So far, the US Fed is the adminstrative “branch” of government that hasn’t blatantly screwed the Constitutional system, though some might argue that it was actually the first to do so. But my point is that the assumption that the Fed has the best interests of the US et al at heart is probably misplaced.
Therefore, in thinking about de-dollarization I tend to think of it more as ways to purposely globalize and centralize power while still allowing the fanatical maniacs to maintain their own wealth and power despite a world gone mad. Maybe the BRICs are different, but it’s like everyone collectively forgetting that Ukraine was (still is) one of the most corrupt countries in the world, and now becoming chums with the US.
It will be fascinating to see how things play out, but no matter the pathway owning physical gold and silver is the surest way to preserve one's wealth.
The key thing is what you said at the end there if the demand is there the value of the dollar will remain an even go up but if the demand drops off the dollar will lose value which looks like that may be the case if you check out the last treasury sales