Saudi Arabia Just DITCHED The US Dollar.

Summary

In a significant shift, Saudi Arabia has reportedly abandoned the US dollar in oil trade, ending a 50-year agreement. This move could diminish the dollar's global dominance, potentially impacting inflation and economic stability. The decision may be a response to strained US-Saudi relations and a strategic alignment with the BRICS alliance, indicating a broader trend towards diversifying from the dollar in international trade. The implications suggest a future where inflation, asset prices, and geopolitical dynamics could be significantly influenced by this monetary pivot.

Takeaways

• 📰 Saudi Arabia has reportedly ended the Petrodollar agreement with the US, which has been in place for 50 years.
• 💵 The US dollar was previously backed by gold until 1971, and the Petrodollar agreement in 1974 helped cement the dollar's status as the world's reserve currency.
• 🌍 The end of the agreement allows Saudi Arabia to sell oil in multiple currencies, potentially reducing the dominance of the US dollar in global trade.
• 🔄 Petrodollar recycling, where surplus dollars from oil trades are reinvested into the US economy, is a key mechanism for the US to export inflation.
• 💡 The decision by Saudi Arabia could lead to significant economic consequences for the US, including the potential for higher inflation if dollars回流.
• 🤝 The breakdown in the US-Saudi relationship, with President Biden's rhetoric and policies, is suggested as a possible reason for Saudi Arabia's move.
• 🌐 Saudi Arabia's actions reflect a broader trend of countries, particularly within the BRICS alliance, seeking to reduce reliance on the US dollar.
• 📈 The Chinese Yuan and Russian Ruble are gaining traction as alternative currencies for trade, especially in the oil and gas sector.
• 📊 There has been a gradual decline in the US dollar's share of global central bank reserves, with the Yuan's share increasing.
• 🏦 Central banks worldwide are net sellers of US treasuries and net buyers of gold, indicating a shift away from the US dollar as a reserve asset.
• 🚀 The potential for Bitcoin to be used as a payment method for oil by Saudi Arabia signifies a growing interest in cryptocurrencies as an alternative to traditional currencies.

Q & A

What significant event did Saudi Arabia undertake on June 9th regarding the US Dollar?

Saudi Arabia decided to end the Petrodollar agreement with the US, which had been in place for 50 years, allowing them to sell oil and other goods in multiple currencies instead of just the US Dollar.

Why was the US Dollar backed by gold until 1971?

The US Dollar was backed by gold as part of the Bretton Woods agreement signed in 1944, which established the US Dollar as the world's reserve currency. However, in 1971, Richard Nixon removed the Dollar from the gold standard.

What is the Petrodollar and how did it come into existence?

The Petrodollar is a term used to describe the US Dollar's dominance in the global oil trade, which began in 1974 when the US made a deal with Saudi Arabia. This agreement ensured that oil trade was conducted in US Dollars, thus cementing the Dollar's status as the world's reserve currency.

How did the Petrodollar agreement benefit the US economy?

The Petrodollar agreement allowed the US to export its inflation by having surplus dollars reinvested back into the US Dollar system, usually into US treasuries, equities, or local infrastructure. This is known as Petrodollar recycling.

What are the potential consequences of Saudi Arabia ending the Petrodollar agreement for the US Dollar?

The ending of the Petrodollar agreement could lead to a loss of global power for the US Dollar and potentially cause massive inflation in the US if the surplus dollars currently held by other countries return to the US economy.

Why might Saudi Arabia have decided to end the Petrodollar agreement now?

Saudi Arabia may have decided to end the agreement to have more trading options and flexibility. Additionally, tensions between the US and Saudi Arabia, including threats from President Biden and actions perceived as hostile, may have contributed to this decision.

What is the BRICS alliance and how does it relate to the Petrodollar agreement?

The BRICS alliance is a group of emerging economies, including Brazil, Russia, India, China, and South Africa. The alliance has been reducing its reliance on the US Dollar, and this move by Saudi Arabia to end the Petrodollar agreement could be seen as part of a broader trend to reduce the Dollar's dominance.

How has China's currency, the Yuan, been gaining traction in international trade?

China's Yuan has been gaining traction as a major currency, especially in trade involving oil and gas. Russia, for example, has been using the Yuan for oil settlements, indicating a shift away from the US Dollar.

What is the significance of gold in the context of global reserve currencies?

Gold has historically been a stable store of value and an alternative to fiat currencies. As countries diversify away from the US Dollar, gold has been increasingly used as a reserve asset, providing stability and reducing reliance on any single currency.

What does the future hold for the US Dollar in terms of its global status?

While the US Dollar's dominance is declining, it is not expected to disappear imminently. The Dollar's status as a global reserve currency is likely to continue for the foreseeable future, although it may face increasing competition from other currencies like the Yuan.

How might the developments in the global currency landscape affect individual investors and asset owners?

For individual investors and asset owners, these developments could mean increased volatility and a need to diversify investments. Owning assets that are expected to appreciate in value during inflation, such as real estate or certain commodities, could be beneficial.