Saudi Arabia Just Ditched The US Dollar (How This Affects You)

Summary

The video discusses the end of the 75-year-old Petro dollar agreement between Saudi Arabia and the US, a pivotal moment in global economics. It explains the Petro dollar system's role in establishing the US dollar as the world's reserve currency and its impact on economic stability and trade. The script explores the implications of this shift, including the potential decline of the dollar's dominance and the rise of alternative currencies and assets like Bitcoin. It concludes with the presenter's personal investment strategy in response to these changes.

Takeaways

• 📅 The long-standing Petro dollar agreement between Saudi Arabia and the US expired on June 9th, 2024, marking a significant shift in global economics.
• 💡 The Petro dollar system, in place for 75 years, has been central to global finance, with oil being the key commodity priced in USD.
• 🌍 The US dollar's role as the world's reserve currency has provided the country with economic stability and the ability to control global energy resources.
• 🏦 The US has benefited from the Petro dollar system by exporting dollars and treasury bonds, fueling its growth through debt issued to other countries.
• 🔄 The end of the Petro dollar agreement is part of a trend where countries are moving away from using the dollar in international trade and oil transactions.
• 📉 The decline in the dollar's dominance could lead to higher inflation, higher interest rates, and potential economic instability in the US.
• 💼 The US's major export is not just goods and services but also dollars, which has created a global demand for the currency.
• 🌐 The potential end of the Petro dollar system could affect the US's ability to use its 'exit valve' strategy of releasing dollars to the world to manage inflation.
• 🛑 Saudi Arabia's decision not to renew the contract could be influenced by various factors, including a commitment to the BRICS alliance and a desire for more trade autonomy.
• 💡 Despite the changes, the US dollar remains a significant part of global finance, with 59% of foreign exchange reserves still held in dollars.
• 🚀 The speaker suggests a personal investment strategy focusing on diversification, including stocks, real estate, and Bitcoin, as a hedge against currency fluctuations.

Q & A

What significant economic event occurred on June 9th, 2024, as mentioned in the script?

The long-standing Petro dollar agreement between Saudi Arabia and the US expired, marking a significant shift in global economics.

What is the Petro dollar system and why is it important?

The Petro dollar system is an arrangement where oil is priced in US dollars, ensuring global demand for the currency and its status as the world's reserve currency. It has been crucial for the US's economic stability and dominance in global trade.

How has the role of the world's reserve currency shifted historically?

The role has shifted from the French Libra (1720-1815), to the British pound (1815-1920), and after World War II, the US dollar became the dominant reserve currency due to the Bretton Woods agreement.

What are the two superpowers that come with a country's currency being the world reserve currency?

The two superpowers are economic stability, allowing for international trade, and the ability to benefit from rising asset prices, including treasury bonds, as countries park their wealth in a stable currency.

How did the US dollar become the Petro dollar after it got off the gold standard?

The Petro dollar system was established after a secret meeting between Henry Kissinger and the Saudi Arabian government, where the US was given the exclusive right to develop oil from Saudi Arabia using dollars, thus oil was priced in USD.

What is the significance of Saudi Arabia's decision not to renew the Petro dollar agreement?

The decision signifies a move away from the US dollar in international trade and oil transactions, potentially weakening the dollar's dominance and the US's global financial influence.

What are some of the largest economies doing in response to the changing economic landscape?

Developing nations, including some of the world's largest economies, are ditching the dollar in their bilateral trade, with Saudi Arabia reportedly asking to join BRICS, indicating a trend away from the US dollar.

How does the US export dollars and what benefits does it bring to the US economy?

The US exports dollars by issuing treasury bonds that other countries buy, fueling US growth through debt. It also benefits from a stable economy with lower interest rates and increased liquidity in financial markets.

What could be some potential negative impacts on the US if the demand for the US dollar decreases?

Potential impacts include higher inflation, increased interest rates, a strain on the banking system, national deficit, and federal budget, and a devaluation of the dollar which could affect international trade and retirement accounts.

What strategies might the US employ to maintain the demand for the US dollar?

The US could raise the Federal fund rate or interest rate to attract more money. However, this strategy has limits as raising rates too high could negatively affect the US economy.

What is the current status of the US dollar in global foreign exchange reserves and transactions?

The US dollar still holds a significant portion of global foreign exchange reserves at around 59% and is used in 88% of foreign exchange transactions, indicating its continued importance.

What is the speaker's personal view on the future of the US dollar and alternative investments?

The speaker believes that while the US dollar will continue to play a less central role in global trade, it will not be replaced by another currency in their lifetime. They advocate for a diversified investment approach, including stocks, real estate, and Bitcoin.

Outlines

00:00

🌏 End of the Petro Dollar Era

The video discusses the expiration of the 75-year-old Petro dollar agreement between Saudi Arabia and the US on June 9th, 2024, marking a significant shift in global economics. The Petro dollar system, which cemented the US dollar's role as the world's reserve currency, was established post-World War II and allowed the US to control global energy and benefit from economic stability and rising asset prices. The video aims to explain the implications of this change for current and future generations.

05:01

💵 The Impact of Ditch Dollars on Global Trade

This paragraph delves into the consequences of countries moving away from using the US dollar in international trade and oil transactions. It highlights the concerns in the US over the potential end of its global financial dominance. The narrator contrasts the US's reliance on exporting dollars with the export strengths of other major economies. The paragraph also explores the benefits the US has enjoyed from the Petro dollar system, such as demand for its currency and treasury bonds, and the potential economic challenges if the US loses its ability to export dollars.

10:02

📉 Economic Ramifications of a Dollar Crisis

The narrator explains the potential economic fallout if the US dollar loses its global dominance, including inflation, higher interest rates, and the strain on the banking system and national deficit. The paragraph uses analogies and real-world examples, such as Greece's financial crisis and hyperinflation in Argentina and South Sudan, to illustrate the dangers of an uncontrolled money supply and the importance of the dollar's role in global trade and energy purchases.

15:04

🛑 The Future of the US Dollar and Personal Strategies

In the final paragraph, the narrator discusses the potential strategies the US might employ to maintain the dollar's status, such as raising interest rates, and the limitations of these strategies. The paragraph also presents data showing the continued strength of the US dollar in global reserves and foreign exchange transactions. The narrator shares personal views and investment strategies, including a diversified approach with stocks, real estate, and Bitcoin, as a hedge against currency instability.

Keywords

💡Petro dollar agreement

The 'Petro dollar agreement' refers to a longstanding arrangement between Saudi Arabia and the US, where oil was traded exclusively in US dollars. This agreement was central to the video's theme, as it underpinned the US dollar's status as the world's reserve currency and influenced global economic stability. The script mentions its expiration as a significant event impacting global economics.

💡Global trade

Global trade involves the exchange of goods and services across international borders. In the context of the video, it is highlighted in relation to commodities, particularly oil, which is traded predominantly in US dollars due to the Petro dollar system. This system is a key factor in the US dollar's global dominance.

💡Reserve currency

A 'reserve currency' is a foreign currency that central banks and other major financial institutions hold in significant amounts as part of their foreign exchange reserves. The US dollar, as discussed in the script, has been the predominant reserve currency since the Bretton Woods Agreement, which has granted it significant economic advantages.

💡Bretton Woods Agreement

The 'Bretton Woods Agreement' was an international monetary system established in 1944 that pegged most major currencies to the US dollar, which was in turn pegged to gold. This agreement is mentioned in the script as the historical event that cemented the US dollar's role as the world's primary reserve currency.

💡Economic stability

Economic stability refers to a state where an economy maintains steady growth, low inflation, and full employment. In the video, it is linked to the US dollar's role as the world's reserve currency, which has allowed for stable international trade and has been beneficial for the US economy.

💡Treasury bonds

Treasury bonds are debt securities issued by the US government to finance its spending. They are considered safe investments and are often used by countries to park their wealth. The script explains that countries hold US treasury bonds as a result of the US dollar's status, contributing to the US's economic stability.

💡Inflation

Inflation is the rate at which the general level of prices for goods and services is rising, and subsequently, the purchasing power of currency is falling. The video uses the analogy of a balloon to illustrate how unchecked inflation can lead to economic problems, as seen in the examples of Greece, Syria, and Argentina.

💡Federal fund rate

The 'Federal fund rate' is the interest rate at which depository institutions lend balances to each other overnight. The script suggests that the US can raise this rate to attract more money, which can help counteract the effects of the Petro dollar agreement's end, although it also has its limits.

💡BRICS alliance

BRICS is an association of five major emerging national economies: Brazil, Russia, India, China, and South Africa. The script mentions that Saudi Arabia's decision to not renew the Petro dollar agreement is partly due to its commitment to the BRICS alliance, which is moving away from the US dollar in international trade.

💡Diversification

Diversification in the context of the video refers to the strategy of spreading investments across various financial instruments to mitigate risk. The script suggests that while the US dollar may see a reduced role in global trade, diversifying investments, such as into stocks, real estate, and Bitcoin, can be a prudent approach.

💡Bitcoin

Bitcoin is a decentralized digital currency that operates independently of a central bank. The video suggests that Bitcoin could become a world reserve asset and a hedge against inflationary currencies. It is presented as an alternative investment to traditional assets in response to the changing global economic landscape.

Highlights

The Petro dollar agreement between Saudi Arabia and the US expired on June 9th, 2024, marking a 75-year-long system's end and a significant shift in global economics.

The US dollar's role as the world's reserve currency was established post-World War II, especially after the Bretton Woods agreement.

The Petro dollar system was a strategic move by the US to control global energy and maintain economic stability through oil pricing in USD.

The US benefits from the Petro dollar system by exporting dollars, which fuels its growth through treasury bonds purchased by other countries.

The end of the Petro dollar agreement could signify a move away from the US dollar in international trade and oil transactions.

Saudi Arabia's decision not to renew the agreement is part of a trend where countries are seeking alternatives to the US dollar in trade.

Countries like China and Russia have been reducing their dependence on the US dollar, impacting its status as a reserve currency.

The US dollar's global dominance is challenged as more nations, including large economies, look to diversify from USD in bilateral trade.

The US's ability to export dollars has created demand worldwide, supporting its economy through lower interest rates and financial market liquidity.

Inflation and the value of the dollar could be negatively impacted if other countries no longer need USD for international transactions.

The US might raise interest rates to attract money, but this has limitations and could affect the domestic economy.

Despite challenges, the US dollar remains the most held currency in foreign exchange reserves and transactions globally.

The speaker suggests a personal investment strategy focusing on broad market index funds, dividend reinvestment, and Bitcoin as a hedge.

Bitcoin is posited as a potential world reserve asset and a hedge against inflationary currencies.

Diversification in investments, including real estate and a mix of stocks and bonds, is recommended as a risk management strategy.

The speaker predicts that while the dollar's role may diminish, it will not be replaced by another currency within their lifetime.

The video concludes with an encouragement for viewers to focus on controllable aspects of their financial future rather than uncertainties.

Transcripts

I didn't think we'd be in phase three so

early but here we are just this Sunday

one of the biggest economic deals of the

century just came to an end the

long-standing Petro dollar agreement

between Saudi Arabia and the US just

expired on June 9th 2024 now this system

which has been in place for 75 years

marks a huge shift in global economics

so in today's video I want to help

explain exactly what's happening why

it's happening and how this will affect

us and our future Generations so with

that said let's get into it hi my name

is Andre J hope you're doing well come

for the finance and stay for another

boring macroeconomics video Phase 2 so

initiate the storytelling and dramatic

music so when most people think about

global trade they're probably thinking

about Commodities and when they think

about Commodities they're mostly

thinking of things like corn or wheat

but there's one commodity to rule them

all and that is oil now at the center of

this intricate web of global Finance

the Petro dollar system is at its core

that's why when most people around the

world think about what money actually is

they're probably thinking about the US

dollar but it wasn't always like that

though between 1720 to 185 if you asked

someone to name a currency they would

have probably said the French Libra

because it was France that held the

reserve status from 1720 to 1815 but

then if you ask someone to name a

currency between 1815 to 1920 you would

have probably heard the British pound

now after World War II everything

changed with the creation of the bretan

woods agreement because after that point

most people would have probably said the

US dollar now this happened because the

US was pretty much the only standing

superpower after World War II but this

system wasn't about one thing it wasn't

about Commodities it was about cementing

the Dollar's role as the world Reserve

currency because being the one money to

ruled them all gave that country access

to two specific superpowers and one of

them was economic stability stability

allows for things like International

Trade to happen if you want countries to

trade you need a common value and a

common money that everyone agrees to and

the second superpower is the country

whose currency becomes the one benefits

from rising asset prices including

treasury bonds which is seen as safe so

countries Park their wealth into money

that is seen as stable to preserve their

wealth against inflation and all the

other currencies that's why countries

like Japan China and the UK are some of

the biggest holders of us assets through

foreign exchange reserves roughly 7 to8

trillion worth but then in secret

another superpower was made for the US

dollar and that was the ability to

control the world's energy

the standard of living of all Americans

can be traced back to here the vast oilr

deserts of Saudi Arabia our

house is your house there's an Arab

saying the Sands are blowing and I

submit to you King Fahad that if the

sands of time give us any hint of the

future it is that in the days ahead the

friendship between the Saudi Arabian and

American people will be a strong vital

force in the world now after the dollar

got off the gold standard it became the

super Petro dollar and it replaced Gold

by what some people like to call Black

Gold AKA oil now how this happened is

one of the most interesting stories that

has ever happened throughout history the

Petro dollar was actually a device

invented by Kissinger and Nixon US

president Richard Nixon sent his

secretary of state and National Security

adviser Henry Kissinger to Saudi Arabia

for a secret meeting that meeting took

place on a battleship called the USS

Quincy and very few records were kept of

that meeting but Roosevelt promised the

king of Saudi Arabia weapons and

protection in exchange for the United

States to have the exclusive right to

develop oil from Saudi Arabia using

dollars meaning if countries wanted to

trade the most important commodity of

all oil they needed to get their hands

on dollars and from that that point on

oil would be priced in USD and if a

country tried to get their hands on oil

without using dollars that country

historically needed more freedom in

their lives and it's this Arrangement

between the US and Saudi Arabia that

helps the US with dominance over global

trade and helping preserve the US dollar

as the world's Reserve currency for over

75 years now but just this Sunday the

prince of Saudi Arabia announced that he

would not renew this contract and this

decision is part of of a much bigger

Trend where countries are ditching

dollars in international trade and oil

transactions the dollar looks like

they're dumping it the world's largest

oil producer Saudi Arabia is reportedly

asking to join bricks as more and more

developing nations including some of the

world's largest economies decide to

ditch the dollar in their bilateral

trade voices of concern and even despair

of being heard in the US over the

looming end of America's Global

Financial dominance

but the question is what does all of

this actually mean ask yourself this

question what is the US famous for

exporting that the world is buying I'll

give you some examples China is famous

for being the world's Factory it makes

and exports everything Germany is known

for its engineering and highquality

Manufacturing BMW Porsche Mercedes Japan

is a major exporter of electronics cars

Toyota Honda and the best anime in the

in the world South Korea famous for

semiconductors smartphones Samsung

Hyundai Kia and some of the best

skincare products in the world Saudi

Arabia famous for its oil it's one of

the biggest exporters of crude oil in

the world Russia famous for its natural

resources it's gas it's oil it's coal

it's other minerals Brazil is known for

its agriculture one of the biggest

exporters of soybeans coffee sugar and

beef India is a major exporter of

software services Tech and

pharmaceuticals Australia is also rich

in natural resources it's the leading

exporter of iron ore coal natural gas

and black opal Canada is also a huge

exporter of Natural Resources including

Timber minerals and some of the nicest

people I've ever met France is arguably

the biggest exporter of luxury goods and

fashion in the entire world Italy is

also known for fashion and luxury

Ferrari Lamborghini wine pasta the

Netherlands famous for happiness flowers

dairy products vegetables height

Switzerland famous for financial

services it's the world's biggest bank

Pharmaceuticals Rolex the United States

famous

for the Kardashians Hollywood now

there's actually a lot of things the US

produces that the world consumes

including culture but also Tech we've

made the biggest companies in the world

we export the biggest military in the

world but arguably the biggest export

that the United States has by far are US

Dollars we Aid a lot of countries with a

lot of money by Design design we are the

world's biggest money exports so the

question is how does being able to

export dollars help the US economy and

the answer is it helps in every single

way imaginable because having the Petro

dollar system has created a demand

around the world for other countries to

buy our dollars and our treasury bonds

because that's how the US fuels its

growth by issuing this debt these

treasury bonds that other people buy

it's also created a stable economy lower

interest rates and liquidity and

financial markets and this has been

hugely beneficial for the US Stock

Market through higher stock prices and

investment flows without the ability to

export dollars that would mean bad

things let me show you an analogy using

a balloon because this is the US economy

in its normal State and whenever there's

a problem we can just pump the balloon

full of money to solve the problem which

also creates inflation and it looks like

this

now if I pump this balloon with enough

inflation eventually those Rising prices

would cause the economy to break because

consumers wouldn't be able to afford

anything So eventually with enough air

with enough money the economy would

break now lucky for us we have an exit

valve right

here that means we can release the

pressure and the dollars to the rest of

the world and the world would actually

absorb it because it also needs those

dollars to buy its energy but what

happens when you have a balloon that

keeps on expanding and doesn't have an

exit valve eventually that balloon would

pop now that's just an analogy but what

does it really mean Believe It or Not

we've seen what it means because it's

happened to other countries Greece is on

the verge of default tonight hours from

what many believe is a near certainty

scenes like this are playing out across

the country the UN says food prices

tripled last year and estimates four and

five syrians now live below the poverty

line since 2019 the Lebanese pound has

lost more than 90% of its value basic

commodity prices have almost doubled

Argentina's annual inflation reached

more than 100% in February this is the

first time since 1991 it's been in

triple digits so his costs go up

whenever the value of the South Sudanese

pound Falls against the US dollar

higher inflation means higher interest

rates to fight inflation and higher

interest rates also means it's more

expensive to borrow money which means

expensive mortgages and rents more

expensive auto loans higher student

loans and higher interest rates on

credit cards higher interest rates also

puts a strain on the banking system

which we've seen with the smaller bank

failures it puts a strain on the

national deficit which we've also seen

and of course the federal budget which

also means in order to fight that we

might have to raise our taxes to pay for

those higher interest payments another

problem would be the value of the dollar

itself would be affected because it

would no longer be needed by other

countries that makes traveling overseas

a lot more expensive it makes buying

things that are made in other countries

more expensive and it becomes harder to

retire because those retirement accounts

those IAS and 401ks would be negatively

affected remember less foreign dollars

buying assets equals slower growth

question is why is Saudi Arabia doing

this some people blame us leadership in

congress for creating the situation some

people say they're doing this because

they can because it makes sense for a

country to trade how they choose and to

sell their Assets in the currency they

want but it's also because of their

commitment to the brics alliance that's

Brazil Russia India China and South

Africa countries like China and Russia

for example have been reducing their

dependence on the dollar for a while now

which is why China recently dumped a

bunch of US Treasury bonds and it's also

why the dollar as a reserve currency has

reached a 14-year low so how can the US

fight this then now short of declaring

freedom on a country the US can also

raise its Federal fund rate or the

interest rate to attract more money to

be parked here and we have but the US

can only raise the interest rate so far

before it starts to affect the US

economy consumers small Banks and the

ability for us to borrow money so

unfortunately there's really not a lot

the US can do which doesn't sound like

good news but I also want to show you

data that argues the effects of all of

this I did this in another video but if

you didn't watch that video I think it's

important to remind yourself just how

powerful the US's number one export

still actually is because the world

holds roughly 59% of its foreign

exchange reserves in dollars in

comparison to only 20% of that in euros

and only 3% for the Chinese remede and

the dollar is used in 88% of Foreign

Exchange transactions according to the

Atlantic Council and for the Chinese

Yuan which a lot of people reference as

a competitor to the dollar just had 73

central banks abandon it in favor for

buying more gold and US dollars in fact

in a survey of global money managers

when they were asked what they wanted to

do over the next 1 to two years with

their currency here's what they said 18%

of them said they would be adding to

their US dollar which is three times

High higher than what it was last year

and the dollar is also backed by the

world's biggest most advanced and

Powerful militaries in the entire world

now how long that's going to last is not

something I can answer all I've shown

you is just the data and the facts about

what's really going on today so I don't

know none of this was my opinion but if

you made it this far here's what I

personally think I didn't even know this

agreement was coming to an end until a

couple days ago when someone left a

comment on my video so thank you for

bringing it to my attention I do read

and respond to a lot of your comments

but I'll reiterate what I said in that

video the world has been becoming less

dependent on the dollar for a long long

time now and it makes perfect sense why

it would want that for itself to me but

it's been happening extremely slowly and

I can see in my lifetime how the dollar

will continue to play less of a central

role in global trade but do I think it's

going to be replaced by another currency

not in my lifetime even with this

agreement coming to an end now rather

than just saving my money and worrying

about the end of the world about

something that is completely outside of

my control I focus on what I can control

which is just investing into the stock

market into lowcost broad market index

funds and reinvesting all of my dividend

income back into my dividend stocks and

as an insurance policy I also like to

buy some Bitcoin now I don't think that

Bitcoin will ever become a currency but

Bitcoin has what I like to call a lot of

attack vector s for preserving and

creating wealth for example I think the

generational wealth transfer from our

parents alone will make Bitcoin out grow

the size of gold I think we'll see more

countries with high inflation adopt the

Bitcoin standard we'll see more Pension

funds join Bitcoin it'll be added to

mutual funds inside of people's

retirement accounts like 401ks and IRAs

I think Bitcoin will eventually become a

world Reserve asset a store of value

especially for currencies that get

printed out of thin air now it's not

just a hedge against the dollar it's

also a hedge or a bet against any other

currency that may or may not replace it

now I also hold some real estate because

they can't print more of that I have

some stocks I have some bonds I have

some dividend stocks as well now if I'm

wrong on any one of them which I could

be hopefully if I'm right somewhere else

then I'll be all right that's just my

Approach with that there's a lot of risk

and of course mistakes which are made

public but I still hope that you get

some value and insight anyway I'd love

to hear what you think and what you're

doing let me know what I might have

missed as always I hope you have a

wonderful rest of your day smash the

like button subscribe if you haven't

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patreon thank you so much for watching

this video I'd love to see you back here

on Monday and Friday sometimes a

Wednesday I'll see you soon bye-bye