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.