China, the world’s largest oil importer 1, is embarking on an ambitious plan to reshape the global economy and decimate the U.S. dollar as the world’s reserve currency. Experts say a major move could come as early as this year 2.
What is the Petro-Yuan?
To reach this goal, China will pressure Saudi Arabia to trade oil in yuan instead of the U.S. Petrodollar, which would create the new Petro-Yuan and weaken the dollar significantly. Analysts believe the Saudis will certainly bend to this pressure as a result of China’s immense buying power.
For decades, the U.S. dollar has served as the world reserve currency and helped solidify the United States’ role as a global economic power.
That’s all about to come crashing down as China seeks to make its yuan the preeminent global currency.
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Why is this important and what does it mean for gold?
We’ll get into that, but first, there are a few key facts you need to understand.
- China imports more oil than any other country, giving it a lot of sway over oil-rich nations like Saudi Arabia.
- China hates being forced to purchase oil in U.S. dollars and is using its buying power to strong-arm countries into accepting payments for oil in yuan.
- China’s yuan-denominated oil trades would be backed by gold. The Petrodollar is not.
Top Experts Predict Major Disruption in Oil and Stock Markets
Carl Weinberg is the chief economist and managing director at High Frequency Economics. He told CNBC 3 that once Saudi Arabia starts buying oil in yuan, the rest of the world is sure to follow.
He added that the move would pull between $600 billion and $800 billion in transactions out of the dollar and drive down demand for U.S. securities across the board.
Countries such as Iran, Venezuela and Russia are eager to see a new oil-trading currency because this would allow them to circumvent U.S. sanctions and trade freely in the oil market. This is a powerful alliance shaping up to take aim at the dollar.
What is the Petrodollar and How Does it Impact the Dollar?
The rise of the Petrodollar and its impending demise are a result of the U.S. putting an end to the gold standard. When President Nixon ended the convertibility of dollars into gold in the 1970s, the U.S. dollar went through a period of rapid decline. The country needed a way to strengthen the dollar and looked to oil and Saudi Arabia as the answer.
The Petrodollar was created by convincing Saudi Arabia and other oil-rich Arab states to trade oil in U.S. dollars. Since the dollar was no longer backed by gold, the United States was able to strengthen its currency through oil-buying power and military might. This move solidified the dollar as the world’s reserve currency.
Today, China surpasses the U.S. in oil imports, giving the country more influence over oil-producing states. If the Petro-Yuan replaces the Petrodollar it will mark the beginning of the end of the dollar’s global dominance. Here’s how:
- Other countries will follow Saudi Arabia’s lead and start trading in yuan
- China and Russia will achieve a long-term goal of becoming less dependent on the dollar
- China and Russia can trade more easily with countries subject to U.S. sanctions and undermine the United States’ foreign policy
- Most importantly, the move would result in hundreds of billions of dollars that are no longer traded in U.S. currency
How is the Petro-Yuan Different?
According to CNBC 4, China plans to trade oil in yuan using a gold-backed futures contract in Shanghai. This essentially means that if China is successful, the world could end up trading oil primarily through gold-backed currency for the first time since the Nixon administration.
Is Gold-Backed Currency the Ticket to Global Economic Domination?
China and Russia definitely seem to think so.
Both countries have increased mining and acquisition of physical gold 5 significantly, betting that gold stockpiles will help their economies gain strength as the dollar collapses. After his October visit to Fort Knox, Treasury Secretary Steven Mnuchin said the U.S. has $200 billion in gold 6 stashed away in its vaults. While that sounds like an extraordinary amount of money, it’s actually less than the U.S. spends on oil imports in a single year.
Why Should You Care? How This Could Impact Your Money
While the future of the dollar is looking grim, China is about to user in a new golden era for precious metals. It’s likely we’ll see investors get extremely bullish on gold. You need to start thinking about the best way to diversify your assets to avoid becoming a victim of the failing dollar.
Even during less uncertain times, gold and silver are always a smart long-term investment. Make no mistake, the global economy is about to experience the kind of seismic shift the world hasn’t seen since Richard Nixon was in office.
Gold vs. Dollar: Where Should You Place Your Faith?
With major world economies paying close attention to gold, it’s a good indicator that you should keep your eyes open as well. There are three important factors to keep in mind:
- Gold typically rises when the dollar falls
- Check for yourself. Compare Gold vs Dollar prices with our interactive gold price charts.
- A diminishing gold supply will increase demand and cost, especially as China continues to further build its own stockpiles
- China could set a new precedent for gold-backed currency
Amid growing global uncertainty, physical, tangible wealth is seen as the most effective safe haven investment. Whether you become a victim of the failing dollar or thrive as a result will depend on one major indicator: the amount of gold in YOUR vault!
Read More About These Unfolding Events
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