“[Big oil producers] don’t need us anymore. The result is…an erosion of the power of the dollar as a reserve currency.”– Precious Metals Advisor John Karow
We’ve been warning about the potential death of the petrodollar for years and the catastrophic ramifications that would follow. Last weekend, China’s leader Xi Ji Ping struck a series of momentous deals with the oil-rich Saudis striking the largest blow to the USD dominance yet.
Watch the video to hear Scottsdale Bullion & Coin founder Eric Sepanek & Precious Metals Advisor John Karow discuss this consequential geopolitical deal, how it threatens the power of the dollar, and why investors need to take quick action.
The Establishment of the Petrodollar
When the US abandoned the gold standard under President Nixon, the greenback’s status as a reserve currency was immediately threatened. To preserve the dollar’s top position and American global dominance, the US struck a deal with Saudi Arabia that made USD the standard for purchasing oil which established the petrodollar.
This strategic relationship cemented the dollar’s stronghold as the supreme exchange currency for decades. However, as the US-Saudi relations weaken and China’s opportunistic leader steps into the frame, the petrodollar is under significant threat. Naturally, this weakness also destabilizes US global hegemony.
China Cozies Up to the Saudis
In defiance of the standing global order, China and Saudi Arabia signed a series of agreements over the weekend that intertwine the powerful nations more than ever before. This is an affront to US-Saudi ties and a direct threat to American influence on the world stage. This move falls in line with China’s long-term commitment to reducing US influence.
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Mohammad bin Salman, the leader of Saudi Arabia, agreed in principle to consider snubbing the trade of oil in USD altogether in favor of the Chinese Yuan. This single change would erase the only trump card America has left and position China as the de facto leader on the world stage. The petroyuan would completely wreck the USD, causing untold damage to investors.
China wields significantly more leverage than the US when it comes to negotiating how oil should be traded with the world’s leading suppliers. Saudi Arabia is one of China’s largest traders, and China greatly outpaces the US in terms of oil purchasing. Our demand has slumped down to 550 million barrels of oil a day while China’s buying over 1.7 billion.
The Impact of Reserve Currency Status
The greenback’s powerhouse of global dominance didn’t happen by accident. It’s been carefully crafted and maintained over time through strategic relations and cunning agreements. The specter of a petroyuan could destroy a major pillar of US hegemony, threatening the entire balance of the world.
The problem with fiat currency is that there’s no real value underpinning the cash. The US has been able to skirt around this issue by maintaining reserve status through oil exchanges, making the USD the most preferred and sought-after currency. When the greenback loses this prestigious position, it will fall victim to the valuelessness of all fiat currencies.
The Biden administration is exacerbating the situation through reckless spending which is a direct threat to the USD even when reserve currency status is maintained. If that rug gets pulled out, the greenback will be worth less for every dollar printed. Considering the government has already spent $3.8 trillion since taking office, the US is helping China dig the dollar’s grave.
Investors Look to Precious Metals for Protection
The US’s leading position on the world stage is in jeopardy which signals a dismal future for the dollar. Tangible assets, especially gold and silver coins, gold bars, and silver bars, are going to prove valuable to wealth preservation if the market goes sideways. The gold price outlook for 2023 already points upward as investors around the world seek refuge in physical gold and silver.
If you’re interested in learning more about the rise of the petroyuan and the fate of the greenback’s value, grab FREE COPIES of our Exposure Report Series on The Petrodollar.