The Petrodollar

De-Dollarization

Last updated September 3, 2024

Longtime readers of Scottsdale Bullion & Coin reports may recall that we first discussed the petrodollar back in 2013. We issued our first written report in 2015, and we’ve been updating it every few years as things around the world changed. Recently, that pace of change has increased rather dramatically, requiring an urgent update.

Why should the petrodollar be important to Americans?

  • Since the 1970s, the United States has used the petrodollar system to keep the US dollar afloat as the world reserve currency (WRC).
  • Since then, the US has racked up over $31 trillion in debt and has gotten away with this because the US has this WRC status.
  • But… If the US dollar loses the status of a worldwide reserve currency, what would that mean for your money? How will that affect your retirement, life savings, and wealth?
  • Would the US deficit be too large of a debt to recover from?
  • Is it more likely today, with a country's ability to create a digital currency?

If you’re interested in understanding how the petrodollar came into existence, here’s a timeline of the things that occurred and resulted in the creation of the petrodollar:

Dollarization Historic Timeline

  • roosevelt signing executive order 6102

    Executive Order 6102 (Gold Confiscation)

    U.S. requires all citizens to turn in their privately held gold to the U.S. government.
    Source
  • bretton woods conference

    Bretton Woods Conference

    The world’s major industrial nations met to establish rules for financial relations. International Monetary Fund (IMF) and the International Bank for Reconstruction and Development (IBRD) were created. Also resulted in an international gold-backed monetary standard.
  • nixon shock

    The Nixon Shock

    The end of the gold standard. Nixon decoupled the US dollar being backed by gold, which ended the Bretton Woods system and made the US Dollar a fiat currency.
  • what is the petrodollar

    US and Saudi Agreement: The Petrodollar System

    US and Saudi Arabia strike deal to price oil in US dollars. OPEC nations followed. By 1975 all oil is paid for in US dollars.

De-Dollarization Timeline

Our more recent history with the petrodollar begins in the early 2000s. That’s when China started taking steps to try to replace the petrodollar with other currencies. Below is a timeline with some pivotal events that should bring you up to speed on China’s moves against the dollar:

  • china global currency

    China calls for new global currency

    Source

  • China becomes world’s top oil importer

    Source

  • Rise of the Petroyuan: A plan to dethrone dollar and price oil in yuan using gold-backed futures contracts

    Source

  • Saudi Aramco to prioritize energy supply to China for 50 years

    Source

swift logoSo why the sudden change? It begins with America’s actions in two different arenas. The first was our ill-advised sanctions against Russia and our actions to remove them from the SWIFT banking system.

This had the effect of forcing Russia to sell its oil in currencies other than the US dollar. Europe, which depended on Russian oil, was forced to use gold or purchase Russian Rubles to obtain Russian oil. This had the effect of making tremendous amounts of money for Russia and strengthening the Ruble.

  • 7 Russian banks removed from SWIFT

    Note: The US has done this before and will continue to.
    Source

These actions were not received well. Many saw this as an attempt by Washington to weaponize the dollar. Many countries began to look for ways to reduce their dependence on the US dollar. Other currencies and gold became the focus.

And it wasn’t just our currency that was losing its appeal. Our position as leader of the free world was also being questioned.

Below you’ll see how this move by the US seemed to accelerate actions to diversify from the dollar:

  • India's oil deals with Russia dent decades-old dollar dominance

    Source
  • Saudi Arabia Dollar Yuan

    Saudi Arabia considers yuan for some oil

    Source

  • China is building a yuan currency reserve to compete with the dollar and prop up other economies facing volatility

    Source

  • Putin warns west current world order is over and a new era is coming

    Source

  • China thought to be stockpiling gold to cut greenback dependence. Buying of metal is at its fastest pace since the 1960s

    Source

  • China’s Xi Jinping deepens Saudi ties in pivotal trip

    Source

  • Argentina and China formalize currency swap deal

    Source

  • Saudi Arabia says it’s open to settling trade in other currencies

    Source

  • Brazil and Argentina are gearing up to launch a joint currency that could become South America's euro

    Source

    • MARCH 2023

    BANKING CRISIS
  • iran oil

    Saudi Arabia and Iran agree to resume diplomatic relations

    China brokered the deal between these regional rivals, which some analysts say underlines China’s growing economic and political importance in the Middle East, waning America’s influence. Chinese-brokered deal upends mideast diplomacy and challenges the U.S.
    Source

  • Russian President Vladimir Putin announced that he favors using the Chinese yuan for financial settlements with other countries

    Source
  • China yuan with chart and flag

    China completes first yuan-settled liquified natural gas trade

    Source

  • ASEAN Finance Ministers and Central Banks consider dropping US dollar, euro and yen

    An official meeting of all ASEAN Finance Ministers and Central Bank Governors kicked off on Tuesday (March 28) in Indonesia. Top of the agenda are discussions to reduce dependence on the US Dollar, Euro, Yen, and British Pound from financial transactions and move to settlements in local currencies.
    Source

  • Saudi Arabia strengthens relations with China amid strained U.S. ties. Riyadh is joining a Beijing-led political and security bloc; the two countries have also recently signed multibillion-dollar energy deals

    China, Brazil strike deal to ditch dollar for trade
    Source

  • Saudis, other oil giants announce surprise production cuts

    Source

  • Saudi crown prince acts to realign Mideast dynamics amid concern over U.S. support

    Source

  • Asian monetary fund suggested, as dollar has been weaponized

    Malaysian Prime Minister Datuk Seri Anwar Ibrahim told parliamentarians that there is no reason for Malaysia to remain dependent on the US dollar and that the central banks of China and Malaysia had begun discussions on trade settlement in each other's currency.
    Source

  • France's Macron sparks criticism for 'strategic autonomy,' reduced dollar dependence as US-China conflict over Taiwan looms

    Source

  • Brazil’s president calls for end to dollar trade dominance

    Source

  • Euro, dollar status should not be taken for granted, European Central Bank's President warns

    Christine Lagarde, the ECB's president, stated "a new global map" was being drawn, with some countries seeking alternative invoicing currencies such as the as the Chinese renminbi or the Indian rupee, accumulating gold or setting up their own payment systems.
    Source

  • Yuan overtakes dollar to become most-used currency in China's cross-border transactions

    "The yuan became the most widely-used currency for cross-border transactions in China in March, overtaking the dollar for the first time, official data showed, reflecting efforts by Beijing to internationalize use of the yuan."
    Source

  • Iraq bans US dollar transactions in latest move towards β€˜de-dollarization’

    Source

  • BRICS meet with 'friends' seeking closer ties amid push to expand bloc

    "BRICS, which now consists of Brazil, Russia, India, China and South Africa, is considering expanding its membership, and a growing number of countries have expressed interest in joining."
    Source

  • Saudi Arabia cuts oil output by 1 million barrels per day to boost sagging prices

    Source

  • Saudi crown prince threatened β€˜major’ economic pain on U.S. amid oil feud

    Source

  • Russia Confirms BRICS Will Create A Gold Backed Currency

    Source

  • India ties up with UAE to settle trade in rupees

    Source

  • BRICS: India makes first crude oil payment to UAE in Indian rupees

    Source

  • BRICS welcomes new members in push to reshuffle world order

    BRICS expands global clout by adding Saudi Arabia, Iran, Ethiopia, Egypt, Argentina, and the UAE. The bloc has also left the door open for further expansion.
    Source

  • Digital yuan used for international oil transaction, India state refiner integrates blockchain technology

    Source
  • russia iran flags oil field

    Russia, Iran Officially Ditch U.S. Dollar for Trade

    Russia and Iran have finalized an agreement to trade in their local currencies instead of the U.S dollar, Iran's state media has reported.
    Source

  • Saudi Arabia officially joins BRICS bloc

    The BRICs bloc previously included Brazil, Russia, India, China, and South Africa, but is set to double with Saudi Arabia joining the United Arab Emirates, Egypt, Iran, and Ethiopia as new members.
    Source

  • South Africa says five countries confirm they are joining BRICS

    Source

  • China Sells Record Sum of US Debt Amid Signs of Diversification

    China sold a record amount of Treasury and US agency bonds in the first quarter, highlighting the Asian nation’s move to diversify away from American assets as trade tensions persist.
    Source

  • Turkey wants to join the BRICS bloc of developing economies, official confirms

    Source
China is coming after us.
–Robert Kiyosaki

 

Other Dollar Threats

The 2023 Banking Crisis

svb banking crisis

So, while the rest of the world is trying to decouple from the US dollar and go to alternatives, what has our government been doing to combat that?

What can they do… Washington has put us $31 trillion in debt. Our continued printing of dollars has caused a loss of confidence in the American dollar.

As the world rushes to limit its dollar dependence, the Fed wrecks the US banking system with aggressive interest rate hikes.

Typically, market upheavals coincide with a surge in the value of the US dollar, as it’s perceived as a stable refuge during times of financial uncertainty. However, this pattern has yet to emerge amidst the recent turmoil in the banking industry. Investors are reconsidering how they bank and save and are moving to hard assets like gold (source). Could this indicate a lasting devaluation for the foremost fiat currency?

And it seems this crisis is far from over. JPMorgan’s Jamie Dimon says US banking turmoil is not over and foresees long repercussions. (source)

Central Banks Are Loading Up on Dollars Gold

gold bullion pile coins and bars

So, while the government is busy trying to shore up the banking system, what are central banks around the world doing? They’re buying record amounts of gold.

  • Gold demand shattered records in 2022. Central banks can’t get enough gold. (source)
  • 2023 is seeing the strongest start to a year for central bank gold buying in more than a decade. (source)
  • Central banks are leading a revolt against the US dollar and shifting to gold at a record pace. (source)
  • China is the largest buyer of gold. (source)

Where Is All Of This Heading?

dollar decline

  • Are we headed for a major reckoning in 2025 as some have predicted? (see below)
  • Will this frantic move to de-dollarize bring a new central-bank digital currency (CBDC)?
  • Is this the end of fiat currency and a return of a gold standard?

We’ll leave you with some links and quotes from other experts:

I’m going to make a prediction: by 2025 we are going to be at war, we are going to have a new dollar, a currency that probably is coming from the central bank, we’ll have a currency collapse, and we will live in a virtual police state,
–Glenn Beck (source)
Giant crash coming. Depression possible. Fed forced to print billions in fake money. By 2025 gold at $5,000 silver at $500 and Bitcoin at $500,000. Why? Because faith in US dollar, fake money, will be destroyed. Gold & Silver Gods money. Bitcoin people’s $. Take care.
–Robert Kiyosaki (source)
My gut tells me we will fight [China] in 2025.
–U.S. Four-Star General Mike Minihan (source)
The intensifying geopolitical contest between Washington and Beijing will inevitably be felt in a bipolar global reserve currency regime as well.
–Dr. Doom Nouriel Roubini, from China’s Yuan Will End US Dollar Dominance and Create a Bipolar Currency System in the Next Decade (source)
The black swan event I think markets, and really the world at large, ought to be most worried about is some kind of conflict erupting between China and Taiwan,
–Alan Greenspan (source)
The world isn’t just teetering on the brink of another recession… It is in the midst of a profound economic and financial shift.
–Economist, Mohamed El-Erian (source)
Currency collapses happen in slow motion at first. When the lack of confidence comes, it’s a waterfall effect and the currency collapses.
–Damian White, Sr. Precious Metals Advisor (source)