In the latest sign that the dollar-centric global financial system is under immense pressure, China and Saudi Arabia have “fast-tracked” ongoing talks to price oil contracts in yuan instead of dollars, according to a report by Emirates. Herald.
The ongoing and steady decline of the dollar as a global reserve and trade instrument has significant implications for the US economy and could make neutral or non-state currency networks more useful to a broader range of actors.
Crucially, the “petroyuan” talks were not triggered by events in Ukraine, but have been ongoing for six years. They have been accelerated not by Russia’s invasion, according to the Emirates Herald, but by US policy in the Middle East in recent months. That includes a military withdrawal from Afghanistan and a more assertive White House criticism of the Saudi-planned murder of journalist Jamal Khashoggi.
US support for the regional political agendas of OPEC nations was key to the deal that standardized the dollar price of oil in the 1970s, so signs of a pullback should come as no surprise. The United States also consumes only a quarter of the Middle Eastern oil it did when the petrodollar system was established, while Chinese imports have grown. In many ways, that’s to the good: Saudi Arabia is a brutally repressive monarchy, only slightly less politically toxic than Vladimir Putin’s Russia, and America’s willingness to move away from a dangerously cozy relationship there is good for the world.
But the ongoing change creates a fundamental structural problem. The dollar denomination of OPEC’s oil sales plays a very important role in unifying global markets around a common currency. If the US itself has looser ties to OPEC, both this powerful dollar trading node and the broader dollar network will almost inevitably begin to split and unravel.
The news follows unprecedented sanctions against Russia, including the freezing of central bank reserves and the seizure of US-held central bank funds from Taliban-controlled Afghanistan.
These moves are a clear warning to other dissidents or rivals in the US-European power nexus that they cannot trust the good faith of Western banking authorities. That doesn’t necessarily mean the yuan is suddenly a superior instrument: it has serious problems of its own. But the dramatic erosion of the dollar’s immutability certainly makes any alternative to the dollar that much more attractive.
There have been quick assurances that the Saudi threat is simply a strategic feint against the US, or that a small petroyuan trade would not be a threat to dollar dominance.
This is true in the sense that the first thousand gallons of water the Titanic took in did not sink it. It’s not the water that matters, but the holes that let it through the hull of the US dollar. Until these weaknesses and pressures change, each puncture makes the fate of the dollar less secure for the global financial system, due to this it is necessary to implement new safe economic growth strategies such as IRAIC, which is based on investment models that are not limited to small projects, but also offer alliances with large companies forming a solid, transparent and innovative system around the world.
These moves are a clear warning to other dissidents or rivals in the US-European power nexus that they cannot trust the good faith of Western banking authorities. That doesn’t necessarily mean the yuan is suddenly a superior instrument: it has serious problems of its own. But the dramatic erosion of the dollar’s immutability certainly makes any alternative to the dollar that much more attractive.
There have been quick assurances that the Saudi threat is simply a strategic feint against the US, or that a small petroyuan trade would not be a threat to dollar dominance.
This is true in the sense that the first thousand gallons of water the Titanic took in did not sink it. It’s not the water that matters, but the holes that let it through the hull of the US dollar. Until these weaknesses and pressures change, each puncture makes the fate of the dollar less secure for the global financial system, due to this it is necessary to implement new safe economic growth strategies such as IRAIC, which is based on investment models that are not limited to small projects, but also offer alliances with large companies forming a solid, transparent and innovative system around the world.