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11 International Agreements that spell the end of the petrodollar system


#1 China And Russia

China and Russia have decided to start using their own currencies when trading with each other. The following is from a China Daily article about this important agreement....

#2 China And Brazil

Did you know that Brazil conducts more trade with China than with anyone else?

The largest economy in South America has just agreed to a huge currency swap deal with the largest economy in Asia. The following is from a recent BBC article....

#3 China And Australia

Did you know that Australia conducts more trade with China than with anyone else?

Australia also recently agreed to a huge currency swap deal with China. The following is from a recent Financial Express article....


So what does all of this mean?

It means that the days of the U.S. dollar being the de facto reserve currency of the world are numbered.

So why is this important?

In a previous article, I quoted an outstanding article by Marin Katusa that detailed many of the important benefits that the petrodollar system has had for the U.S. economy....

The "petrodollar" system was a brilliant political and economic move. It forced the world's oil money to flow through the US Federal Reserve, creating ever-growing international demand for both US dollars and US debt, while essentially letting the US pretty much own the world's oil for free, since oil's value is denominated in a currency that America controls and prints. The petrodollar system spread beyond oil: the majority of international trade is done in US dollars. That means that from Russia to China, Brazil to South Korea, every country aims to maximize the US-dollar surplus garnered from its export trade to buy oil.

The US has reaped many rewards. As oil usage increased in the 1980s, demand for the US dollar rose with it, lifting the US economy to new heights. But even without economic success at home the US dollar would have soared, because the petrodollar system created consistent international demand for US dollars, which in turn gained in value. A strong US dollar allowed Americans to buy imported goods at a massive discount – the petrodollar system essentially creating a subsidy for US consumers at the expense of the rest of the world. Here, finally, the US hit on a downside: The availability of cheap imports hit the US manufacturing industry hard, and the disappearance of manufacturing jobs remains one of the biggest challenges in resurrecting the US economy today.

So what happens when the petrodollar dies?

The following are some of the things we are likely to see....

-Oil will cost a lot more.

-Everything will cost a lot more.

-There will be a lot less foreign demand for U.S. government debt.

-Interest rates on U.S. government debt will rise.

-Interest rates on just about everything in the U.S. economy will rise.

And that is just for starters.

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It's about time

We realize the petro dollar is going to lose it's dominance, soon. We can't fight our way out of this. Bring our troops home now. Allow for competing currencies, and be realistic about what that means. We are dominate in the world because of our endless fiat capitol, it just can not sustain us much longer. Dr. Paul is correct, a transition now is better than a reaction later.

fireant's picture

Not fully spelled out yet..

I don't think the gubmint of amerika will easily let go of reserve currency status (what the pdollar is about). These are just early steps in the process. It could take several years to unfold.
In the end though, it's good. It will force manufacturing back (some of that is happening already), and force the fiscal discipline we have been unwilling to accept. What I fear is the gubmint doing a final spending flurry for military and banks in a desperate attempt to maintain status quo. That would mean a flame-out. Better to let the cleaning lady in now...

Undo what Wilson did

So far as trading without the dollar is concerned

and from memory you can add China/Japan, China/India and recently China/Chile. This whole process started in 2008 when the rest of the world seemed to give up on Bush and then Obama, and was probably the real cause of the so called credit crunch. In the case of China/Russia and China/Japan you have former enemies being reconciled, which shows what can be achieved.

The secret is out. What Dr Paul will be doing in 2021 after his second term as president:

Other bits missed from the article

-The US will not be able to run a $600bn p.a. trade deficit
US consumers will have to consume less or US producers will have to produce more, or more likely a combination of both.
This is around $2,000 for every man, woman and child in America or about $6,000 for every tax payer.

In March in New Delhi the BRICS and South Africa discussed setting up a "Brics" bank as a direct competitor to the Fed.

China has announced it will start international lending in Yuan.

"In the end, more than they wanted freedom, they wanted security. They wanted a comfortable life, and they lost it all -- security, comfort, and freedom. When ... the freedom they wished for was freedom from responsibility, then Athens ceased to be free."