The 50-year petrodollar agreement between the United States and Saudi Arabia that designated the US dollar as the global trade currency for oil sales ended on June 9. The US dollar was essentially the “gold standard” of global oil trade. Now that is no more, renewing concerns about “de-dollarization” and the future of the US economy.
“Oil exporters pay for sales in US dollars because the dollar is the most widely used currency, making it easier for them to invest export earnings,” explains Investopedia.
Last year, the Heritage Foundation blamed US sanctions for the continued decline of the dollar. Economist Peter St Onge noted that “unprecedented US sanctions against Russia – designed as punishment for Vladimir Putin’s invasion of Ukraine – have driven friendly countries from Brazil to Saudi Arabia away from the dollar and into the arms of the coalition anti-BRICS. Dollar nations led by China.”
“Thanks to this concentrated push from China, the dollar’s share of global trade is falling. Today, only 40% of world trade is denominated in US dollars, down from 52% just a decade ago,” according to St Onge.
Benn Steil, director of international economics at the Council on Foreign Relations, agreed that “the biggest threat to dollar dominance comes not from competing alternatives, but from the US government itself.” According to Steil, “US-led sanctions” created economic hardship for other nations, causing those countries to “decrease their engagement with the US financial system.”
The growing influence of BRICS
Nations such as Russia and China have expressed interest in dedollarization for precisely these reasons.
Russian President Vladimir Putin recently announced de-dollarization in St. International Economic Forum in St. Petersburg. The ruble now accounts for about 40 percent of Russia’s export and import transactions, according to Putin.
Putin called for increased use of currencies other than the US dollar in foreign trade and noted that this would be done with the help of BRICS, an acronym for the partnership formed by Brazil, Russia, India, China and South Africa. in 2009. The aim is to challenge a western-led world order and strengthen its own interests.
BRICS had continued to grow at a slow pace until last year. Then, in February, Egypt, Ethiopia, Iran, Saudi Arabia and the United Arab Emirates (UAE) were invited to join. In the wake of the end of the US petrodollar deal, China is now also seeking a bigger BRICS role, according to Reuters.
Venezuela is the latest country to seek help from the BRICS to fight the sanctions that the US has imposed on the country’s gas and oil industry, reports teleSUR.
American money problems
Meanwhile, the US economy has seen rising inflation, record high mortgage rates and an uncertain job market. In August last year, rating agency Fitch downgraded the US credit rating from AAA to AA+. A third of Americans believe economic collapse will be the death of the US, according to Fortune.
While the Biden administration continues to claim that the economy is “strong,” the possibility of de-dollarization is being realized by other nations. “De-dollarization is unstoppable,” economist Yuefen Li wrote in International Banker in January.
The end of the petrodollar further reduces the strength of the US currency and will lead to higher inflation once foreign holders of US dollars return that money. With BRICS gaining more members and the US dollar steadily losing its value and respectability, US wealth is on the block.
Jessica Marie Baumgartner is a homeschooling mom, mother of five, co-ed English teacher, and America First reporter for Right Side Broadcasting Network and Mid Rivers Newsmagazine. Follow her on X: @jessmbaum
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