China is Quietly Dethroning The United States Dollar
The Petrodollar Is Weakening As Nations Start Using Yuan To Buy Oil and LNG
China has been placing a significant emphasis on establishing its currency internationally through focusing on oil and natural gas trading with its closest partners. It is possible that we witness the Chinese Yuan emerge as an alternative to the petrodollar. In fact, some economists believe that we are witnessing the dusk of the petrodollar, and the dawn of the petroyuan.
While there are numerous obstacles that the Yuan would have to overcome in order to gain that status, the Chinese government has been actively pursuing the goal. The latest blow to the value of the United States dollar was dealt in late March of 2023 when China completed its very first trade of LNG (Liquefied Natural Gas) using the Chinese Yuan. This is yet another step toward challenging the petrodollar that has been keeping a tight grip on global energy markers for 50+ years.
Reuters reported that the LNG trade wasn’t with the UAE, Iran, Japan or Australia, China’s biggest partners as far as the Yuan goes, as one would expect. The transaction was completed between Total Energies, a France based company and the Chinese national oil company.
One of the main reasons why the United States dollar has managed to maintain its hegemony for 70+ years is due to a simple fact that foreign countries have had to own dollars in order to purchase oil. There were no other alternatives. It served the United States well while draining the resources of developing nations. The agreement between the United States and the Saudi Arabia, made in the early 1970s, created an extremely strong dollar and guaranteed a stable, ongoing demand for the American currency.
However, now that that the Saudi Arabia is willing to accept the Chinese Yuan, the demand for the U.S. dollar will slip as more and more countries fall into the “multipolar world” mindset and are presented with an alternative to the United States dollar, the Yuan. Those who have been looking for ways to distance themselves from the United States and its currency, whether due to political or purely financial reasons, now have an option.
“…in a moment when the world is going from unipolar to multipolar, the actions of heads of state are far more important than the actions of central banks. That is because heads of state lead, their actions affect inflation, and central banks merely follow by hiking rates to “clean up”. Central banks will be behind the curve in this game, and if investors read only the speeches of central bankers but not statesmen, they will be even more behind the curve. The multipolar world order is being built not by G7 heads of state but the BRICS heads of state”. (Zoltan Pozsar, “War and Commodity Encambrance”. Published December 22, 2022.)
China is leading the BRICS group of allies. President Xi’s successful visit to Saudi Arabia in December of 2022 should not have gone unnoticed by the West. Not even three months later, President Xi met with his “dear friend” President Putin. In Saudi Arabia as well as in Russia, not only did he skillfully create a bridge between the interests of the two countries he visited and his own agenda, President Xi brokered a re-start to the UAE - Iran partnership that is undeniably a major issue for the United States as it further challenges its presence in the middle East, particularly in Syria.
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