by Rudy Fritsch
The mainstream news media are starting to acknowledge that the days of the so called ‘Petro Dollar’ are ending. Western media typically considers the Eastern trend to bypass the Dollar and to trade in local currencies, like the Russian Ruble and the Chinese Yuan, as ‘an attack on Dollar hegemony’. Western media sees everything in terms of War.
In reality, the eastern powers are simply doing what they must to avoid western imperialism. Rather than deliberately attacking the petrodollar, eastern powers are simply dodging western sanctions and western economic pressure. Russia and China have made mutual deals to trade oil and gas, using their own currencies and bypassing the Dollar. Iran has joined this effort; now even Venezuela has joined.
Venezuela may be in financial turmoil, but it has the world’s largest untapped oil reserves… even larger than Saudi Arabia. No wonder the Washington based imperialists have Venezuela in their cross hairs; and no wonder Venezuela is now trading its resources for Yuan… and not Dollars.
Most telling however is the recent Chinese announcement that they will pay for their non-Russian oil imports in Yuan, not Dollars. This announcement also asserts that the Chinese will offer Gold payment for any oil supplier who is reluctant to hold Yuan. Furthermore, the Chinese also assert that they will not use Chinese Gold, but will buy Gold as needed in the world Gold market.
Since Venezuela has already dropped the Dollar, this announcement is clearly aimed at the Saudis. The Saudis have been the main pillar upholding the Petro-Dollar; but times are changing. The US is no longer the biggest buyer of Saudi crude; China is. Indeed, the US is a net energy exporter, in effect a competitor to Saudi, instead of being their best customer… and protector.
The Saudi-US Petro-Dollar regime rested on three legs; first, Saudi Arabia would only accept Dollars in payment for their oil. Second, they would recycle the preponderance of their Dollar for oil income into US treasuries. Third, in return the US would guarantee military protection for the Saudi regime.
These legs are collapsing. The US is no longer the big buyer of Saudi oil, and is no longer to be trusted as the big protector. US military power is waning, they have lost the war in Syria, and Iran is growing in influence. Is this the cause of Saudi turmoil… arrests of Takfiri clergy, arrests of billionaire princes on corruption charges, war on Yemen, war on Lebanon and perhaps even war on Iran? Is this why the Saudi king and his entourage visited Moscow for the first time in history?
Are the Saudis testing the resolve of the US to hold to their bargain to protect the Saudi monarchy at all cost? As always, time will tell. For now, the Chinese offer to buy oil for Yuan and offering Gold to support the sale seems like an offer that Saudi Arabia can’t refuse. The ramifications of this geopolitical shift are huge, and go deep. The obvious first step is the end of Dollar hegemony, the end of Dollar monopoly.
When Saudi Arabia starts to sell oil for Yuan, the fall of the Petro Dollar will be over. No wonder the Western media are calling the sales of oil for Yuan… or for any currency other than the Dollar… an act of ‘economic warfare’. But let us see where all this may lead, beyond Dollar dethronement.
Today the Yuan is pegged to the US Dollar; indeed, Trump is bitching about this peg, working to reign in what he calls ‘Yuan manipulation’ to the detriment of US industry. Now this is interesting; if the Yuan replaces the Petro Dollar, will China continue to peg their Yuan to the Dollar?
The Chinese have worked hard to have their currency accepted internationally; they just achieved a big part of their aims by having the Yuan accepted by the IMS as part of the SDR basket; Special Drawing Rights, so called… SDR’s represent a basket of currencies, including the Dollar, the Yen, the Euro, the Pound… and now the Yuan.
After all this long effort, will China continue to peg their currency to a Dollar that will plummet in purchasing power? Makes no sense… much more likely they will soon ‘float’ the Yuan, that is free it from dependence on the Dollar. So far all this is non-controversial; indeed, the West has been encouraging a ‘floating Yuan’… in the belief that it would benefit Western economies, so they hope.
Now is this the end of the line, the Yuan floats, and ‘business as usual’ continues? Or is this but phase two of Chinese strategy, (Phase one being the inclusion of the Yuan in the SDR basket). If it were the end of the line, why would the Chinese offer to redeem their Yuan in Gold? This Golden offer is definitely NOT business as usual. No other nation has made such an offer; indeed, the US is the last nation that promised Gold for their currency.
Before Nixon ‘closed the Gold window’ the US Dollar was redeemable (by central banks) while the Dollar itself was the world’s reserve currency. This agreement was adapted at Bretton Woods. Nixon broke the agreement, as the US Dollar was being printed way beyond the amount of Gold available in the US to meet the Bretton Woods promise of Gold redemption. The US reneged instead of honestly devaluing the Dollar… but what else would we expect from ‘Tricky Dick’ and the Washington deep state?
Why did China offer to pay Gold for Yuan? If simply to increase OPEC confidence, then fine. In such a case, if OPEC accepts Yuan payment, then Yuan would flow out to the world through oil purchases, and from there go wherever; perhaps some back to China for the purchase of manufactured goods… or even to the purchase of Chinese debt.
Kind of like the purchase of US treasury debt… but with the crucial difference that Chinese debt is used to build valuable infrastructure, rather than being used to fund wars, regime change, and big-time gambling in derivatives by US banks. But what if the oil sellers take up the Chinese offer to get Gold for their oil, as promised?
This could lead to amazing ramifications; the flow of oil into China is huge and growing; thus, Chinese demand for Gold would also grow. Remember, China is the largest Gold producer (mine output) in the world, but still buys Gold regularly on the world market; any demand for Gold to fund oil payments would much increase Chines Gold purchases. Gold demand would soar.
If Gold demand soars, how about Gold supply? Mine output is not about to soar, indeed is declining… so if the supply/demand equation has any meaning, the price of Gold would soar. But wait; today Gold is priced in Dollars, as oil is priced in Dollars; if the Yuan kicks the Dollar out of the oil trade, would oil still be priced in Dollars, or more logically be priced in Yuan?
If the Yuan kicks the Dollar out of the Gold trade, would Gold still be priced in Dollars… or more logically be priced in Yuan? If oil and Gold are priced in Yuan, is it likely that world trade would continue being priced in Dollars… especially if the Dollar starts losing value rapidly?
Will it all stop here; falling Dollar, floating Yuan… or will another step be taken by China to solidify the Yuan as a world reserve currency (phase three)? Before Nixon, the Dollar was ‘backed’ by Gold; is it likely that the Chinese will be satisfied with a ‘floating’ Yuan, with nothing to back it; or will they ‘peg’ the Yuan to Gold? As the Dollar was once ‘pegged’ to Gold?
Now this is not at all improbable, the coming world economic hegemon will see this as a positive step for Chinese interests. Backing the Yuan with Gold would guarantee Yuan stability… and the Chinese value stability above all. Not only that, the Chinese vision of Chinese interests is not the western vision of western interests; not a win/lose deal where the imperial hegemon wins and everyone else loses… but a vision of win/win for all participants.
Xi Jinping’s recent speech at the CPC spelled out exactly this vision; win/win, globalization economically with full respect for national sovereignty and cultural differences… in effect, the old winning American formula, now long lost; “live and let live; let’s make a deal”.
This is not a pipe dream by any means; remember, since Roosevelt in the 1930’s Americans were forbidden to hold Gold… while the US government confiscated the citizens’ Gold and then marked it up to the G’man’s benefit. Only after Nixon reneged on Dollar/Gold convertibility to central banks were Americans allowed to own Gold, and to trade Gold.
By contrast, the Chines government has been and is to this day encouraging Chinese citizens to buy and hold Gold. The Chinese have already agreed to trade Yuan for Gold. If they decide to peg the Yuan to Gold, and allow their own citizens to trade Yuan for Gold at a fixed price, then the Yuan has morphed into a redeemable currency… and the Chinese are back on a Gold standard!
Will the rest of the world follow? Will they have much choice? Not if the Chinese will only accept Gold or Gold redeemable Yuan for their manufactured products… and the Russians will only accept Gold or Gold redeemable Rubles for their grain, gas and oil. The dominoes are falling fast. I suggest that the value of Gold in purchasing power terms, as well as in Dollar price terms, has nowhere to go but up, big time.
Do you own Gold? If not, the time will come when the owners of Gold will not accept Dollars or any other Fiat currency for their Gold… so you must either own an oil well, and trade oil for Gold Yuan… or trade some Fiat paper for Gold before the window closes.