Is the petrodollar monopoly about to be
shattered? When U.S. politicians started slapping economic
sanctions on Russia, they probably never even imagined that there
might be serious consequences for the United States. But now
the Russian media is reporting that the Russian Ministry of Finance
is getting ready to pull the trigger on a “de-dollarization”
plan. For decades, virtually all oil and natural gas around the
world has been bought and sold for U.S. dollars. As I will
explain below, this has been a massive advantage for the U.S.
economy. In recent years, there have been rumblings by nations
such as Russia and China about the need to change to a new system,
but nobody has really had a big reason to upset the status quo.
However, that has now changed. The struggle over Ukraine has
caused Russia to completely reevaluate the financial relationship
that it has with the United States. If it starts trading a lot
of oil and natural gas for currencies other than the U.S. dollar,
that will be a massive blow for the petrodollar, and it could end up
dramatically changing the global economic landscape.
The
fact that the Russian government has held a meeting to discuss
“getting rid of the US dollar in Russian export operations”
should be front page news on every mainstream news website in the
United States. That is how big this is. But instead, we
have heard nothing from the big mainstream news networks about this
so far. Instead, we have only heard about this from Russian
news sources such as the
Voice of Russia…
Russian press reports that the country’s
Ministry of Finance is ready to greenlight a plan to radically
increase the role of the Russian ruble in export operations while
reducing the share of dollar-denominated transactions. Governmental
sources believe that the Russian banking sector is “ready to handle
the increased number of ruble-denominated transactions”.
According
to the Prime news agency, on April 24th the government organized a
special meeting dedicated to finding a solution for getting rid of
the US dollar in Russian export operations.
Top level experts from the energy sector, banks and governmental
agencies were summoned and a number of measures were proposed as a
response for American sanctions against Russia.
The “de-dollarization
meeting” was
chaired by FirstDeputy Prime Minister of the Russian Federation
Igor Shuvalov, proving that Moscow is very serious in its intention
to stop using the dollar.
So will Russia go through with this?
After all, this wouldn’t just be a slap in
the face. This would essentially be like slamming an economic
fist into our nose.
You
see, Russia is not just a small player when it comes to trading oil
and natural gas. The truth is that Russia is the largest
exporter of
natural gas and the second
largest exporter of
oil in the world.
If Russia starts asking for payment in
currencies other than the U.S. dollar, that will essentially end the
monopoly of the petrodollar.
In
order to do this, Russia will need trading partners willing to go
along. In the article quoted above, the Voice of Russia
listed Iran
and China as
two nations that would potentially be willing to make the switch…
Of course, the success of Moscow’s campaign
to switch its trading to rubles or other regional currencies will
depend on the willingness of its trading partners to get rid of the
dollar. Sources cited by Politonline.ru mentioned two countries who
would be willing to support Russia: Iran and China. Given that
Vladimir Putin will visit Beijing on May 20, it can be speculated
that the gas and oil contracts that are going to be signed between
Russia and China will be denominated in rubles and yuan, not dollars.
And
the reality of the matter is that China has seemed ready to move away
from the U.S. dollar for quite some time. In a previous
article,
I included a quote from a French news source that discussed how
China’s official news agency has even called for a “new
international reserve currency… to replace the dominant US dollar”…
For decades the US has benefited to the tune of
trillions of dollars-worth of free credit from the greenback’s role
as the default global reserve unit.
But as the global economy trembled before the
prospect of a US default last month, only averted when Washington
reached a deal to raise its debt ceiling, China’s official Xinhua
news agency called for a “de-Americanised” world.
It also urged the creation of a “new
international reserve currency… to replace the dominant US dollar”.
For
much more on what China is thinking, please see my previous article
entitled “9
Signs That China Is Making A Move Against The U.S. Dollar“.
Well, it creates a tremendous amount of demand
for the U.S. dollar all over the globe. Since everyone has
needed it to trade with one another, that has created an endless
global appetite for the currency. That has kept the value of
the dollar artificially high, and it has enabled us to import
trillions of dollars of super cheap products from other countries.
If other nations stopped using the dollar to trade with one another,
the value of the dollar would plummet dramatically and we would have
to pay much, much more for the trinkets that we buy at the dollar
store and Wal-Mart.
In addition, since the U.S. dollar is
essentially the de facto global currency, this has also increased
demand for our debt. Major exporting nations such as China and
Saudi Arabia end up with giant piles of our dollars. Instead of
just letting them sit there and do nothing, those nations often
reinvest their dollars into securities that can rapidly be changed
back into dollars if needed. One of the most popular ways to do
this has been to invest those dollars in U.S. Treasuries. This
has driven down interest rates on U.S. debt over the years and has
enabled the U.S. government to borrow trillions upon trillions of
dollars for next to nothing.
But if the rest of the world starts moving away
from the U.S. dollar, all of this could change.
In order for our current standard of living to
continue, it is absolutely imperative that everyone else around the
globe continues to use our currency.
So if Russia really does pull the trigger on a
“de-dollarization” strategy, that would be huge – especially if
the rest of the planet started following their lead.
The
U.S. economy is already teetering on the brink of another major
downturn, and there are a whole host of indications that big trouble
is on the horizon. For much more on this, please see the
article that I posted on Monday entitled “If
Economic Cycle Theorists Are Correct, 2015 To 2020 Will Be Pure Hell
For The United States“.
Just about the last thing that we need right
now is for our petrodollar monopoly to be threatened.
It would be nice if things would calm down in
Ukraine and the relationship between the United States and Russia
could go back to normal.
Sadly, that does not appear likely any time
soon.
In
fact, the Ukrainian government has already admitted that “we
are essentially at war“,
and on Tuesday six Ukrainian soldiers were
killedand
eight were wounded in a convoy attack in eastern Ukraine.
The regions in eastern Ukraine that have just
declared independence have given the government in Kiev until
Wednesday to pull their forces out of eastern Ukraine or else face
war.
If a full blown civil war does erupt in
Ukraine, it is going to take this crisis to a completely new level.
Unfortunately, most Americans are incredibly
apathetic at this point and know very little about what is going on.
But in the end, this could have dramatic
implications for all of us.
