To The Daily Sun,
The U.S dollar's dominance as a world reserve currency is dependent on the fact that it is the world's petrocurrency, which means most oil purchases globally are denominated in dollars. Most oil-producing nations will not sell their oil unless dollars are used. The dollar has benefited from this advantage because of the relationship between the governments of the U.S. and Saudi Arabia.
Saudi Arabia produces the largest share of the world's oil. Their market share has been declining recently due to falling global demand; more specifically, falling U.S. demand. This has led to vicious competition from other oil producing nations, including Russia and Iran.
Falling U.S. demand by itself has led OPEC nations to question the continued use of the dollar as the petrocurrency. In November 2015, the Saudi government hinted at the possibility they might de-peg from the U.S. currency, an act which would end the dollar's petrodollar status.
The dilemma facing the Saudis was increasingly low and unstable oil prices to which the U.S. petrodollar adds a further level of uncertainty. Some analysts argue Saudi Arabia may be forced to choose to either cut production to increase prices; or to end the dollar peg and stabilize prices by switching to a basket of currencies instead.
After the April Doha meeting there is little chance that Saudi Arabia will commit to substantial cuts in oil production. The Saudis have just announced that they may expand oil fields in order to increase production to even greater historical levels. So, oil prices are going to remain low... for now. They may even fall some if a battle for market share between Iran, Russia and Saudi Arabia goes as some predict. This suggests that the Saudis will end the peg to the dollar soon; meaning, best guess, within a couple of years.
Some think an oil price panic could lead to conflict between Saudi Arabia and the U.S., disrupting the petrodollar status. That may precipitate the decline in dominance of the U.S. dollar's world reserve status, which. in turn, means the end of dollar dominance. That may lead to the rise of the SDR system under the IMF as a prelude to introduction of a global currency with global economic governance to follow.
Something that may expedite the situation is release of documents linking the Saudi government directly to the 9/11 hijackers. Despite our president's visit to the Saudis, the White House is still said to be poised to release these documents to the public. The Saudis have responded angrily. They have threatened to dump their $750 billion in U.S. treasury holdings if the documents see the light of day.
That act would end the Saudi peg to the dollar and dollar's petrodollar status which would then speed the end of the dollar's dominance as a world reserve currency which will have a large and negative impact on our economy. The dollars we have been pumping into the money supply would return home relatively quickly.
We then may have immense global economic change triggered by these 28-pages in a report more than a decade old. The economic reset has been years in the making. Our leaders and our friends have produced this plausible scenario to end the American economy as we know it. If it comes to pass it would usher in a brave new world.
- Category: Letters
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