A clear signal that something is afoot would be the abolition of the Saudi riyal's peg to the US dollar. As recently as April of this year economist Nasser Saeedi advised Middle Eastern countries to prepare for a “new normal” — and specifically to review the dollar pegs of their currencies: “By 2025 it is clear that the center of global economic geography is very much in Asia. What we’ve been living in over the past two decades is a very big shift in the political, economic, and financial geography.”
While the role of oil-producing countries (and particularly Saudi Arabia) shouldn't be underestimated, at present the driving forces with regard to de-dollarization are primarily Moscow and Beijing. We want to take a closer look at this process.
There exist numerous political statements in this context which leave no room for doubt. The Russians and Chinese are quite open about their views regarding the role of gold in the current phase of the transition. Thus, Russian prime minister Dimitri Medvedev, at the time president of Russia, held a gold coin up to a camera on occasion of the 2008 G8 meeting in Aquila in Italy. Medvedev said that debates over the reserve currency question had become a permanent fixture of the meetings of government leaders.
Almost ten years later, the topic of currencies and gold is on the Sino-Russian agenda again. In March, Russia's central bank opened its first office in Beijing. Russia is preparing to place its first renminbi-denominated government bond. Both sides have intensified efforts in recent years to settle bilateral trade not in US dollars, but in rubles and yuan. Gold is considered important by both countries.
Oil and its derivative products are used in every country in the world so it is logical that the acquiescence of major suppliers to a Dollar standard is a necessary condition of the USA’s international currency hegemony. However, it is not the only consideration.
The USA’s willingness to run trade deficits, sending Dollars out into the international economy, which are then used as a medium of exchange in all manner of additional transactions is also an important consideration.
There is another aspect to the petrodollar argument. The USA is now a major swing producer of oil, is exporting again and is anticipating using more electric vehicles. The US economy is now dominated by services, representing 79.8% of the economy according to this report. Oil is certainly used in providing these services but is less integral than when the economy was focused on manufacturing and agriculture. Simply put gasoline consumption has been trending lower for years while the data intensity of the economy has been trending higher.
This report from the OECD “Supporting Investment in Knowledge Capital, Growth and Innovation” carries more information.
If the US economy is less reliant on energy and already dominates the provision of services while playing host to the world’s largest technology companies is the petrodollar argument still relevant. The answer is probably still in the affirmative but that needn’t always be the case.
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