Interviewed Tuesday at Bloomberg, Saudi Arabia Finance Minister Mohammed Al-Jadaan pointed out that Saudi Arabia would be open to conducting trade, including involving essential oil, in various currencies — talking about in particular the euro as well as the Saudi riyal — instead of the United States dollar. This is the most recent in a series of developments recommending the Middle East nation and large oil producer can be shifting away from supporting ALL OF US dollar hegemony through business.
Within February of 2006, then US House of Representatives member Ron Paul (R-TX) discussed the history of US buck hegemony and its looming disaster in a House floor speech titled “ The conclusion of Dollar Hegemony . ” Paul began their speech with his assessment how the dollar dominance, called money hegemony more recently and buck diplomacy in earlier decades of the prior hundred years, “ is coming to an end. ”
The full history and analysis Paul related in the speech is fascinating. But , there is a particular portion of Paul’s speech that relates to the Saudi finance minister’s comment. This is when Paul focused on the important thing role the trade associated with oil has played within supporting dollar hegemony as well as the related position of the ALL OF US dollar as the world book currency.
John explained that after Chief executive Richard Nixon removed the last link between gold as well as the US dollar in 1971, backing of the dollar with oil became key to maintaining dollar dominance. Paul stated:
It all ended on Aug 15, 1971, when Nixon closed the gold home window and refused to pay out any of our remaining 280 million ounces of gold. Essentially, we declared our financial distress and everyone recognized some other monetary system had to be invented in order to bring stability towards the markets.
Incredibly, a new system was invented which allowed the Oughout. S. to operate the publishing presses for the world reserve currency with no restraints put on it — not even a pretense of gold convertibility, none whatsoever! Though the brand new policy was even more seriously flawed, it nevertheless opened the door for dollar hegemony to spread.
Realizing the world was embarking on something new and mind-boggling, top notch money managers, with specifically strong support from U. S. authorities, struck an agreement with OPEC to cost oil in U. S. dollars exclusively for all globally transactions. This gave the dollar a special place amongst world currencies and in essence “ backed” the dollar with oil. In return, the particular U. S. promised to shield the various oil-rich kingdoms in the Persian Gulf against threat of invasion or household coup. This arrangement assisted ignite the radical Islamic movement among those who resented our influence in the region. The particular arrangement gave the dollar artificial strength, with huge financial benefits for the United States. It allowed us to export our monetary pumpiing by buying oil and other goods at a great discount as dollar influence flourished.
This post-Bretton Woods system was much more fragile than the system that existed between 1945 and 1971. Though the dollar/oil arrangement has been helpful, it was not almost as stable as the pseudo— gold standard under Bretton Woods. It certainly was less stable than the gold standard of the late nineteenth century.
Come the 1980s, John proceeded to state in the talk, additional support was supplied to help maintain dollar prominence. Nonetheless, the “ petrodollar” system remained a critical support for dollar dominance. Indeed, Paul commented: “ In the event that oil markets replace dollars with Euros, it would over time curtail our ability to continue to keep print, without restraint, the world’s reserve currency. ”
That removal of the dollar’s dominant function in oil markets is exactly what the Saudi finance minister is suggesting.
And the dollar has already been pushed aside significantly in the essential oil trade over the last year within reaction to US and several additional nations’ sanctions on Russian federation, including on the large Ruskies oil and gas industry.
Paul, in his speech, describes the US as having been willing to pursue a series of foreign surgery in its decades-long effort to maintain the petrodollar system. This leads one to wonder what exactly is in store as the petrodollar anatomy’s crumbling seems to have much more rapid.
Turbulence is ahead. But , ultimately, Paul proposed in his speech, the end of dollar hegemony could make way for what he describes as being a better system. Paul determined his speech by proclaiming:
Using force to compel people to accept money without actual value can only work in the short run. It ultimately leads to economic dislocation, both domestic and international, and often ends with a price to become paid.
The economic law that sincere exchange demands only issues of real value as currency cannot be repealed. The particular chaos that one day will ensue from our 35-year test out worldwide fiat money will require a return to money of real value. We will understand that day is approaching whenever oil-producing countries demand precious metal, or its equivalent, for his or her oil rather than dollars or Euros. The sooner the better.