What the End of the Petrodollar Could Mean for You

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In today’s Money Morning…an untimely demise…how bitcoin achieves its ultimate goal…don’t miss out on this vital knowledge…and more…

Yesterday we looked at how the Fed is shaking up markets.

The latest rate rise in the US was certainly expected, but nonetheless important. What was far more telling, though, was the Fed’s plans for the remainder of 2022, with six more potential hikes on the table.

No investor can afford to ignore that kind of monetary policy tightening.

It seems as though the days of easy cash are over…for now.

However, Powell is confident it won’t lead to any serious downturn. He believes that the Fed can balance the need to fight inflation without bringing the US economy to a halt.

Time will tell if he’s right or wrong.

In the meantime, though, what many investors are overlooking is the US dollar. More specifically, it looks as though the petrodollar may be on its last legs.

An untimely demise

As a refresher, if you’re not quite sure what the petrodollar is, it’s pretty simple.

Back in the ‘70s, in the wake of the oil crisis, President Nixon devised a plan. He offered to help Saudi Arabia defend itself in exchange for the kingdom to trade all of its oil production in US dollars.

As a result, anyone looking to buy oil from the Saudis had to do so by paying in USD. This was a strategic stroke of genius that has helped cement the dollar as the world’s premier reserve currency ever since.

And while this certainly isn’t the only reason nations hold onto and trade in USD to this day, it is one of the most important…

More recently, though, this pact that created the petrodollar has become strained. The Saudis are no longer as close to the US as they once were. Years of political and diplomatic headbutting has frayed the relationship, and as such the petrodollar is in danger.

In fact, a few days ago news broke that discussion between the Saudis and China is developing. And while this isn’t the first time the pair have tried to dethrone the dollar, it is telling, nonetheless.

This, dear reader, could be the catalyst for the demise of the petrodollar.

And in its place, we may instead see the rise of the petroyuan. At least, that’s certainly what China is hoping for…

For investors, this will naturally beg a lot of questions.

Because while I doubt the end of the petrodollar would collapse the US economy, it would be a blow. Who knows, it could be the tipping point for the end of USD dominance as the reserve currency of the world.

Will it be the yuan that replaces it?

I certainly don’t think so. There are too many risks of interference from the CCP for that.

No, what the world needs from a reserve currency is true neutrality and reliability. The type of features that you’ll only get from one type of asset…


How bitcoin achieves its ultimate goal

Now, I’m certainly not the only person suggesting that crypto would be a perfect alternative to the petrodollar or petroyuan. After all, plenty of investors and business entities would benefit from this move.

However, I am also under no illusion that this is a tough idea to sell.

Even the largest cryptocurrency — Bitcoin [BTC] — while somewhat mainstream, is hardly a fan favourite. Lots of investors and everyday people still don’t trust or believe in its premise. A lot of which comes from either a misunderstanding or ignorance toward the technology behind it.

Compared to the state of modern monetary policy, though, it is a far better alternative, in my view.

As Cathedra Bitcoin — a bitcoin mining enterprise and petrodollar cynic — bluntly puts it:

A half-century of irresponsible fiscal and monetary policy has pushed sovereign and private sector debt to the brink of unsustainability and fragilized financial markets,

The once steady foreign demand for treasuries is evaporating, forcing the Fed to begin monetizing U.S. deficits at an increasing rate. The U.S.’s share of global GDP is waning, and the role of the dollar in key trading relationships is diminishing. Even the once-mighty U.S. military — on whose supremacy the entire petrodollar system was predicated — shows signs of degeneration.

In other words, the foundations of the petrodollar are just as questionable as that of the petroyuan.

Granted, bitcoin or an alternative crypto isn’t without criticism too. They have their own shortcomings that will need to be addressed and resolved.

But compared to the entrenched issues with modern fiat currency, crypto offers a relatively clean slate. It’s a chance for investors, consumers, and producers to experiment with something truly innovative. Especially with the advent of technologies like DeFi…

That’s why, right now, you should really consider getting involved and invested in crypto. Even if you’re new to the sector, there has never been an easier or better time to start.

Plus, we’re here to help you take the plunge; because we know it is overwhelming at first.

Our in-house expert, Ryan Dinse, has put together a series of videos detailing everything you need to know.

Don’t miss out on this vital knowledge. You can access the first video entirely for free right here.

Give it a listen when you can, I guarantee you won’t regret it.


Ryan Clarkson-Ledward Signature

Ryan Clarkson-Ledward,
Editor, Money Morning

Ryan is also the Editor of Australian Small-Cap Investigator, a stock tipping newsletter that hunts down promising small-cap stocks. For information on how to subscribe and see what Ryan’s telling subscribers right now, click here.

About Ryan Clarkson-Ledward

Ryan Clarkson-Ledward is an Editor at Money Morning.

Ryan holds degrees in both communication and international business. He helps bring Money Morning readers the latest market updates, both locally and abroad. Ryan tackles all the issues investors need to know about that the mainstream media neglects.

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