Transcript
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on June 9th 2024 Saudi Arabia announced
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it would not renew the Petro dollar
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agreement this decision reflects a
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broader trend of dollarization where
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countries are increasingly seeking to
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reduce their dependence on the US dollar
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for international trade this shift is
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part of Saudi Arabia's strategic move to
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diversify its economic Partnerships and
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align more closely with emerging
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economic powers like China and the brics
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nations in this video we discuss this
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breaking news and how it could impact
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the US economy and dollar
0:35
valuation the Petra dollar system
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emerged in the early 1970s during a
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period of economic instability in the
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United States after president Richard
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Nixon ended the gold standard in 1971
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which previously tied the value of the
0:50
US dollar to Gold the country faced
0:52
Rising inflation and deficits in
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response to these economic pressures the
0:57
US sought a new method to stabilize its
1:00
economy and
1:03
currency in 1973 US Secretary of State
1:07
Henry Kissinger brokered a strategic
1:09
deal with Saudi Arabia under this
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agreement Saudi Arabia would sell its
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oil exclusively in US dollars in
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exchange for US military protection and
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access to Advanced Weaponry this
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Arrangement was subsequently adopted by
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other OPEC nations creating a robust
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Global demand for the US dollar the
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agreement stipulated that the US would
1:28
provide Military Support and Protection
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ction to Saudi Arabia in return Saudi
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Arabia agreed to conduct its oil sales
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exclusively in US Dollars this ensured
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that Global oil transactions were
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carried out in dollars creating a
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continuous demand for the currency and
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solidifying its status as the world's
1:45
primary Reserve currency this
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Arrangement facilitated a steady influx
1:49
of capital into the US economy helping
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Finance its deficits and maintain lower
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interest rates through the process of
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Petro dollar recycling where Oil
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revenues were reinvested in US Treasury
2:00
Securities this created a symbiotic
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relationship with oil Rich Nations
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supporting us debt while enjoying US
2:06
military
2:10
protection this system provided several
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significant benefits to the US by
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ensuring that oil transactions were
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conducted in dollars the demand for US
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currency increased globally this allowed
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the US to print more dollars without the
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constraints imposed by the gold standard
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consequently this Arrangement enabled
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the US to finance its deficit more
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effectively and maintain lower interest
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rates as oil producing countries
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invested their Surplus dollars in US
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debt
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Securities the economic context of the
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early 1970s underscores the importance
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of the Petro dollar system for instance
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during the oil crisis triggered by the
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1973 Arab Israeli War opec's Oil Embargo
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led to a four-fold increase in oil
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prices highlighting the necessity for a
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stable transaction currency by 1974 oil
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prices had skyrocketed from $3 to $12
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per barrel further solidifying the Petra
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dollar systems role in global Finance
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moreover the Petra dollar system allowed
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the US to purchase oil with its own
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currency which it could print as needed
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this unique Advantage distinguished the
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US from other nations and supported its
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economic stability by ensuring
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continuous Global demand for the dollar
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despite its benefits the Petro dollar
3:26
system has faced challenges over time
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some countries have explored
3:30
alternatives to using the US dollar for
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oil transactions potentially disrupting
3:34
the established framework nevertheless
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the Petra dollar system remains a
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Cornerstone of US economic strategy and
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Global Financial Dynamics by creating a
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continuous demand for the US dollar the
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Petro dollar system has played a crucial
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role in sustaining the global dominance
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of the US currency and supporting the
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American economy through increased
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liquidity and investment in US
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debt the Petro dollar system established
4:00
in the 1970s included a process known as
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Petro dollar recycling this involved oil
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revenues from Saudi Arabia and other
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OPEC nations being reinvested in US
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Treasury Securities this Arrangement
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provided the US with a consistent influx
4:14
of capital which was essential for
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financing its deficits and maintaining
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lower interest rates this created a
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mutually beneficial relationship where
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oilr Nations helped fund US debt while
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receiving US military protection and
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advanced Weaponry in return
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4:45
you the US economy May face increased
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volatility without the consistent demand
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for its currency provided by the Petro
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dollar system this instability could
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result in significant fluctuations in
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exchange rates and financial markets
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affecting overall economic stability the
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previous stability afforded by the Petro
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dollar system helped to smooth
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International Trade transactions and
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provided a reliable market for US debt
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without it the us could experience more
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economic shocks and less predictable
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Financial conditions with a decreased
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Global demand for the dollar inflation
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rates in the US are likely to rise the
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Federal Reserve may need to increase
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interest rates to combat this inflation
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which would make borrowing more
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expensive for both consumers and and
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businesses this scenario mirrors past
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instances where reduced confidence in
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the dollar led to inflationary pressures
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and higher interest rates to maintain
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economic balance higher interest rates
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resulting from the need to control
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inflation will lead to increased costs
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for various types of borrowing including
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mortgages auto loans student loans and
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credit cards as the cost of borrowing
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Rises consumer spending and economic
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growth are expected to slow down this
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increased cost of debt can lead lead to
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reduced investment by businesses and
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lower consumer confidence further
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dampening economic
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activity the US might face significant
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challenges in financing its national
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deficit without the support of the Petro
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dollar system higher interest rates will
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increase the cost of servicing the
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national debt putting additional
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pressure on the federal budget this
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could lead to larger budget deficits and
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potentially necessitate Cuts in
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government spending or increases in
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taxes to balance the budget A reduced
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global demand for the dollar could lead
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to its depreciation a weaker dollar
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would make Imports more expensive
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affecting the purchasing power of
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American consumers and potentially
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leading to higher prices for goods and
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services this depreciation could also
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affect the US's ability to maintain its
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standard of living and economic
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influence globally the decreased value
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of the dollar might also reduce the
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attractiveness of US Financial assets
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leading to lower investment inflows by
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examining the implications of losing
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Petro dollar status it becomes clear
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that this transition could have profound
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and wide- ranging impacts on the US
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economy affecting everything from
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inflation and borrowing costs to
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National Financial stability and
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international economic
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influence the brics countries are
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actively working to decrease their
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Reliance on the US dollar this strategic
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shift includes exploring alternative
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currencies and financial systems for
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international trade for example India
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recently made a historic purchase of 1
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million barrels of oil from the UAE
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using rupees instead of US Dollars
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additionally Russia has conducted
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significant trade with India in local
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currencies including a $4 billion dollar
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arms deal paid in rupees decline in the
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US dollar as the world's Reserve
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currency the shift by bricks countries
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away from the US dollar is contributing
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to its decline as the dominant Global
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Reserve currency this trend is
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accelerated by the expansion of the
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brics alliance to include new members
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such as Saudi Arabia
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UAE Egypt Iran Argentina and Ethiopia
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starting in 2024 the movement towards
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local currencies in international trade
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poses a challenge to US Financial
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hegemony and has the potential to
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reshape the global economic
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landscape us responses raising interest
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rates in response to the declining
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dominance of the US dollar the US might
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raise its Federal fund rate to attract
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more foreign investment and maintain
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demand for the dollar however this
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strategy has inherent risks higher
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interest rates could potentially slow
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domestic economic growth and lead to
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financial instability balancing these
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factors will be crucial for the US to
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maintain its economic position this
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shift in global trade Dynamics
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underscores the evolving nature of
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international finance and the growing
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influence of the brics alliance the
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diversification of currencies and Global
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transactions highlights a significant
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transition away from the traditional
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dollar dominated Financial system
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