The Petro-Yuan...The Beginning Of The End Of The US Dollar

In February, I write a post titled,

Why Does The US Dollar Continues To Drop

where I discussed why I felt the US dollar was declining and made a BOLD statement that the US dollar will never see $100 again. Next week when China introduces to the World the Petro-Yuan, will be yet another reason to support the continued decline of the US dollar. But, let me give you some background first.

In 1944 at conference held at the Mt. Washington Hotel in Bretton Woods, New Hampshire delegates devised a monetary system in which the US dollars would be directly convertible into gold and all other currencies would be pegged to the dollar.

In 1960s, the United States had a growing trade imbalance and growing public debt which resulted in the US dollar being way overvalued. In 1971, West Germany left the Bretton Woods system and both France and Switzerland demanded physical gold in exchange for their dollars. However, the issues continued to exacerbate.

So in 1973, Secretary of State Henry Kissinger negotiated an agreement with Saudi Arabia, the largest oil exporter in the world that required all sales of its oil to be paid for in US dollars and in exchange the United States would provide Saudi Arabia with weapons and protection. Other oil exporting nations followed Saudi Arabia's lead. This event artificially inflated the demand for US dollars globally since nations that imported oil were essentially forced to maintain holdings of US dollars in order to pay for their needed oil.

In 2015, China became the largest oil importer in the world. China is also Saudi Arabia's biggest oil buyer. The Saudi riyal is also one of only a handful of currencies that is directly convertible into Yuan.

Another Catalyst For The Fall Of The US Dollar

Next week China will launch the Petro-Yuan oil futures on the Shanghai and Hong Kong exchanges. China has been looking to reduce the US dollar’s status and internationalize the Yuan to boost its economic power for quite some time. This event will mark the beginning of the end of the US dollar. Oil importing countries will no longer have to maintain a stockpile of US dollars (and will now stockpile the Yuan) in order to purchase oil resulting in a further decline of the US dollar. As an example, Russia will, with open hands welcome the opportunity to purchase oil in Yuan instead of the US dollar.

The further demise of the US dollar won’t happen overnight, but the Petro-Yuan is another catalyst to support why the US dollar will continue to lose its value.

This post is my personal opinion. I’m not a financial advisor, this isn't financial advise. Do your own research before making investment decisions.