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This is itself inconsequential. Nobody is going to start frenetically doing oil business in Yuan just because this agreement has expired. While it is true that

This is itself inconsequential. Nobody is going to start frenetically doing oil business in Yuan just because this agreement has expired. While it is true that the will probably slowly shift during the coming decades to some degree of de-dolarization, it is not going to happen overnight and neither is the expiration of this agreement a prime mover of that. Freezing Russia's sovereign assets was far more consequential as it eroded the trust on the westerns financial system somehow. But all those upcoming powers like China, India have a vested interest in the continued survival of the dollar, as they hold (both the states and private companies) vast amounts of assets tied to the dollar. They may try to reduce their exposure a bit, but they know that they can't do a firesale of US bonds as it would obliterate a lot of their wealth. Things will keep running as today probably for the next 20 years. Meanwhile the US will have the chance to re-industrialize itself as the dollar gradually weakens. And this leads us to the other dollar's secret. NOBODY wants to hold the world's reserve currency anymore. It may be good to make your rich absurdly rich, to sustain absurdly high levels of consumption fueled by imports, but it inexorably erodes your industrial base.

scrubs 2y ago
Do you agree this is yet another tactical or strategic setback meaning it's only more critical to get our debt spending in order since we can less depend on outside investing on t bills?
- elzbardico 2y ago
  Of course! Not only is essential that the US starts tackling its debt, but also it needs to be aware that the massive trade debt days where the US imports the industrial output of the world in exchange for treasure YOUs will someday come to an end. Re-shoring industry is essential for the US to keep itself as a major player in the future multi-polar world.
  - scrubs 2y ago
    Fine/cool - my question was rhetorical. And I see nothing on the horizon that dc has got the message. Apparently the in-the-know ppl don't talk to dc and kick their butt around.
tootie 2y ago
It also seems the Fed can just absorb whatever it needs to. And it's not like Japan needed to be a global reserve currency to sustain massive debt. De-dolarization seems unlikely to cost much aside from prestige.
- elzbardico 2y ago
  Japan is a massive exporter, while the US is a massive net importer. American industrial production depends heavily on global supply chains, and thus, american prosperity requires a healthy global demand of US dollars.
  - JumpCrisscross 2y ago
    > american prosperity requires a healthy global demand of US dollars The supply chains create the international demand for dollars and dollar-denominated assets. That then reinforces the supply chains. But causation starts with America being a massive producer and consumer.
    - elzbardico 2y ago
      Way less of a producer and more of a consumer. And no, the biggest driver for the US Dollars demand nowadays it is status as the global currency of trade.
      - JumpCrisscross 2y ago
        > Way less of a producer and more of a consumer We're the second-largest exporter in the world [1]. (But yes, more consumer.) > And no, the biggest driver for the US Dollars demand nowadays it is status as the global currency of trade Who do you think does most of the trading? If America weren't the world's largest importer and second-largest exporter, the dollar wouldn't be the global currency of trade. You're correct that our financial system reinforces that relationship. But it's reinforcing, not underwriting. (China isn't challenging us in our financial services, it's challenging us on trade.) [1] https://en.wikipedia.org/wiki/List_of_countries_by_exports https://en.wikipedia.org/wiki/List_of_countries_by_exports
treflop 2y ago
These agreements are just agreements. The dollar has been the reserve currency for a long time because (1) the US has been a big promoter of liberalization and world trade, but really most importantly, (2) despite various conflicts, the US currency has been consistent and stable for decades, and everyone who values stability is going to want to park their value in a currency that continues to be boring. So far, the US has been able to scratch that itch because it’s been the same government that has been predictably the same for nearly 250 years. Now it doesn’t mean the world’s reserve currency won’t change over time but if it does, it’s because some other country or group of people have managed to establish themselves as equally boring for decades. And by the time that happens, the world will have already changed significantly already. Really, the reason the US Dollar has held for so long is because the rest of the world has had a lot of instability (think world wars, governance changes, unions of countries formed or abolished, etc.). The US hasn’t even had a change in states in 60 years.
- tcbawo 2y ago
  Don’t forget strong property rights, fairly impartial justice system wrt foreign representation, and a large body of corporate case law with predictable outcomes
  - User23 2y ago
    And, perhaps most of all, a willingness to run massive deficits to accommodate foreigners' desire to hold those debts as an asset.
  - epicureanideal 2y ago
    > fairly impartial justice system Seems like that’s crumbling, to the point it’s concerning even to me.
    - unethical_ban 2y ago
      I took am genuinely worried that our society is losing its respect of rule of law due to disinformation and stupidity on the social web.
wslh 2y ago
It is also good to check with number examples about the interest of operating in USD, it is like the interest of using USB Type C or other standard plugs instead of a custom one. The US stocks market cap is USD ~54T [1]. The China one is less of 1/4 of the US one. The bond market capitalization [2] is different but 62% is composed by US, China, and Japan. [1] https://en.wikipedia.org/wiki/List_of_countries_by_stock_market_capitalization https://en.wikipedia.org/wiki/List_of_countries_by_stock_mar... [2] https://www.icmagroup.org/market-practice-and-regulatory-policy/secondary-markets/bond-market-size/ https://www.icmagroup.org/market-practice-and-regulatory-pol...
asdasdsddd 2y ago
> And this leads us to the other dollar's secret. NOBODY wants to hold the world's reserve currency anymore. It may be good to make your rich absurdly rich, to sustain absurdly high levels of consumption fueled by imports, but it inexorably erodes your industrial base. Also the US can leverage another countries reserves against them
manquer 2y ago
This is how it will play out in the next 20-30 years you are thinking about > They can't do a firesale of US bonds they aren’t buying a lot of new American bonds and keeping the bond market strong with private buyers. It is why the fed buying treasury bills in the quantities they do is troubling. Interest rates aren’t going to back zero, they will drop from the current highs but interest will remain positive. The debt to GDP ratio has jumped massively in last 40 years from 30 % to 60% in 2000s and now 120%, that is an impressive amount of spending considering how large the US economy is . [1] At some point the either spending on programs have to be cut or taxation has to increased, or inflation has to be allowed to increase significantly to service it. The policy paralysis in Washington almost by design will not allow for either of the first two solutions to happen which would be internal to the country, so likely in next 20-30 years we are looking at runaway inflation . At the point dominoes will be too late to control, if dollar no longer is a strong reserve currency , interest rates will go up , either we default or massively rebalance the economy after getting a bail out (! No country or institution like IMF is large enough to remotely even attempt bailing out America ) . The pain will be global of course , but nobody will be able to do anything about it. [1] In itself the ratio is not a problem, In OECD countries high numbers can work for long while, Japan holds 250% + of debt to GDP ratio famously , but now after 30 years of weird economics they are slowly being forced to raise interest rates positive or face the yen falling and it will be costly either way
- JumpCrisscross 2y ago
  > they aren’t buying a lot of new American bonds Because they’re deficit spending.
  - elzbardico 2y ago
    This is irrelevant for this. They are deficit spending in their local currency. Their US dollars are going to a massive frenzy of commodities import. They are just diversifying their reserves, less US bonds, more physical goods like copper, coal, gold, etc.
    - 2y ago
consumer451 2y ago
> Nobody is going to start frenetically doing oil business in Yuan just because this agreement has expired. I am highly uneducated in this realm, but would this even be possible as the Yuan is a nonconvertible currency?
- elzbardico 2y ago
  I am talking informally. The Yuan is not fully convertible, but yet, it can and it is used for trading goods and services. It is not attractive as a reserve currency or as an investment, but on bi-lateral and tri-lateral trade it is perfectly usable. And as china is the biggest manufacturer in the world, for a lot of countries it may make sense to trade in yuans. Sell some copper to China in Yuans, buy some SU-35s from Russia using Yuans, then Russia buys chips from China with those Yuans.
- pclmulqdq 2y ago
  As far as I am aware, the Yuan (essentially a unit quantity of currency) is fully convertible and can be traded, but the Renminbi (the currency itself) is not. It's a bit weird that these are not the same thing. It may not be possible to use the Yuan for everything you need without also moving some Renminbi around. However, you can use the Yuan as the unit on which the trade balance of a country is counted - $1 billion Yuan of oil against $1 billion of silicon chip for example - without any Renminbi changing hands.
  - chii 2y ago
    is that not just bartering with more steps?
    - pclmulqdq 2y ago
      Money is sort of just bartering with extra steps. You can record balances of Yuan, but I assume those can't technically be settled in cash without using renminbi. So just don't settle the account.
      - 2y ago
sroussey 2y ago
It’s the beginning of the end. The end is always super slow, then suddenly fast.
ramesh31 2y ago
>Freezing Russia's sovereign assets was far more consequential as it eroded the trust on the westerns financial system somehow. How, exactly? We have spent the last two years building a watertight legal justification for doing so. Nothing was arbitrarily taken, and they are still earning interest on that balance. But if you break international law, you will face international legal consequences, under due process of the law that you agreed to abide by through taking part in our system.
- roenxi 2y ago
  That is cool and all; but if the US is going to seize assets after building a watertight legal case then countries can't just by default leave their sovereign assets in places where the US can seize them. A country's bankers are not interested in taking that sort of risk needlessly, there needs to be something in it for them. Of course the international finance system is complicated so maybe there still is enough of a payoff to holding US dollars, we're seeing something of an exploratory process here as China, Russia and probably India start testing the system. It might hold.
  - ramesh31 2y ago
    >there needs to be something in it for them. There is. The Fed's 5% rate (along with 3% inflation) is the envy of the entire world right now. Where else on earth are you going to get that, with the only stipulation being "don't violently invade your neighboring countries"? There's simply no alternative, unless you trust China more than the US Government.
    - elzbardico 2y ago
      There's no such stipulation. The stipulation is: don't challenge our power.
- elzbardico 2y ago
  Well, you could be right and yet, the economic consequences would be the same. Contrary to what you say, the freezing of said assets and their confiscation is on legally murky waters, and even if it was clearly allowed by Charter of the United Nations, of course it would require a voting on the security council or at least on the general assembly not just a gentleman agreement between the NATO countries, bypassing the only real source of international law: the UN. The thing is. Does it matter? Can the US and its partners really enforce it? How do you expect other countries that are not in the western club to react? As I said in other comments, we no longer live in the world where the US is the single biggest commercial partner of every country in the world, we don't live anymore in a world where the US alone is 40% of the global GDP. Those days are over.
pphysch 2y ago
> they know that they can't do a firesale of US bonds as it would obliterate a lot of their wealth. Wealth and power are hard to distinguish at this scale. Suppose PRC were to a) instigate a global crash of USA Treasury assets and b) offer to swap USA debt for PRC debt for preferred clients. Rather than watch their UST holdings evaporate, most global wealth managers would take the deal. And then RMB does become #1 reserve currency overnight... Yes it would be terribly "expensive" for PRC in nominal terms, but what is the price of global financial hegemony?
- elzbardico 2y ago
  The price of financial global hegemony is the price paid by the US: - Deindustrialization - Massive Wealth Concentration - A housing crisis due to asset inflation - Unemployment and/or subemployment. China is still a bit communist. The government rules their wall street, not the other way around.
- csomar 2y ago
  China probably doesn’t want the RMB to become the world reserve currency. The advantages are not a free lunch. Look up the net investment position of the USA and how it degraded after 1970s. All these printed and circulating dollars are a debt to the “US economy”.
  - pphysch 2y ago
    Those aren't necessary outcomes, those were policy decisions made by the US/Western elite. They chose to deregulate and let global capitalists do whatever they wanted. USD has been primary global reserve currency since more or less the 1970s (end of Bretton Woods period), but the tendency for plutocracy goes much deeper and has not abated in the last half-century. China has a lot more tradition and experience running a long-term civilization that doesn't rely on endless conquest and growth, and they have fresh memory of how USA/Britain fumbled the bag. Expect them to repeat the same mistakes at your own peril.
lossolo 2y ago
There is a deal under way to make sure that they will still use the USD and loosen their ties with China. https://www.reuters.com/world/us-saudi-arabia-close-finalizing-draft-security-treaty-wsj-reports-2024-06-09/ https://www.reuters.com/world/us-saudi-arabia-close-finalizi...
- w4 2y ago
  This just strikes me as sharp elbowed negotiation by the Saudis. I bet good odds that this particular story about the Saudi treaty expiring will have proven to be a nothingburger a year from now (even if de-dollarization and multi-polarity in general continues to be a story).
Archelaos 2y ago
> Nobody is going to start frenetically doing oil business in Yuan just because this agreement has expired. But the Europeans would prefer the Euro and the Japanese the Yen,[1] because it is beneficial for their own economies. In the past period of energy price inflaction one could observe quite for awhile that the exchange rates favoured the US-dollar over the euro although inflation in the USA was higher than in the EU. The best explanation I came across for this phenomenon was the petrodollar: Importers from the EU needed to exchange a lot of euro into dollars to pay for oil. As a result, the exchange rate shifted increasingly against the euro, which made energy costs within the EU even more expensive, which gave the USA a competitive advantage. Importing countries therefore have a great incentive to conduct oil transactions in their own currency. This will not lead to the dollar losing its supremacy in oil trading overnight. But I expect its share of trading volume to gradually decline. [1] Some import figures of oil from Saudi Arabia from 2022 for context: EU 25.8B US$ and Japan 39.8B US$, which together was almost the same as China 65.0B US$. (However, the figures fluctuate considerably from year to year.) Source: https://tradingeconomics.com/european-union/imports/saudi-arabia/crude-oil https://tradingeconomics.com/european-union/imports/saudi-ar... https://tradingeconomics.com/japan/imports/saudi-arabia/crude-oil-petroleum-bituminous-minerals https://tradingeconomics.com/japan/imports/saudi-arabia/crud... https://tradingeconomics.com/china/imports/saudi-arabia/crude-oil-petroleum-bituminous-minerals https://tradingeconomics.com/china/imports/saudi-arabia/crud...
Dalewyn 2y ago
>Things will keep running as today probably for the next 20 years. If anything, this is another of many shots across the bow that Pax Americana is, in fact, on notice. It's our (the west's) era to lose.
aaron695 2y ago
[dead]
refurb 2y ago
The question I have is - what is the alternative currency to hold? Yuan which is held to a fixed exchange rate that could change at any time? Not to mention the capital controls. Euro? Yen? Australian dollar? USD doesn’t have to have some special agreements to make it the safest currency to hold.
- elzbardico 2y ago
  For now, and probably the next 20 years? I'd still bet on the dollar. Those changes are coming, but they will take decades.

scrubs 2y ago

Do you agree this is yet another tactical or strategic setback meaning it's only more critical to get our debt spending in order since we can less depend on outside investing on t bills?

elzbardico 2y ago
Of course! Not only is essential that the US starts tackling its debt, but also it needs to be aware that the massive trade debt days where the US imports the industrial output of the world in exchange for treasure YOUs will someday come to an end. Re-shoring industry is essential for the US to keep itself as a major player in the future multi-polar world.
- scrubs 2y ago
  Fine/cool - my question was rhetorical. And I see nothing on the horizon that dc has got the message. Apparently the in-the-know ppl don't talk to dc and kick their butt around.

tootie 2y ago

It also seems the Fed can just absorb whatever it needs to. And it's not like Japan needed to be a global reserve currency to sustain massive debt. De-dolarization seems unlikely to cost much aside from prestige.

elzbardico 2y ago
Japan is a massive exporter, while the US is a massive net importer. American industrial production depends heavily on global supply chains, and thus, american prosperity requires a healthy global demand of US dollars.
- JumpCrisscross 2y ago
  > american prosperity requires a healthy global demand of US dollars The supply chains create the international demand for dollars and dollar-denominated assets. That then reinforces the supply chains. But causation starts with America being a massive producer and consumer.
  - elzbardico 2y ago
    Way less of a producer and more of a consumer. And no, the biggest driver for the US Dollars demand nowadays it is status as the global currency of trade.
    - JumpCrisscross 2y ago
      > Way less of a producer and more of a consumer We're the second-largest exporter in the world [1]. (But yes, more consumer.) > And no, the biggest driver for the US Dollars demand nowadays it is status as the global currency of trade Who do you think does most of the trading? If America weren't the world's largest importer and second-largest exporter, the dollar wouldn't be the global currency of trade. You're correct that our financial system reinforces that relationship. But it's reinforcing, not underwriting. (China isn't challenging us in our financial services, it's challenging us on trade.) [1] https://en.wikipedia.org/wiki/List_of_countries_by_exports https://en.wikipedia.org/wiki/List_of_countries_by_exports

treflop 2y ago

These agreements are just agreements. The dollar has been the reserve currency for a long time because (1) the US has been a big promoter of liberalization and world trade, but really most importantly, (2) despite various conflicts, the US currency has been consistent and stable for decades, and everyone who values stability is going to want to park their value in a currency that continues to be boring. So far, the US has been able to scratch that itch because it’s been the same government that has been predictably the same for nearly 250 years. Now it doesn’t mean the world’s reserve currency won’t change over time but if it does, it’s because some other country or group of people have managed to establish themselves as equally boring for decades. And by the time that happens, the world will have already changed significantly already. Really, the reason the US Dollar has held for so long is because the rest of the world has had a lot of instability (think world wars, governance changes, unions of countries formed or abolished, etc.). The US hasn’t even had a change in states in 60 years.

tcbawo 2y ago
Don’t forget strong property rights, fairly impartial justice system wrt foreign representation, and a large body of corporate case law with predictable outcomes
- User23 2y ago
  And, perhaps most of all, a willingness to run massive deficits to accommodate foreigners' desire to hold those debts as an asset.
- epicureanideal 2y ago
  > fairly impartial justice system Seems like that’s crumbling, to the point it’s concerning even to me.
  - unethical_ban 2y ago
    I took am genuinely worried that our society is losing its respect of rule of law due to disinformation and stupidity on the social web.

wslh 2y ago

It is also good to check with number examples about the interest of operating in USD, it is like the interest of using USB Type C or other standard plugs instead of a custom one. The US stocks market cap is USD ~54T [1]. The China one is less of 1/4 of the US one. The bond market capitalization [2] is different but 62% is composed by US, China, and Japan. [1] https://en.wikipedia.org/wiki/List_of_countries_by_stock_market_capitalization https://en.wikipedia.org/wiki/List_of_countries_by_stock_mar... [2] https://www.icmagroup.org/market-practice-and-regulatory-policy/secondary-markets/bond-market-size/ https://www.icmagroup.org/market-practice-and-regulatory-pol...

asdasdsddd 2y ago

> And this leads us to the other dollar's secret. NOBODY wants to hold the world's reserve currency anymore. It may be good to make your rich absurdly rich, to sustain absurdly high levels of consumption fueled by imports, but it inexorably erodes your industrial base. Also the US can leverage another countries reserves against them

manquer 2y ago

This is how it will play out in the next 20-30 years you are thinking about > They can't do a firesale of US bonds they aren’t buying a lot of new American bonds and keeping the bond market strong with private buyers. It is why the fed buying treasury bills in the quantities they do is troubling. Interest rates aren’t going to back zero, they will drop from the current highs but interest will remain positive. The debt to GDP ratio has jumped massively in last 40 years from 30 % to 60% in 2000s and now 120%, that is an impressive amount of spending considering how large the US economy is . [1] At some point the either spending on programs have to be cut or taxation has to increased, or inflation has to be allowed to increase significantly to service it. The policy paralysis in Washington almost by design will not allow for either of the first two solutions to happen which would be internal to the country, so likely in next 20-30 years we are looking at runaway inflation . At the point dominoes will be too late to control, if dollar no longer is a strong reserve currency , interest rates will go up , either we default or massively rebalance the economy after getting a bail out (! No country or institution like IMF is large enough to remotely even attempt bailing out America ) . The pain will be global of course , but nobody will be able to do anything about it. [1] In itself the ratio is not a problem, In OECD countries high numbers can work for long while, Japan holds 250% + of debt to GDP ratio famously , but now after 30 years of weird economics they are slowly being forced to raise interest rates positive or face the yen falling and it will be costly either way

JumpCrisscross 2y ago
> they aren’t buying a lot of new American bonds Because they’re deficit spending.
- elzbardico 2y ago
  This is irrelevant for this. They are deficit spending in their local currency. Their US dollars are going to a massive frenzy of commodities import. They are just diversifying their reserves, less US bonds, more physical goods like copper, coal, gold, etc.
  - 2y ago

consumer451 2y ago

> Nobody is going to start frenetically doing oil business in Yuan just because this agreement has expired. I am highly uneducated in this realm, but would this even be possible as the Yuan is a nonconvertible currency?

elzbardico 2y ago
I am talking informally. The Yuan is not fully convertible, but yet, it can and it is used for trading goods and services. It is not attractive as a reserve currency or as an investment, but on bi-lateral and tri-lateral trade it is perfectly usable. And as china is the biggest manufacturer in the world, for a lot of countries it may make sense to trade in yuans. Sell some copper to China in Yuans, buy some SU-35s from Russia using Yuans, then Russia buys chips from China with those Yuans.
pclmulqdq 2y ago
As far as I am aware, the Yuan (essentially a unit quantity of currency) is fully convertible and can be traded, but the Renminbi (the currency itself) is not. It's a bit weird that these are not the same thing. It may not be possible to use the Yuan for everything you need without also moving some Renminbi around. However, you can use the Yuan as the unit on which the trade balance of a country is counted - $1 billion Yuan of oil against $1 billion of silicon chip for example - without any Renminbi changing hands.
- chii 2y ago
  is that not just bartering with more steps?
  - pclmulqdq 2y ago
    Money is sort of just bartering with extra steps. You can record balances of Yuan, but I assume those can't technically be settled in cash without using renminbi. So just don't settle the account.
    - 2y ago

sroussey 2y ago

It’s the beginning of the end. The end is always super slow, then suddenly fast.

ramesh31 2y ago

>Freezing Russia's sovereign assets was far more consequential as it eroded the trust on the westerns financial system somehow. How, exactly? We have spent the last two years building a watertight legal justification for doing so. Nothing was arbitrarily taken, and they are still earning interest on that balance. But if you break international law, you will face international legal consequences, under due process of the law that you agreed to abide by through taking part in our system.

roenxi 2y ago
That is cool and all; but if the US is going to seize assets after building a watertight legal case then countries can't just by default leave their sovereign assets in places where the US can seize them. A country's bankers are not interested in taking that sort of risk needlessly, there needs to be something in it for them. Of course the international finance system is complicated so maybe there still is enough of a payoff to holding US dollars, we're seeing something of an exploratory process here as China, Russia and probably India start testing the system. It might hold.
- ramesh31 2y ago
  >there needs to be something in it for them. There is. The Fed's 5% rate (along with 3% inflation) is the envy of the entire world right now. Where else on earth are you going to get that, with the only stipulation being "don't violently invade your neighboring countries"? There's simply no alternative, unless you trust China more than the US Government.
  - elzbardico 2y ago
    There's no such stipulation. The stipulation is: don't challenge our power.
elzbardico 2y ago
Well, you could be right and yet, the economic consequences would be the same. Contrary to what you say, the freezing of said assets and their confiscation is on legally murky waters, and even if it was clearly allowed by Charter of the United Nations, of course it would require a voting on the security council or at least on the general assembly not just a gentleman agreement between the NATO countries, bypassing the only real source of international law: the UN. The thing is. Does it matter? Can the US and its partners really enforce it? How do you expect other countries that are not in the western club to react? As I said in other comments, we no longer live in the world where the US is the single biggest commercial partner of every country in the world, we don't live anymore in a world where the US alone is 40% of the global GDP. Those days are over.

pphysch 2y ago

> they know that they can't do a firesale of US bonds as it would obliterate a lot of their wealth. Wealth and power are hard to distinguish at this scale. Suppose PRC were to a) instigate a global crash of USA Treasury assets and b) offer to swap USA debt for PRC debt for preferred clients. Rather than watch their UST holdings evaporate, most global wealth managers would take the deal. And then RMB does become #1 reserve currency overnight... Yes it would be terribly "expensive" for PRC in nominal terms, but what is the price of global financial hegemony?

elzbardico 2y ago
The price of financial global hegemony is the price paid by the US: - Deindustrialization - Massive Wealth Concentration - A housing crisis due to asset inflation - Unemployment and/or subemployment. China is still a bit communist. The government rules their wall street, not the other way around.
csomar 2y ago
China probably doesn’t want the RMB to become the world reserve currency. The advantages are not a free lunch. Look up the net investment position of the USA and how it degraded after 1970s. All these printed and circulating dollars are a debt to the “US economy”.
- pphysch 2y ago
  Those aren't necessary outcomes, those were policy decisions made by the US/Western elite. They chose to deregulate and let global capitalists do whatever they wanted. USD has been primary global reserve currency since more or less the 1970s (end of Bretton Woods period), but the tendency for plutocracy goes much deeper and has not abated in the last half-century. China has a lot more tradition and experience running a long-term civilization that doesn't rely on endless conquest and growth, and they have fresh memory of how USA/Britain fumbled the bag. Expect them to repeat the same mistakes at your own peril.

lossolo 2y ago

There is a deal under way to make sure that they will still use the USD and loosen their ties with China. https://www.reuters.com/world/us-saudi-arabia-close-finalizing-draft-security-treaty-wsj-reports-2024-06-09/ https://www.reuters.com/world/us-saudi-arabia-close-finalizi...

w4 2y ago
This just strikes me as sharp elbowed negotiation by the Saudis. I bet good odds that this particular story about the Saudi treaty expiring will have proven to be a nothingburger a year from now (even if de-dollarization and multi-polarity in general continues to be a story).

Archelaos 2y ago

> Nobody is going to start frenetically doing oil business in Yuan just because this agreement has expired. But the Europeans would prefer the Euro and the Japanese the Yen,[1] because it is beneficial for their own economies. In the past period of energy price inflaction one could observe quite for awhile that the exchange rates favoured the US-dollar over the euro although inflation in the USA was higher than in the EU. The best explanation I came across for this phenomenon was the petrodollar: Importers from the EU needed to exchange a lot of euro into dollars to pay for oil. As a result, the exchange rate shifted increasingly against the euro, which made energy costs within the EU even more expensive, which gave the USA a competitive advantage. Importing countries therefore have a great incentive to conduct oil transactions in their own currency. This will not lead to the dollar losing its supremacy in oil trading overnight. But I expect its share of trading volume to gradually decline. [1] Some import figures of oil from Saudi Arabia from 2022 for context: EU 25.8B US$ and Japan 39.8B US$, which together was almost the same as China 65.0B US$. (However, the figures fluctuate considerably from year to year.) Source: https://tradingeconomics.com/european-union/imports/saudi-arabia/crude-oil https://tradingeconomics.com/european-union/imports/saudi-ar... https://tradingeconomics.com/japan/imports/saudi-arabia/crude-oil-petroleum-bituminous-minerals https://tradingeconomics.com/japan/imports/saudi-arabia/crud... https://tradingeconomics.com/china/imports/saudi-arabia/crude-oil-petroleum-bituminous-minerals https://tradingeconomics.com/china/imports/saudi-arabia/crud...

Dalewyn 2y ago

>Things will keep running as today probably for the next 20 years. If anything, this is another of many shots across the bow that Pax Americana is, in fact, on notice. It's our (the west's) era to lose.

aaron695 2y ago

[dead]

refurb 2y ago

The question I have is - what is the alternative currency to hold? Yuan which is held to a fixed exchange rate that could change at any time? Not to mention the capital controls. Euro? Yen? Australian dollar? USD doesn’t have to have some special agreements to make it the safest currency to hold.

elzbardico 2y ago
For now, and probably the next 20 years? I'd still bet on the dollar. Those changes are coming, but they will take decades.