This system, in place for 75 years, marked the US dollar as the world’s reserve currency, granting economic stability and access to rising asset prices. The arrangement between the US and Saudi Arabia helped preserve the US dollar’s dominance over global trade.
However, this past Sunday, the Saudi Arabian prince announced that he would not renew the contract, signaling a major change in the global financial landscape. This agreement, initiated after World War II, allowed the US to control the world’s energy, and its impact on the standard of living for Americans is substantial. The Petro dollar system replaced gold as the standard of value and enabled the US to maintain dominance over international trade. The reasons behind Saudi Arabia’s decision not to renew the contract are part of a larger story, and its implications for us and future generations are yet to be fully understood.
Andrei discusses the trend of countries moving away from using the US dollar in international trade and oil transactions, with Saudi Arabia being the latest reported addition. The speaker argues that this could signal the end of America’s global financial dominance and raises the question of what the US is famous for exporting that the world is buying. The answer, according to the speaker, is US dollars. The speaker explains that the US economy benefits greatly from being able to export dollars and issuing debt in the form of treasury bonds, which creates a stable economy, lower interest rates, and financial market liquidity.
He discusses the potential consequences of Saudi Arabia’s decision to no longer use the US dollar for oil transactions. He explains that higher interest rates resulting from this decision could lead to more expensive mortgages, rents, auto loans, student loans, and credit cards. It could also put a strain on the banking system, national deficit, and federal budget, potentially leading to higher taxes. Additionally, the value of the dollar itself could be affected, making traveling and buying goods from other countries more expensive.