The US left more and more of the production to China, leaving them with a huge package of dollars. Those dollars were then invested in US government bonds, completing the circle again. China thus increasingly became the factory of the United States. Oil producers also saw the pile of dollars increase considerably. And there too, those dollars were reinvested in American government paper. It was a deal that everyone was relatively happy with until the financial crisis hit in 2008. The US started printing dollars en masse to save the banks and the economy and if you keep a large part of your reserves in this currency, like China, Saudi Arabia and Russia, you start to question the value of those assets. Surely it cannot be that the Chinese mine raw materials, import energy and labor to produce goods and then be compensated with a stack of banknotes that the Federal Reserve creates at the touch of a button? And the Saudis and Russians also wondered whether it was such a good idea to pump up finite oil reserves in exchange for freshly printed dollars. The first cracks in the dollar's status as a reserve currency became visible. China, Saudi Arabia and Russia continued to export goods in exchange for dollars, but they were no longer willing to invest those dollars in US bonds. They saw the dollar out of business and turned to gold as a historical reserve asset. Dollars received from trade with the US were instantly converted to gold. Countries with dollar surpluses had expressed dissatisfaction with the Federal Reserve's loose monetary policy through massive gold purchases, but it seemed to make little impression on Americans. In fact, the US began to abuse the unique privilege of the world reserve currency in yet another way. The US started to use the dollar as a weapon by cutting off access to dollars from countries such as Iran, but also recently Russia. Since much of the world trade is in dollars, it is a huge handicap if you can no longer trade in the US currency. In this way the US can plunge countries into an economic abyss and that turned out to be a very attractive instrument to impose its own will. But it also means, of course, that several countries had an additional reason to distrust the dollar. Not only was the currency printed at its discretion, but the US now also decided who could trade in the dollar.
A step too far? For China and Russia, yes. They already announced at the end of last year that they would develop a shared financial structure that "cannot be influenced by other countries". Earlier, Vladimir Putin had also announced at the International Economic Forum in St. Petersburg that the Russian National Wealth Fund would follow the example of the central bank and sell all dollar assets. He also subtly indicated that he could deal a serious blow to the dollar by forbidding Russian oil companies from accepting dollars any longer. China and Russia also turned less and less to the dollar to settle mutual trade. And so we gradually arrive at the current topicality. As part of the sanctions against Russia, most Russian banks were kicked out of SWIFT and the Russian central bank's foreign exchange reserves were frozen, cutting off access to the US dollar. One exception: energy. Russia is still allowed to sell oil and gas production for dollars. “Our sanctions are not designed to cause any disruption in the current flow of energy from Russia to the world,” said Deputy National Security Advisor Daleep Singh. But since selling oil for dollars just sustains the petrodollar, I don't expect Russia to continue doing it for long. Russia has become the world's largest energy producer, and in a world facing permanent and growing energy shortages, Russian production is desperately needed. Without Russian energy, the European economy is pushed into a depression and Putin has a huge asset in his hands. Not the US, but he will be able to determine in which currency Russian oil and gas should be settled. And in the current situation, anything is better than dollars. For example, he could demand that his energy be paid for in roubles. It would explode the demand for roubles, which would immediately make the Russian currency a lot stronger and local inflation would disappear. Or why not sell energy in exchange for gold? It would increase the demand for gold causing the price to rise while also pumping up the value of Russia's gold reserves. In addition, it would put an end to US gold manipulations that would expose the dollar. We are already told from Russia that gold is indeed an option at the moment. A currency that would offer oil producers the opportunity to push the petrodollar aside and receive tangible value in exchange for energy. Both China and Russia have large gold reserves and could give such a currency credibility with a substantial gold backing. And it also seems very likely to me that other oil-producing countries would join such an initiative. Is this the "strategic partnership" that Putin and Venezuelan President Maduro refer to?
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