I’m shocked that no mainstream media are currently covering this because what I’m breaking down is massive news. Saudi Arabia has ditched the US dollar on Sunday the 9th of June Prince Mohammed bin Salman MBS. He refused to renew the 50-year petrodollar agreement between the US and Saudi Arabia. Now real quick for those of you that may be you know scratching your heads trying to figure out what that means basically the US dollar was backed by gold until 1971 when Richard Nixon removed it from the gold standards and then the dollar was sort of like in freefall and then in 1974 a couple years later when the US made a deal with Saudi Arabia creating what was known as the petrodollar.

Now the United States basically agreed to sell Saudi Arabia cheap military equipment and weapons. Think of it as protection in exchange for Saudi agreeing to keep the oil trade dominated in dollars. This meant any country that wanted oil from Saudi Arabia had to invest in dollars. As a result of that agreement, 80% of all global oil trade happened in dollars, which basically cemented the US dollar as the world’s reserve currency. The dollar has been the reserve currency since the end of World War II with the Bretton Woods Agreement signed in 1944.

But now, Saudi Arabia just officially walked away from that agreement. The ripple effects for the US dollar are going to be massive, which is why in this video I want to go over what exactly is going on. Why are the Saudis walking away from this deal now, and more importantly, where are they going? How is this going to affect our future and the potential consequences of it all? So let’s get into it.

Now if you’re new here, my name is Mark Moss and I talk about a range of topics covering investing, macroeconomics, business finance, Bitcoin, and more. It’s crucial that you stick around to the end of this video to understand everything we’re about to break down because these ripple effects could affect you no matter where you are in the world.

First, what just happened and what’s going on? The decision of Saudi Arabia just made not to extend the petrodollar agreement allows them to now sell oil and other goods in multiple currencies including the Chinese RMB, euros, yen, and even Bitcoin if they want. This is great news for Saudi, but it’s a problem for the US. The petrodollar agreement that’s been going on for decades has kept the dollar in the dominant position. Without it, those of us that use the dollar system lose a great amount of global power.

This agreement acted as a safety valve for our economy because it allowed us to release pressure by exporting dollars to other countries. After an oil trade, one party is sitting on too many dollars, surplus dollars, and then those dollars are reinvested back into the US dollar system, usually into US treasuries, equities, or even local infrastructure. When the excess dollars are reinvested, it’s called petrodollar recycling, and petrodollar recycling is the primary way the US is able to export its inflation.

Petrodollar recycling allows the government to print money and keep those dollars outside the US money supply. However, the resulting inflation we feel, although very high, actually only represents about 4% of the monetary expansion because those dollars have been exported to other countries. If those dollars come back, we could experience massive, potentially triple-digit inflation in the US.

So now that we understand that deal, the question is why are the Saudis ending the deal now? What’s this new system? From the outside, it looks like they’re simply stepping away from the agreement to be able to trade in any currency they want. More options and more choices seem reasonable for a country. However, in reality, there are a few things going on.

First, like in a partnership, both partners should be respectful of each other. When President Biden came into office, he made threats and even name-called, which is not a good way to start a partnership or relationship. During his campaign in 2019, Biden vowed to make Saudi Arabia “the pariah that they are” and shunned the crown prince, agreeing to speak only to his ailing father, King Salman. He also rescinded Trump’s terror designation for the Houthis, despite the group attacking Saudi oil infrastructure. Worse, Biden attempted to revive the nuclear deal with Iran, Saudi Arabia’s bitter enemy. On October 11, 2022, Biden gave an interview with Jake Tapper on CNN, threatening Saudi Arabia publicly with consequences.

Besides that, it’s also a result of Saudi Arabia’s commitment to the BRICS alliance. The BRICS—Brazil, Russia, India, China, South Africa, and more nations—have been reducing their reliance on the dollar, or de-dollarizing, for over a decade. Russia has been kicked out of the global financial system, so they need another currency outside the dollar to continue trading. China and Saudi Arabia have been engaging in trade using the Chinese Yuan, especially for trades involving oil and gas.

Nigel Green, CEO of one of the world’s largest independent financial advisory and asset management companies, said that one of the most significant outcomes of the three-day summit between Putin and Xi Jinping was Putin saying Russia is now in favor of using the Chinese Yuan for oil settlements. This move away from the petrodollar suggests that the world’s second-largest economy and the world’s largest energy exporter are actively intending to reduce the dominance of the US dollar as the bedrock of the international financial system.

In the first two months of 2023, China’s imports of Russian goods surpassed their total purchases for all of 2022, with 9.3 billion flowing in. February even saw a record high of over 2 million barrels of Russian crude oil imported by China. This surge suggests the Yuan is gaining traction as a major currency, pointing towards a larger shift in global power dynamics, potentially giving China more influence in shaping economic policies that impact everyone.

Russia has also been buying up tons of gold since sanctions were imposed on them by Western States. In 2023, Russia announced that its bullion holdings jumped by approximately 1 million ounces over the past 12 months, with nearly 75 million ounces at the end of February 2023.

While the US dollar remains the king of reserve currencies, its reign isn’t guaranteed. Over the past two decades, the dollar’s share in global central bank holdings has shrunk from 72% in 2001 to just under 60% in 2023. Meanwhile, the Yuan has been steadily climbing, reaching roughly 2.8% of global reserves by September 2022.

Less countries recycling trade surpluses into US treasuries means they buy less treasuries. Central banks around the world have become net sellers of US treasuries and net buyers of gold. If the Fed is forced to buy more of its own treasuries, that means more money printing, which leads to more inflation and less global influence for the US in trade and political issues.

Does this mean it’s game over for the US dollar’s global status? Not entirely. The US could raise the Fed’s fund rate to attract more capital, but this makes it more expensive for the US government to borrow money, impacting homeowners, businesses, and consumers. Alternatively, the US could be less demanding and coercive. Seizing a global superpower like Russia’s assets and threatening nations like Saudi Arabia can lead them to protect themselves from such actions.

For our future wealth-building plans, we need to stay long and watch for further developments. Investing in assets and long-term debt like a home can benefit from inflation pushing asset prices higher and making fixed-rate debt cheaper. Bitcoin may also continue to outperform the market as more money is printed and inflation rises.

I hope this has answered a lot of your questions. My honest opinion is that the US dollar’s demise is not imminent, but we are on a trend that requires careful monitoring. For more on the BRICS alliance and their currency reserve status, check out my video on the topic.

See more of Mark Moss on their Public Channel and the MPN Mark Moss channel.