This does not seem to be getting much attention but actually it’s huge news.
Back in the 1970’s US President Richard Nixon finally bit the bullet and cut the long-standing link between the US dollar and gold. The reason was that US inflation, debt and balance of payments problems were devaluing the US dollar, which was hurting countries that held US dollars as an investment – part of the Bretton Woods agreement on commercial agreements between nations that had held since WWII. They were demanding to swap those dollars for gold, and the US simply didn’t have enough gold to cover the redemptions. West Germany had already had a gutsful and quit Bretton Woods and it was clear that others would follow, so Nixon simply cut this Gordian Knot and most currencies began to float freely against each other.
But Nixon had a backup: he negotiated a deal with the Saudi Arabians to basically back the US dollar with oil instead of gold. It would be more flexible but still provide a sense of stability. Even so, through the rest of the 1970’s the US dollar dropped in value against the basket of Western currencies by about one third.
The same thing is likely to happen again, and the drivers are also similar; US inflation and debt. But there’s more:
Oil being denominated in U.S. dollars alone has significance beyond the categories of oil and finance. By mandating that oil be sold in U.S. dollars (DXY), the agreement elevated the dollar’s status as the world’s reserve currency. This, in turn, has profoundly impacted the U.S. economy. The global demand for dollars to purchase oil has helped to keep the currency strong, making imports relatively cheap for American consumers. Additionally, the influx of foreign capital into U.S. Treasury bonds has supported low interest rates and a robust bond market.
So cutting this link almost certainly means that oil will be increasingly bought and sold in currencies other than the US dollar – something that the BRICS and China in particular have been pushing for in recent years and who will undoubtedly now increase those efforts.
In other words the US dollar has just lost a major prop as the global reserve currency. What will replace it? The ruble? (haha) The Saudi riyal? (haha) The renminbi? (Ummmm….). None of those bode well for the United States or, given their limitations, the global economy.
The effects of this are unknown at the moment. The US dollar still has some other props under it; a growing population, an industrial base, and vast amounts of natural resources including arable land. Therefore it will remain the global reserve currency for a while longer.
But the large and growing fiscal problems in the US Federal government – Social Security, Medicare/Medicaid, and Federal spending in general – increasingly propped up by debt growing at the rate of $1 trillion every hundred days, are going to force a reckoning sooner or later as they drive down the value of the dollar.
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See also
No Minister 
It is interesting that it has not garnered much interest. Most commentators in the main stream would not have the educational background to understand the ramifications.
When the US supplanted the UK after the end of WW1 the effect was gradual, and I guess the world adjusted over 10 -20 year period.
Around 80% of the worlds trade, like buying coffee or selling lamb, is conducted in US dollars because they are plentiful. Who wants to hold Argentinian pesos or Congolese Francs or shekels from some Middle eastern shithole.
Alternatives to the USD are not plentiful.
Russia is economically, politically, and militarily finished. As is China. Japan has a huge declining population, and deficits that would blow your socks off. The Euro is finished as Germany is finished as an economic power, and it looks like it may break up.
France, Poland and Ukraine are the comers, as is India. But as a world reserve currency in any of their currencies in the next 100 years would require a massive leap of faith
England had the greatest empire the world has ever seen, and its population is projected to reach 90-100 million by 2050 or beyond. But its low quality labour , and addiction to welfare ,has doomed it, and I cant see it resurrecting.
After Russia collapses, which is appearing more and more imminent then Pax Americana will reign supreme.
Russia may rebuild in 100 years if it doesn’t break up, but it will need population growth to achieve that, and who wants to live in that shithole.
The market will determine the result, and if the US forces a return to gold I suspect the rest of the sensible world will follow.
But the US has massive amount of oil in its own right, and will ultimately be powered by nuclear energy.
The Brics can try to defy reality but my bet is on the uS.
You would lose that bet. The USA is on the brink of collapse, with its out of control debt and illegal immigration. There is no evidence for Russia being about to collapse – its economy has grown since the foolish western sanctions.
Please note: your Russophobia and Putin derangement syndrome do not constitute evidence. As for Ukraine being one of the “comers” – your delusion is showing.
Super cool Harry. I didnt realise NM would attract a genuine Lada driving, Russia Today feed on his TV all day, fan.
Who do you think supplies the Lat, Long coordinates for the US supplied missiles that are currently ripping Russian infrastructure apart ? Father Christmas ? No its Pax Americana.
Also, for a free a quick geography lesson. The Baby Boom has peaked and is well into decline, hence world demand will also need to adjust.
However to supply stuff, and keep your economy growing, you need labour. Hence the Biden admin has kept most of the Trump policies going, which was to boost immigration to boost your birth rate. But of course being left wing idjits they took it too far…….Shortly to be changed.
The difference between European and US immigration is that the US immigrants want to live the US dream.
In Europe a 7th century civilization wants to dominate.
So Pax Americana it is!!
One interesting element of the Petrodollar deal that doesn’t get much attention was that it implicitly required the US to back the regimes of Saudi Arabia and the Gulf Monarchies.
The old American Republican hostility to royal power was quietly shelved, as was their enthusiasm for cultural and religious evangelism, at least in the countries that were part of the Petrodollar deal. America had no problems with regime change in Iraq, Libya or Venezuela.
Really good point Jake!
I think the US has realised Saudi is not a good bet, and its internal contradictions and economic policies will ultimately doom it
The US has plenty of its own oil , it has back up in Venezuela, stored underground, and neighboring countries to Venezuela.
These countries can be easily controlled and protected with American military might.
Russia also has vast supplies and I guess as part of any peace deal they will be paying reparations, in some form or another.
Not with that government in charge. One of their props has always been anti-Americanism and they’ve made good on that by strengthening their ties with Russia, China and Iran.
Sure, you could whack them with the US military but it’s not the Cold War any longer and if the US was going to do it they surely would have during the Bush and Trump presidencies.
Basically just not worth the candle; better to just unleashing fracking inside America.