Up until now, the only holding power the US had was the control of oil but as tension worsen. The recent news about Saudi Arabia’s shift away from the US dollar is causing the US to panic.
It’s a calamity waiting to come.
This decision has been widely discussed in financial circles, as it represents a significant shift in the global economic landscape. This event, however, is not new. If you have read the book called The Changing World Order written by Ray Dalio. You will understand the rise of China to be inevitable. So what is to come?
If you would like to understand more about Ray Dalio’s perspective. Here is the summarized version you can watch on Youtube.
If you would like to read more about what goes into it. Be sure to check on the book link below!
Understanding De-Dollarization
To better understand Saudi Arabia’s move away from the US dollar. It’s important to understand de-dollarization. Which is when countries reduce their use of the US dollar in their international financial activities. This trend has been gaining momentum in recent years, particularly since the global financial crisis of 2008.
Rise of digital assets
We have seen the prominent effect of cryptocurrency and its means to ditch away from the dollar. The value of Bitcoin is an inverse relationship it has with the dollar. As the dollar weakens, more people understand the importance of having decentralized assets.
Developing Nations are Worried
The US has imposed sanctions on Iran, Russia, and Venezuela in recent years. This caused significant economic damage to these countries and other countries are taking notice of the danger and action. The BRICS are collaborating to prevent the dollar from rising again.
Countries like Malaysia, Nigeria, and Brazil are some of the developing nations that have decided to move away from the dollar just recently. If you would like the full breakdown, check out the article below!
The Impact of China’s Currency on the Global Economy
Another important factor driving de-dollarization is the rise of China’s currency, the renminbi (RMB). China has been working to internationalize the RMB in recent years. In order to make it a major reserve currency alongside the US dollar, euro, and Japanese yen.
China’s efforts to internationalize the RMB have been successful to some extent. The RMB is now included in the International Monetary Fund’s (IMF) basket of currencies that make up the Special Drawing Right (SDR), which is used as a reserve asset by central banks. In addition, China has signed currency swap agreements with many other countries, which allows them to conduct trade in RMB rather than US dollars.
If the RMB were to become a major reserve currency, it would have several implications for the global economy. First, it would reduce the dominance of the US dollar, which would reduce the US’s economic and political power. Second, it would increase China’s economic and political power, as other countries would need to hold RMB to conduct international trade.
The Reasons Behind Saudi Arabia’s Shift from the Dollar
So why is Saudi Arabia shifting away from the US dollar? There are several factors at play. First, as we discussed earlier, de-dollarization is a global trend, and Saudi Arabia is simply following this trend.
By reducing its reliance on the US dollar, Saudi Arabia can reduce its vulnerability to US sanctions and increase its economic and political independence.
Second, Saudi Arabia’s financial relationship with China is growing, and it makes sense for Saudi Arabia to conduct more of its international trade in Chinese yuan rather than US dollars. This can help to deepen the economic ties between the two countries and reduce the transaction costs associated with currency exchange.
Finally, Saudi Arabia is facing economic challenges of its own. The country is heavily dependent on oil exports, and the decline in oil prices in recent years has put pressure on its economy. By diversifying its financial relationships and reducing its reliance on the US dollar, Saudi Arabia can better weather these economic challenges.
The Potential Consequences for the US
So what are the potential consequences of Saudi Arabia’s shift away from the US dollar? First and foremost, it could undermine the US’s position as the world’s dominant reserve currency. If other countries follow Saudi Arabia’s lead and reduce their reliance on the US dollar, this could reduce the demand for US dollars and weaken the US’s economic and political power.
In addition, Saudi Arabia’s shift towards China could have geopolitical implications. China is already a major global power, and its growing economic influence could challenge the US’s dominance in the Middle East and other regions. This could have implications for US foreign policy and military strategy.
Finally, the decline in demand for US dollars could lead to inflation in the US. If other countries reduce their holdings of US dollars, this could lead to a decrease in demand for US treasuries, which could in turn lead to higher interest rates and inflation.
The Future of the US Dollar as a Global Reserve Currency
Given these potential consequences, it’s worth asking whether the US dollar will remain the world’s dominant reserve currency in the long term. While it’s impossible to predict the future with certainty, several factors could undermine the US dollar’s position.
First, the rise of China’s currency is a significant challenge to the US dollar. If China continues to internationalize the RMB and other countries follow Saudi Arabia’s lead and reduce their reliance on the US dollar, this could lead to a shift in the global economic order.
Second, the US’s economic and political power is not what it once was. The country faces significant challenges, both domestically and internationally, and its ability to influence global economic trends may be waning.
Finally, other potential reserve currencies are waiting in the wings. The euro and the Japanese yen are already major reserve currencies, and other currencies, such as the Indian rupee and the Brazilian real, could become more important in the future.
China’s Role in the Changing Global Economic Landscape
Regardless of the future of the US dollar, it’s clear that China will play an increasingly important role in the global economic landscape. The country is already the world’s second-largest economy, and its influence is growing rapidly.
China’s rise has significant implications for businesses and investors. Companies that can capitalize on China’s growth and deepen their ties with the country could be well-positioned for success in the future. Investors also need to pay attention to China’s increasing influence, as it could have significant implications for global financial markets.
What This Means for Businesses and Investors
So what should businesses and investors do in light of these trends? First and foremost, they need to be aware of the changing global economic landscape and the potential implications for their businesses and investments. This means staying informed about trends in de-dollarization, the rise of China’s currency, and other global economic developments.
Second, businesses and investors need to be flexible and adaptable. As the global economic order changes, they need to be able to adjust their strategies and investments accordingly. This means being open to new markets, new investment opportunities, and new ways of doing business.
Finally, businesses and investors need to be prepared for volatility. As the global economic order shifts, there will be winners and losers, and markets may experience significant fluctuations. Businesses and investors that can weather these fluctuations and stay focused on their long-term goals will be best positioned for success.
Conclusion and Takeaways
In conclusion, Saudi Arabia’s shift away from the US dollar is a warning sign for the US in the age of China’s currency. De-dollarization is a global trend that is driven by a variety of factors, including the rise of China’s currency and the desire for economic and political independence. While it’s impossible to predict the future with certainty, it’s clear that the global economic landscape is changing, and businesses and investors need to be prepared for these changes.
To stay ahead of the curve, businesses and investors need to stay informed, be flexible, and be prepared for volatility. Those that can navigate these changes successfully will be well-positioned for success in the future.
