Saudi Arabia abandons petrodollars, is the dollar doomed? Nonsense
Original Gu Yuan Gu Lao Ban
Saudi Arabia has decided not to renew its decades-old petrodollar agreement with the United States, which expired on June 9 this year, according to media reports.
The agreement, originally signed on June 8, 1974, is a key component of U.S. global economic influence. U.S. officials hope the deal will encourage Saudi Arabia to produce more oil and strengthen economic ties between the United States and Arab countries.
By choosing not to extend the deal, Saudi Arabia can now sell oil and other goods in different currencies, such as yuan, euros, yen, etc., rather than just the dollar.
I checked and found that this news was widely circulated in various less authoritative media around the world, and was also widely reprinted by domestic financial media and official media.
But this news is fake at first glance.
The reason is very simple. Saudi Arabia could have sold oil in different currencies a long time ago. Didn’t it accept part of the RMB a few years ago?
I checked a lot of foreign media, and some of their comments seemed to say that the international status of the US dollar is about to end because the "petrodollar" is no longer there.
This is complete bullshit, they don't understand the US dollar at all.
The book "Currency War" once turned the dollar issue into a conspiracy theory.
There are many different opinions on the world currency status of the US dollar, and it is even dominated by ideology:
for example:
The U.S. dollar can reap the world because the U.S. military is defending its international currency status;
The reason why the US dollar is strong is that it is a legal tender with a more prudent monetary policy, and it has defeated other legal tenders in the international legal tender. Although the US dollar is over-issued, it still has the best credit.
Americans have used the dollar system to defeat country after country around the world;
These arguments are actually specious and have led to a lot of misunderstandings.
Let me ask, if Saudi Arabia does not sell its oil mainly in US dollars, what does it sell it mainly in?
The US dollar is the world's currency, so of course we should mainly accept US dollars. This is not caused by some bullshit agreement, but is an inevitable choice for countries around the world, because the US dollar is the most powerful medium of exchange.
The real question is, where does the dollar's status come from?
The status of the US dollar does not come from competition between legal currencies of various countries, nor from the existence of global military power, nor from how good the credit of the US government is, nor from any oil-producing country tying oil to the US dollar.
The reason why the US dollar is the world currency is very simple: its status is inherited from gold.
Before the 1970s, the U.S. dollar was called the American dollar, and it was the ideal hard currency in the minds of people all over the world.
Because before the collapse of the Bretton Woods system, the US government promised that for every dollar issued, there would be a corresponding gold reserve. Major economies sent their gold reserves to the United States and pegged their currencies to the US dollar at a fixed exchange rate (indirectly pegged to gold).
Although in actual operations, the US dollar and other countries' currencies have been over-issued through the banking system, the peg between gold and the US dollar is the fundamental reason why the US dollar can become the world currency.
The establishment of this world currency status is not easy to change even after the US government announced the decoupling of the dollar from gold.
Some people may ask, why did the United States announce that the dollar was decoupled from gold, and why did the major Western governments not issue new gold currencies to replace the dollar? What are the benefits of making an unanchored fiat currency the world currency?
The reason is that power is an aphrodisiac. Once you drink it, you will want it again. When you encounter problems, the pleasure of being able to get an erection at any time is too good.
Currency issuance is a power. All governments have the power to issue legal tender. How can they easily give up this power? It is in the greater interest of the government to put gold as a currency into the cold palace and force people in all countries to use their own legal tender.
They can use currency to conduct macroeconomic control at any time, to give money to specific people, to buy people's hearts, and to expand the army and administrative agencies at will. There is no more convenient means of taxation than this.
Gold currency is very troublesome for the government because it is essentially a natural currency. It will limit the government's ability to issue banknotes, thereby greatly reducing the power of a government.
After enjoying the power of fiat currency control, which government would voluntarily give it up?
Since the U.S. dollar has inherited the world currency status of gold and all governments in the world have not restored the gold standard, this means that the U.S. dollar has no international competitors.
The competitor of the US dollar is not fiat currency, not the British pound, not the euro or the yen, but gold, or BTC in the future.
If the market is allowed to choose its own currency, people will abandon any legal tender, because no one will accept a currency that is depreciating every moment.
People would rather choose the silver standard, like the ancient island nations chose stones, like they chose cigarettes in prison, or even rice and liquor, rather than any legal currency that can be over-issued at will by any government.
After all, if he chooses something else, he will be limited by the properties of the goods, the difficulty of heavy metal mining, or the natural products that cannot be replicated naturally. However, legal tender is a currency that can have N zeros added to it at the command of a government.
There is no point in comparing which fiat currency has a higher depreciation rate. Because the competition between fiat currencies is just a competition of being worse. They will all become the object of scorn by everyone. Although countless ordinary people are not aware of the harm of excessive currency issuance, an old lady will know that if you save money (fiat currency), it will only become more and more worthless.
All legal tenders are unanchored currencies. Some people try to use government credit and debt as the anchor of currency, which is extremely ridiculous.
Anyone with a discerning eye can see that the world's major economic powers will never repay the domestic debts they issue. Countries like the United States will not repay their foreign debts.
If we compare Argentina with the United States, you will find that Argentina's currency problem is far less serious than that of the United States. After all, the U.S. federal government's national debt alone is 35 trillion U.S. dollars. Adding the debt of the states, it is close to 40 trillion U.S. dollars.
The government itself does not produce and does not create wealth, so where does its credibility come from? Will the US repay its 35 trillion US dollar national debt? The interest alone accounts for more than 20% of the federal fiscal revenue in a year. How can it be repaid?
But why is the US dollar still strong and still an important reserve currency in the hands of governments and the public?
Because there is no currency in the world that competes with the US dollar, governments only set legal tender for tax collection, which completely eliminated the monetary function of gold from the people. (The monetary function of international transactions still exists)
When there is no tiger in the mountain, the monkey becomes king.
In other words, the status of the US dollar is not supported by the credit of the US government, nor by the US military power. It is only because in a world with such deep globalization, people of different countries need a medium of transaction and currency. The US dollar has replaced gold, and governments of various countries have tacitly cooperated to cancel gold currency based on their own power considerations, making the US dollar the only dominant currency with no competitors.
So is it true that the US dollar has reaped the world's profits? It depends on how you understand it.
First, after the collapse of the Bretton Woods system, the United States formed a special economic development model. The largest export commodity of the United States is the US dollar, so the United States has maintained a trade deficit for more than 40 years.
The purchasing power of this part of the deficit is printed in US dollars, which is equivalent to exchanging paper for goods. However, international transactions require currency. The development of globalization requires countries to reserve currency for international payments, otherwise they will not be able to trade with the outside world.
Once a country runs out of foreign exchange reserves, it means that the region has lost its means of trading with the outside world.
But the problem is not just because of the US dollar itself, but also because most governments are unwilling to give up their ability to issue their own currencies. They collect the US dollar into their central banks and then use the US dollar as an anchor to issue their own currencies.
However, if a bad government encounters this amount of dollars collected by the central bank, it will be squandered, causing local people to lose dollars for transactions with the outside world. In particular, governments that have borrowed a large amount of foreign debt often use their dollar reserves to repay foreign debts.
For example, countries such as Argentina, Venezuela, Ethiopia, Sri Lanka and others have all experienced moments of national (central bank) bankruptcy. As long as this phenomenon occurs, the living standards of local people will drop sharply because they suddenly become isolated islands in the world.
This is Argentina’s problem.
After the dollar flowed out of the world, the United States used treasury bonds to attract dollars back to the United States. After all, if the foreign exchange reserves of various countries are just left alone, they will only wait for the fate of depreciation. Buying U.S. bonds can bring some returns and reduce some losses.
The action of purchasing U.S. debt is equivalent to investing the capital accumulation of various countries back into the United States. The United States can therefore maintain low interest rates. A low interest rate environment is conducive to capital expansion and the development of large enterprises and financial enterprises.
In the United States alone, the Protestant tradition has long been lost, the people's savings rate is extremely low, and the capitalist morality of thrift has long ceased to exist. Under such circumstances, interest rates should be very high, but because Americans, foreigners and the government buy U.S. debt, the United States can still maintain a low-interest environment suitable for capital expansion.
At this time, the United States and emerging developing countries (such as China) have formed a special economic cooperation model, that is, the United States must hollow out its manufacturing industry. If the manufacturing industry does not flow out, it will not be able to maintain a trade deficit for a long time and will not be able to export US dollars.
Emerging economies accept capital outflows from the United States and accept new technologies and equipment, so they can build domestic industries and solve labor employment problems. However, the price is that these products can only be sold to the United States in exchange for printed dollars, and in order to prevent depreciation, they have to purchase U.S. bonds.
This phenomenon is also driven by the social democratization of the United States, which artificially increases the income of the domestic labor force, forcing the manufacturing industry to move abroad in order to remain competitive.
Now manufacturing can no longer return to the United States. Even though the United States has implemented industrial policies to subsidize various manufacturing industries, the production efficiency of these manufacturing industries is no longer as good as that of emerging industrial countries.
The U.S. steel and automobile industries are far inferior to those of East Asian countries in terms of both return on capital and per capita output of labor.
Originally, this development model made Americans feel good. They could get a better standard of living with lower labor productivity, and they could also buy cheap industrial products from East Asia, which allowed them to maintain a high quality of life.
But this development model is unsustainable. In other words, the U.S. dollar cannot be over-issued indefinitely, and the U.S. debt cannot continue to pile up to more than one hundred trillion, otherwise the interest alone would eat up the U.S. government's fiscal revenue for the whole year.
Both Trump and Biden are talking about bringing industries back to the United States. After all, these industries were the ones that flowed out of the United States in the past. However, in the post-socialist America, Americans who are accustomed to low labor productivity and high income cannot accept lower incomes or increased labor intensity.
The trade war is therefore launched, that is, in order to protect the continued survival of domestic low-labor productivity enterprises, it is necessary to block international competition.
Otherwise, with the continuous over-issuance of US dollars, not only the manufacturing industry but also the high-tech industry will all flow out of the United States.
Even a right-wing politician like Trump, who is against welfare and social democracy, cannot reform any social democratic policy in the United States during his tenure.
In the view of Austrian scholars in the United States, the United States has become addicted to the drug of the dollar and it is not easy to quit. It is impossible to return to the environment of the Puritans who were frugal, hard-working and diligent.
Originally, East Asian countries were accustomed to this development model, accepting a large amount of foreign investment, developing their own industries, and then selling the products back to the United States. Even if they only received US dollars, it was much better than having no capital at all. But the trade war started, which began to block this development path.
Why do they still accept US dollars? Why do they still buy US bonds? Why do they still invest the money they earn (capital accumulation) back to the United States? This is why the BRICS countries are planning to reduce the proportion of US dollars in their foreign exchange reserves and try to create a world of currency multipolarity.
The recent confiscation of thousands of dollars of Russian reserves has further stimulated many countries. The US dollar reserves cannot be too large and must be diversified. What should we do if such a thing happens?
Because the central banks of these countries have begun to understand that foreign exchange reserves cannot be mainly in US dollars, but must be mainly in gold. The more developed non-US countries are, the more they care about this issue.
For example, the proportion of gold in Germany's foreign exchange reserves is 68%, and Italy's is 65%.
How much is China? After 18 consecutive months of appreciation of gold, China's gold reserves account for only 4% of its foreign exchange reserves, which was less than 2% before.
Saudi Arabia is actually doing the same thing, which is to increase its gold reserves.
However, both China and Saudi Arabia still have large amounts of US dollar reserves, and US dollar reserves still account for the largest proportion of foreign exchange reserves, because it is still the world's currency. Without it, it would be difficult to complete huge transactions. At the same time, a large amount of US dollars is still used to purchase US bonds.
Finally, let’s talk about whether the US dollar will collapse?
As far as the US dollar system is concerned, the bigger the deficit, the better, which means more US dollar exports. The more US dollars countries have in their hands, the more stable the US dollar's position will be, and the more conducive it will be to the long-term existence of the US dollar system.
But this is a paradox. If you want to have industrial development, you cannot export currency. But as long as there is no trade deficit, the Fed's ability and scale to issue currency will be immediately restricted. If you want to export currency, you have to accept the hollowing out of the industry and maintain a long-term trade deficit.
The United States has been exporting currency for decades. If it continues for another few decades, it will be finished. All industries will run away. As long as a few major countries in the world refuse to use the US dollar, the US dollar will collapse. What should we do? This drug-addictive mechanism cannot be sustained in the long run.
However, American politicians do not consider these issues, otherwise how could the debt reach the level of 35 trillion.
If this trend continues, the US dollar will collapse. This prediction is correct. But it is still early.
What could replace it? The euro? The pound? Of course not.
There are only two things that can replace the US dollar, one is gold and the other is BTC.
This is not surprising. It has only been about 50 years since the US dollar replaced gold. The fact that an unanchored fiat currency can become a world currency and turn export currency into a business is already a miracle in economic history and may not even be repeated.
If the US government can control the scale of issuing banknotes and bonds, it may be able to play for a long time, but at the speed of debt accumulation, it is unknown how long this game can last, at least a dozen or twenty years, and at most thirty to fifty years.
In short, the fact that the US dollar, as a legal tender, has become the world currency is abnormal in itself. A normal world currency should be an honest currency that is not manipulated by any government. #美元
