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Alternative Market Briefing

The Big Picture: Multiple geopolitical and economic factors could challenge petrodollar's supremacy

Friday, September 09, 2022

B. G., Opalesque Geneva:

The petrodollar era may be ending at last - as many economists have been predicting this year. And if that were the case, it would have multiple implications around the world.

In a recent report inspired by an article in Modern Diplomacy in May, Charles-Henry Monchau, CIO at Syz, a private banking group in Geneva, observes that the Biden administration and Saudi Arabia are not seeing eye to eye these days. Biden paid a visit to Crown Prince Mohammed bin Salman in July and left under the impression the kingdom would increase its oil supply. The opposite happened. This disagreement may be a sign of the end of the petrodollar system, and that would mean "a paradigm shift with major implications for the financial system and world order."

Advantages of the petrodollar system

The petrodollar system, which started in the 1970s with an agreement between the US and Saudi Arabia, the world's largest crude exporter and the leader of OPEC, consists in using the US dollar as a currency to buy crude oil. This was a shift from the gold standard.

In other words, petrodollars are crude oil export revenues denominated in the US dollar.

The exporter would sell oil using the dollar as a single currency, reinvest its excess dollar reserve in US Treasuries and companies, and enjoy in exchange a security guarantee from the US. This system was later......................

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