The Rise of the Petroyuan and the Slow Erosion of Dollar Hegemony
For seventy years, one of the critical foundations of American power has been the dollar’s standing as the world’s most important currency. For the last forty years, a pillar of dollar primacy has been the greenback’s dominant role in international energy markets. Today, China is leveraging its rise as an economic power, and as the most important incremental market for hydrocarbon exporters in the Persian Gulf and the former Soviet Union to circumscribe dollar dominance in global energy—with potentially profound ramifications for America’s strategic position.
Since World War II, America’s geopolitical supremacy has rested not only on military might, but also on the dollar’s standing as the world’s leading transactional and reserve currency. Economically, dollar primacy extracts “seignorage”—the difference between the cost of printing money and its value—from other countries, and minimises U.S. firms’ exchange rate risk. Its real importance, though, is strategic: dollar primacy lets America cover its chronic current account and fiscal deficits by issuing more of its own currency – precisely how Washington has funded its hard power projection for over half a century.
Editor's Note: This article is a must read. There is no question that you want to be internationalized before the dollar loses its place as the world's premier currency, which seems to be getting closer and closer. It is very possible that one day soon, Americans will wake up to a new reality, just as they did on August 15, 1971. For more, see this additional article: Timing the Collapse: Ron Paul Says Watch the Petrodollar.
I also asked international finance expert Jim Rickards for his thoughts on this article. Here is what he said: “This blurs the distinction between a trade currency and a reserve currency. China's yuan is making inroads as a trade currency but you cannot be a reserve currency until you have liquid investible assets. China does not have a mature bond market and won't for decades, so the yuan cannot be a reserve currency for this reason.”