The End of The (Monetary) World as We Know It
The comments below are an edited and abridged synopsis of an article by Christoph Grizzard
Along with countries like Brazil and South Africa, Russia and China are seeking to sidestep the US dollar wherever possible.
In addition, Russia and China have been stockpiling gold, and the yuan has gained a place in the IMF’s SDR basket, alongside the dollar, the yen, the euro and the pound.
America is no longer the world’s largest importer of oil, China is. And Saudi Arabia is no longer the world’s largest producer of oil, Russia is.
China recently launched the Shanghai Crude Futures Contract, a way for the world to buy and sell oil without using the dollar. The contract will be settled in yuan—or with gold.
Now disgruntled countries can buy oil without first buying dollars, and do so with a widely traded mainstream instrument, settled in the currency of the world’s 2nd-largest economy.
All the money diverted to this new system equates to an equal amount of money not buying dollars. A decrease in demand equals downward pressure on the price of the dollar.
Increased demand for yuan and/or gold will put upward price pressure on the currency and is incredibly bullish for the metal.
If enough countries follow China’s lead, the petrodollar monetary system the US has enjoyed for 40+ years could dissolve overnight, and the dollar could lose its world reserve currency status.
Three days after launching the contract, the Chinese announced that they will begin to buy all their oil with yuan, instead of the dollar, as early as this year.
The same week the petroyuan was introduced, Trump released a flood of tariffs on Chinese exports, the first in a series of retaliatory efforts, setting the stage for an all-out trade war between the world’s two largest economies.
As an investor, you can protect yourself. If your portfolio is entirely composed of instruments denominated in US dollars, now might be a good time to rethink the mix.
What’s bad for the dollar could bode well for precious metals, which is why keeping at least 10% of your portfolio in physical bullion is a precaution worth taking.