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Sputnik Special Financial Analysis: Ruble, What Are You Doing? Please Stop!

Russia | 20:08 16.12.2014
(updated 22:18 16.12.2014)

Sputnik’s Financial and Executive Editors discuss the turbulance Russia’s ruble is going throught in the wake of the ongoing devaluation of the national currency.

December 16 (Sputnik) – The Russian ruble nosedived to a historic low on Tuesday afternoon trading at 80 rubles to the dollar and 100 to the euro, losing 20 to 26 percent in the course of just one day on Moscow’s trading.

Minister of Economic Development Alexei Ulyukayev
© Sputnik/ Dmitry Astakhov

Russia Outlines Measures to Stabilize National Currency: Minister

While the currency rates are creating utter panic on the market, Sputnik’s Financial and Executive Editors sat down to discuss the causes of this fiscal whirlpool – and give you a simple and readable digest of what is happening with the ruble.

Executive Editor: Russia’s Central Bank hiked the main deposit rate from 10.5 to 17 percent overnight to save the falling ruble. I know this has been done before in countries like Turkey. To me this looks like Baron Munchausen’s attempt to pull himself out of the swamp by his own braid. This obviously caused more harm than good, because now it’s nearly 100 rubles to 1 euro.

Financial Editor: It looks like there has been a massive currency exchange this morning. People are trading rubles for dollars and euros. Raising the deposit rate by 650 points is not going to stop the ruble from falling. In all truth, the rate has to be brought up to 100%.

Executive Editor: How is that going to save us? If the main borrowing rate is 100%, the banks will not be able to borrow money!

Financial Editor: Yes. It’s either that, or the ruble continues falling. Which is better? There are too many rubles on the market at the moment, 30 trillion to be precise. If the Central Bank raises the main interest rate to 100%, smaller banks will be forced to close, but that will lead to a healthier balance of the ruble and the dollar.

Executive Editor: How?

Financial Editor: A high interest rate will make the ruble grow. We had too many rubles on the market, and their overall amount grew from 15 to 30 trillion in just 5 years. We should have witnessed the ruble plummet much earlier, but all those dollar loans held it in place. Now there are no dollars – and the ruble is sliding down.

Executive Editor: If the main deposit rate is 100%, the banks will have nowhere to go for money, and loans in rubles will not just become more expensive – they will become extinct. People will stop borrowing money.

Financial Editor: And that is amazing!! There cannot be any loans during a financial crisis.

Executive Editor: We’re not growing the ruble by doing that; we are freezing it, creating an Ice Age.

Financial Editor: True, but not for long. We will only need 40 days of a hyper-high main deposit rate to get rid of all the extra ruble liquidity. 15% of loans in Russia are bad loans. That is bad for the ruble rate, too. Last, but not least, the Central Bank gave a 600 billion-ruble-loan to Rosneft last week, and Rosneft has dollar debts. If Rosneft were to buy dollars, for example, the ruble would be on its way to outer Space.

Executive Editor: When you say ‘get rid of the extra ruble liquidity’, will that make the ruble even cheaper?

Financial Editor: The other way around. But first banks need to stop giving out loans in rubles. The fewer rubles there are on the market, the better.

Executive Editor: It’s not all about loans though! People are panicking and buying dollars and euros, getting rid of their rubles. That is making the ruble cheaper.

Financial Editor: It could be worse. In 1998 the ruble fell from 6 to 30 rubles per dollar, which is 5 times cheaper than what it was before. So today there’s still room for it to fall to 150 rubles per dollar.

Executive Editor: I still don’t understand how freezing all loans can save the ruble. Imagine people are left with hard cash. The smaller banks are shut down. People are growing poorer and poorer. What will happen to those bad loans?

Financial Editor: Banks used to forgive bad loans. Now, if banks know that they will not be getting any more rubles from the Central Bank, they will demand returns, confiscate property etc. That way, all those rubles will go straight back to the Central Bank. This will stop the ruble from falling further. I mean… people can live without a loan for a new iPhone; they will lose much-much more if the ruble falls further.

Executive Editor: How will that help save the ruble?

Financial Editor: If the bulk of rubles comes back to the Central Bank and the Central Bank will stop feeding them back to the economy (which is important), there will be fewer rubles out there. If there are fewer rubles – the ruble grows. If there is a scarcity of something, it is always more expensive.

Executive Editor: That will once again take away from the common folk; Moreover, covering up problems like that using your own resources is just not right. It’s like cutting your leg off and eating it when you’re starving. It will solve one problem temporarily, but will create an even greater problem in the long term.

Financial Editor: There you go. That’s why the main borrowing rate is 17%, not 100% and the ruble is sliding further.

Executive Editor: The future is grim – I see people painfully returning bad loans, small banks slowly dying, and big companies are being bailed out. This 100% borrowing rate will only make the process go faster. What you’re suggesting is a financial nuclear winter. A shock therapy for the Russian economy.

Financial Editor: If what we need right now is to hold down the ruble – this is the only way possible. When the Central Bank printed those 30 trillion rubles, no one thought the dollar would be disappearing from our economy, and there it goes. What should we do now? Russia has $700 billion in debts, while our dollar income fell because of the falling oil prices. The question is – how far can it fall if we don’t start withdrawing money from the economy.

Executive Editor: The prices will rise if you withdraw money from the economy!

Financial Editor: Yes, that’s another problem. The less money, the more expensive the goods and services are. But it’s not that simple. A fiscal deficit holds the inflation down, because consumers prefer not to spend money. That’s what’s happening in Europe and Japan right now – everything is so expensive that the consumer doesn’t want to buy anything. Russian imports, on the other hand, have grown because of the falling ruble.

Executive Editor: Yes, people are buying cars and TVs like crazy. But, I will repeat this once again, if we are trying to save the economy by raising the main deposit rate to 100%, we are hurting the common folk, they run out of money, they stop investing, stop buying, prices plummet, businesses and entrepreneurs suffer.

Financial Editor: Yes, that’s the plan!

Executive Editor: There should be a different way. Can the Central Bank raise the deposit rate to 100%, wait for the money to come back and then spend it on subsidizing small and medium-size enterprises? Is import substitution even an option? How long will that take?

Financial Editor: Yes, if you do it carefully, if it’s controlled, if there is no way these investments can become liquid assets. If they do, this will weaken the ruble. Massive government investments often weaken local currencies. Import substitution is a long process that depends on the economy. Developing new branches can take up to 5 years, because you need trained personnel, new product markets etc.

Executive Editor: If the Central Bank can help grow enterprises, wouldn’t that beef up the economy and strengthen the ruble?

Financial Editor: Of course! The growth of the industrial sector does not directly depend on currency rates. If we invest in its growth, the economy will become healthier, this will reassure investors and the ruble will grow. This is a great long-term strategy. But for now we are a resource-based economy with 70% of it state-owned, so the Central Bank will be bailing out state-owned companies.

Executive Editor: That’s why we got hit so hard by falling oil prices? What’s happing to the oil prices?

Financial Editor: The oil prices are falling because Saudi Arabia wants to stop the US from entering the oil market. They’ve done it before in 1986, now they want to do it again.

Executive Editor: So the Saudis are dumping oil prices to prevent the US from entering the oil market? How should we know it’s not a joint measure against Russia?

Financial Editor: That is also possible, but US oil is a threat to Saudi oil, because it’s hard to predict what could happen on the market after America enters it. Russia is not a dangerous competitor because it’s predictable. And it’s not even about that! There are economies much more reliant on natural resources: like Nigeria or Algeria, but they weren’t hit as hard by the oil prices. It’s the dollar deficit in Russia that’s causing this ruble crisis. It’s because large state-owned enterprises have huge dollar debts.

Executive Editor: There is no short-term solution for this.

Financial Editor: These is another way out: the sanctions are lifted on both sides, Russia is flooded with dollar loans, the ruble grows to 30, not 60 rubles per dollar, the economy is stable and healthy and pigs will fly.

Executive Editor: So what do people do now? Panic and freak out? Take money out of the banks? Spend the money? Cancel their holidays in Europe?

Financial Editor: Too late. All these options are bad. Many private entrepreneurs are setting prices in dollars and euros. If the deposit rate remains high, it may be a good idea to deposit your rubles in a major bank, but with all this panic on the market – none of this matters. Judging by what’s happening on the stock exchange, everybody is waiting for 1998 to repeat. With the dollar over 75 and the euro over 90 – this is utter panic.

Executive Editor: What are people supposed to do with their money now? Can they save it by depositing? A little bit?

Financial Editor: It depends on what the Central Bank does next. As of today, there is no way to save your money. If the government manages to stabilize the ruble, then depositing is a good idea. The Central Bank must limit the liquidity of the ruble as soon as possible. This is the only option. All other measures can wait.

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The Demise of the Petrodollar


by Marin Katusa



Rumors are swirling that India and Iran are at the negotiating table right now, hammering out a deal to trade oil for gold. Why does that matter, you ask? Only because it strikes at the heart of both the value of the US dollar and today’s high-tension standoff with Iran.

Tehran Pushes to Ditch the US Dollar

The official line from the United States and the European Union is that Tehran must be punished for continuing its efforts to develop a nuclear weapon. The punishment: sanctions on Iran’s oil exports, which are meant to isolate Iran and depress the value of its currency to such a point that the country crumbles.

But that line doesn’t make sense, and the sanctions will not achieve their goals. Iran is far from isolated and its friends – like India – will stand by the oil-producing nation until the US either backs down or acknowledges the real matter at hand. That matter is the American dollar and its role as the global reserve currency.

The short version of the story is that a 1970s deal cemented the US dollar as the only currency to buy and sell crude oil, and from that monopoly on the all-important oil trade the US dollar slowly but surely became the reserve currency for global trades in most commodities and goods. Massive demand for US dollars ensued, pushing the dollar’s value up, up, and away. In addition, countries stored their excess US dollars savings in US Treasuries, giving the US government a vast pool of credit from which to draw.

We know where that situation led – to a US government suffocating in debt while its citizens face stubbornly high unemployment (due in part to the high value of the dollar); a failed real estate market; record personal-debt burdens; a bloated banking system; and a teetering economy. That is not the picture of a world superpower worthy of the privileges gained from having its currency back global trade. Other countries are starting to see that and are slowly but surely moving away from US dollars in their transactions, starting with oil.

If the US dollar loses its position as the global reserve currency, the consequences for America are dire. A major portion of the dollar’s valuation stems from its lock on the oil industry – if that monopoly fades, so too will the value of the dollar. Such a major transition in global fiat currency relationships will bode well for some currencies and not so well for others, and the outcomes will be challenging to predict. But there is one outcome that we foresee with certainty: Gold will rise. Uncertainty around paper money always bodes well for gold, and these are uncertain days indeed.

The Petrodollar System

To explain this situation properly, we have to start in 1973. That’s when President Nixon asked King Faisal of Saudi Arabia to accept only US dollars as payment for oil and to invest any excess profits in US Treasury bonds, notes, and bills. In exchange, Nixon pledged to protect Saudi Arabian oil fields from the Soviet Union and other interested nations, such as Iran and Iraq. It was the start of something great for the US, even if the outcome was as artificial as the US real-estate bubble and yet constitutes the foundation for the valuation of the US dollar.

By 1975 all of the members of OPEC agreed to sell their oil only in US dollars. Every oil-importing nation in the world started saving their surplus in US dollars so as to be able to buy oil; with such high demand for dollars the currency strengthened. On top of that, many oil-exporting nations like Saudi Arabia spent their US dollar surpluses on Treasury securities, providing a new, deep pool of lenders to support US government spending.

The “petrodollar” system was a brilliant political and economic move. It forced the world’s oil money to flow through the US Federal Reserve, creating ever-growing international demand for both US dollars and US debt, while essentially letting the US pretty much own the world’s oil for free, since oil’s value is denominated in a currency that America controls and prints. The petrodollar system spread beyond oil: the majority of international trade is done in US dollars. That means that from Russia to China, Brazil to South Korea, every country aims to maximize the US-dollar surplus garnered from its export trade to buy oil.

The US has reaped many rewards. As oil usage increased in the 1980s, demand for the US dollar rose with it, lifting the US economy to new heights. But even without economic success at home the US dollar would have soared, because the petrodollar system created consistent international demand for US dollars, which in turn gained in value. A strong US dollar allowed Americans to buy imported goods at a massive discount – the petrodollar system essentially creating a subsidy for US consumers at the expense of the rest of the world. Here, finally, the US hit on a downside: The availability of cheap imports hit the US manufacturing industry hard, and the disappearance of manufacturing jobs remains one of the biggest challenges in resurrecting the US economy today.

There is another downside, a potential threat now lurking in the shadows. The value of the US dollar is determined in large part by the fact that oil is sold in US dollars. If that trade shifts to a different currency, countries around the world won’t need all their US money. The resulting sell-off of US dollars would weaken the currency dramatically.

So here’s an interesting thought experiment. Everybody says the US goes to war to protect its oil supplies, but doesn’t it really go to war to ensure the continuation of the petrodollar system?

The Iraq war provides a good example. Until November 2000, no OPEC country had dared to violate the US dollar-pricing rule, and while the US dollar remained the strongest currency in the world there was also little reason to challenge the system. But in late 2000, France and a few other EU members convinced Saddam Hussein to defy the petrodollar process and sell Iraq’s oil for food in euros, not dollars. In the time between then and the March 2003 American invasion of Iraq, several other nations hinted at their interest in non-US dollar oil trading, including Russia, Iran, Indonesia, and even Venezuela. In April 2002, Iranian OPEC representative Javad Yarjani was invited to Spain by the EU to deliver a detailed analysis of how OPEC might at some point sell its oil to the EU for euros, not dollars.

This movement, founded in Iraq, was starting to threaten the dominance of the US dollar as the global reserve currency and petro currency. In March 2003, the US invaded Iraq, ending the oil-for-food program and its euro payment program.

There are many other historic examples of the US stepping in to halt a movement away from the petrodollar system, often in covert ways. In February 2011 Dominique Strauss-Kahn, managing director of the International Monetary Fund (IMF), called for a new world currency to challenge the dominance of the US dollar. Three months later a maid at the Sofitel New York Hotel alleged that Strauss-Kahn sexually assaulted her. Strauss-Kahn was forced out of his role at the IMF within weeks; he has since been cleared of any wrongdoing.

War and insidious interventions of this sort may be costly, but the costs of not protecting the petrodollar system would be far higher. If euros, yen, renminbi, rubles, or for that matter straight gold, were generally accepted for oil, the US dollar would quickly become irrelevant, rendering the currency almost worthless. As the rest of the world realizes that there are other options besides the US dollar for global transactions, the US is facing a very significant – and very messy – transition in the global oil machine.

The Iranian Dilemma

Iran may be isolated from the United States and Western Europe, but Tehran still has some pretty staunch allies. Iran and Venezuela are advancing $4 billion worth of joint projects, including a bank. India has pledged to continue buying Iranian oil because Tehran has been a great business partner for New Delhi, which struggles to make its payments. Greece opposed the EU sanctions because Iran was one of very few suppliers that had been letting the bankrupt Greeks buy oil on credit. South Korea and Japan are pleading for exemptions from the coming embargoes because they rely on Iranian oil. Economic ties between Russia and Iran are getting stronger every year.

Then there’s China. Iran’s energy resources are a matter of national security for China, as Iran already supplies no less than 15% of China’s oil and natural gas. That makes Iran more important to China than Saudi Arabia is to the United States. Don’t expect China to heed the US and EU sanctions much – China will find a way around the sanctions in order to protect two-way trade between the nations, which currently stands at $30 billion and is expected to hit $50 billion in 2015. In fact, China will probably gain from the US and EU sanctions on Iran, as it will be able to buy oil and gas from Iran at depressed prices.

So Iran will continue to have friends, and those friends will continue to buy its oil. More importantly, you can bet they won’t be paying for that oil with US dollars. Rumors are swirling that India and Iran are at the negotiating table right now, hammering out a deal to trade oil for gold, supported by a few rupees and some yen. Iran is already dumping the dollar in its trade with Russia in favor of rials and rubles. India is already using the yuan with China; China and Russia have been trading in rubles and yuan for more than a year; Japan and China are moving towards transactions in yen and yuan.

And all those energy trades between Iran and China? That will be settled in gold, yuan, and rial. With the Europeans out of the mix, in short order none of Iran’s 2.4 million barrels of oil a day will be traded in petrodollars.

With all this knowledge in hand, it starts to seem pretty reasonable that the real reason tensions are mounting in the Persian Gulf is because the United States is desperate to torpedo this movement away from petrodollars. The shift is being spearheaded by Iran and backed by India, China, and Russia. That is undoubtedly enough to make Washington anxious enough to seek out an excuse to topple the regime in Iran.

Speaking of that search for an excuse, this is interesting. A team of International Atomic Energy Agency (IAEA) inspectors just visited Iran. The IAEA is supervising all things nuclear in Iran, and it was an IAEA report in November warning that the country was progressing in its ability to make weapons that sparked this latest round of international condemnation against the supposedly near-nuclear state. But after their latest visit, the IAEA’s inspectors reported no signs of bomb making. Oh, and if keeping the world safe from rogue states with nuclear capabilities were the sole motive, why have North Korea and Pakistan been given a pass?

There is another consideration to keep in mind, one that is very important when it comes to making some investment decisions based on this situation: Russia, India, and China – three members of the rising economic powerhouse group known as the BRICs (which also includes Brazil) – are allied with Iran and are major gold producers. If petrodollars go out of vogue and trading in other currencies gets too complicated, they will tap their gold storehouses to keep the crude flowing. Gold always has and always will be the fallback currency and, as mentioned before, when currency relationships start to change and valuations become hard to predict, trading in gold is a tried and true failsafe.

2012 might end up being most famous as the year in which the world defected from the US dollar as the global currency of choice. Imagine the rest of the world doing the math and, little by little, beginning to do business in their own currencies and investing ever less of their surpluses in US Treasuries. It constitutes nothing less than a slow but sure decimation of the dollar.

That may not be a bad thing for the United States. The country’s gargantuan debts can never be repaid as long as the dollar maintains anything close to its current valuation. Given the state of the country, all that’s really left supporting the value in the dollar is its global reserve currency status. If that goes and the dollar slides, maybe the US will be able to repay its debts and start fresh. That new start would come without the privileges and ingrained subsidies to which Americans are so accustomed, but it’s amazing that the petrodollar system has lasted this long. It was only a matter of time before something would break it down.

Finally, the big question: How can one profit from this evolving situation? Playing with currencies is always very risky and, with the global game set to shift to significantly, it would require a lot of analysis and a fair bit of luck. The much more reliable way to play the game is through gold. Gold is the only currency backed by a physical commodity; and it is always where investors hide from a currency storm.

The basic conclusion is that a slow demise of the petrodollar system is bullish for gold and very bearish for the US dollar. As for any more specific suggestions on how to profit, check out our newsletters.


Smart investors realize oil, like gold, is destined to rise dramatically and that investing in the right energy companies now will be like getting into the yellow metal 10 years ago.

January 26, 2012

Marin Katusa is Chief Energy Investment Strategist for Casey Research.

Copyright © 2012 Casey and Associates

Saudi Arabia And China Team Up To Build A Gigantic New Oil Refinery – Is This The Beginning Of The End For The Petrodollar?

The largest oil exporter in the Middle East has teamed up with the second largest consumer of oil in the world (China) to build a gigantic new oil refinery and the mainstream media in the United States has barely even noticed it.  This mammoth new refinery is scheduled to be fully operational in the Red Sea port city of Yanbu by 2014.  Over the past several years, China has sought to aggressively expand trade with Saudi Arabia, and China now actually imports more oil from Saudi Arabia than the United States does.  In February, China imported 1.39 million barrels of oil per day from Saudi Arabia.  That was 39 percent higher than last February.  So why is this important?  Well, back in 1973 the United States and Saudi Arabia agreed that all oil sold by Saudi Arabia would be denominated in U.S. dollars.  This petrodollar system was adopted by almost the entire world and it has had great benefits for the U.S. economy.  But if China becomes Saudi Arabia’s most important trading partner, then why should Saudi Arabia continue to only sell oil in U.S. dollars?  And if the petrodollar system collapses, what is that going to mean for the U.S. economy?

Those are very important questions, and they will be addressed later on in this article.  First of all, let’s take a closer look at the agreement reached between Saudi Arabia and China recently.

The following is how the deal was described in a recent China Daily article….

In what Riyadh calls “the largest expansion by any oil company in the world”, Sinopec’s deal on Saturday with Saudi oil giant Aramco will allow a major oil refinery to become operational in the Red Sea port of Yanbu by 2014.

The $8.5 billion joint venture, which covers an area of about 5.2 million square meters, is already under construction. It will process 400,000 barrels of heavy crude oil per day. Aramco will hold a 62.5 percent stake in the plant while Sinopec will own the remaining 37.5 percent.

At a time when the U.S. is actually losing refining capacity, this is a stunning development.

Yet the U.S. press has been largely silent about this.

Very curious.

But China is not just doing deals with Saudi Arabia.  China has also been striking deals with several other important oil producing nations.  The following comes from a recent article by Gregg Laskoski….

China’s investment in oil infrastructure and refining capacity is unparalleled. And more importantly, it executes a consistent strategy of developing world-class refining facilities in partnership with OPEC suppliers. Such relationships mean economic leverage that could soon subordinate U.S. relations with the same countries.

Egypt is building its largest refinery ever with investment from China.

Shortly after the partnership with Egypt was announced, China signed a $23 billion agreement with Nigeria to construct three gasoline refineries and a fuel complex in Nigeria.

Essentially, China is running circles around the United States when it comes to locking up strategic oil supplies worldwide.

And all of these developments could have tremendous implications for the future of the petrodollar system.

If you are not familiar with the petrodollar system, it really is not that complicated.  Basically, almost all of the oil in the world is traded in U.S. dollars.  The origin of the petrodollar system was detailed in a recent article by Jerry Robinson….

In 1973, a deal was struck between Saudi Arabia and the United States in which every barrel of oil purchased from the Saudis would be denominated in U.S. dollars. Under this new arrangement, any country that sought to purchase oil from Saudi Arabia would be required to first exchange their own national currency for U.S. dollars. In exchange for Saudi Arabia’s willingness to denominate their oil sales exclusively in U.S. dollars, the United States offered weapons and protection of their oil fields from neighboring nations, including Israel.

By 1975, all of the OPEC nations had agreed to price their own oil supplies exclusively in U.S. dollars in exchange for weapons and military protection. 

This petrodollar system, or more simply known as an “oil for dollars” system, created an immediate artificial demand for U.S. dollars around the globe. And of course, as global oil demand increased, so did the demand for U.S. dollars.

Once you understand the petrodollar system, it becomes much easier to understand why our politicians treat Saudi leaders with kid gloves.  The U.S. government does not want to see anything happen that would jeopardize the status quo.

A recent article by Marin Katusa described some more of the benefits that the petrodollar system has had for the U.S. economy….

The “petrodollar” system was a brilliant political and economic move. It forced the world’s oil money to flow through the US Federal Reserve, creating ever-growing international demand for both US dollars and US debt, while essentially letting the US pretty much own the world’s oil for free, since oil’s value is denominated in a currency that America controls and prints. The petrodollar system spread beyond oil: the majority of international trade is done in US dollars. That means that from Russia to China, Brazil to South Korea, every country aims to maximize the US-dollar surplus garnered from its export trade to buy oil.

The US has reaped many rewards. As oil usage increased in the 1980s, demand for the US dollar rose with it, lifting the US economy to new heights. But even without economic success at home the US dollar would have soared, because the petrodollar system created consistent international demand for US dollars, which in turn gained in value. A strong US dollar allowed Americans to buy imported goods at a massive discount – the petrodollar system essentially creating a subsidy for US consumers at the expense of the rest of the world. Here, finally, the US hit on a downside: The availability of cheap imports hit the US manufacturing industry hard, and the disappearance of manufacturing jobs remains one of the biggest challenges in resurrecting the US economy today.

So what happens if the petrodollar system collapses?

Well, for one thing the value of the U.S. dollar would plummet big time.

U.S. consumers would suddenly find that all of those “cheap imported goods” would rise in price dramatically as would the price of gasoline.

If you think the price of gas is high now, you just wait until the petrodollar system collapses.

In addition, there would be much less of a demand for U.S. government debt since countries would not have so many excess U.S. dollars lying around.

So needless to say, the U.S. government really needs the petrodollar system to continue.

But in the end, it is Saudi Arabia that is holding the cards.

If Saudi Arabia chooses to sell oil in a currency other than the U.S. dollar, most of the rest of the oil producing countries in the Middle East would surely do the same rather quickly.

And we have already seen countries in other parts of the world start to move away from using the U.S. dollar in global trade.

For example, Russia and China have agreed to now use their own national currencies when trading with each otherrather than the U.S. dollar.

That got virtually no attention in the U.S. media, but it really was a big deal when it was announced.

A recent article by Graham Summers summarized some of the other moves away from the U.S. dollar in international trade that we have seen recently….

Indeed, officials from China, India, Brazil, Russia, and South Africa (the latest addition to the BRIC acronym, now to be called BRICS) recently met in southern China to discuss expanding the use of their own currencies in foreign trade (yet another move away from the US Dollar).

To recap:

  • China and Russia have removed the US Dollar from their trade
  • China is rushing its trade agreement with Brazil
  • China, Russia, Brazil, India, and now South Africa are moving to trade more in their own currencies (not the US Dollar)
  • Saudi Arabia is moving to formalize trade with China and Russia
  • Singapore is moving to trade yuan

The trend here is obvious. The US Dollar’s reign as the world’s reserve currency is ending. The process will take time to unfold. But the Dollar will be finished as reserve currency within the next five years.

Yes, the days of the U.S. dollar being the primary reserve currency of the world are definitely numbered.

It will not happen overnight, but as the U.S. economy continues to get weaker it is inevitable that the rest of the world will continue to question why the U.S. dollar should automatically have such a dominant position in international trade.

Over the next few years, keep a close eye on Saudi Arabia.

When Saudi Arabia announces a move away from the petrodollar system, that will be a major trigger event for the global financial system and it will be a really, really bad sign for the U.S. economy.

The level of prosperity that we are enjoying today would not be possible without the petrodollar system.  Once the petrodollar system collapses, a lot of our underlying economic vulnerabilities will be exposed and it will not be pretty.

Tough times are on the horizon.  It is imperative that we all get informed and that we all get prepared.