The End of the Petrodollar With Bitcoin As the Big Winner? Mind You, It’s Not Quite That Simple!

17 Jun 2024

Recently, a growing rumor has taken hold of social networks: Saudi Arabia has ended the petrodollar system. Accounts on X, which follow news from the BRICS countries, are having a field day announcing the death of the petrodollar.

According to these X accounts, a 50-year-old agreement between Saudi Arabia and America has expired. This agreement obliged Saudi Arabia to denominate its oil in dollars. Henceforth, Saudi Arabia would be free to sell its oil in RMB, Euros, Yen, or Yuan and no longer exclusively in US dollars.

Some then went even further, saying that the death of the petrodollar would benefit Bitcoin. For some, everything is supposed to benefit Bitcoin despite common sense... These same influencers found a shortcut by announcing that this would promote the emergence of Bitcoin as the world's reserve currency.

Rather than let the influencers dictate what you should think on the subject, I thought it was essential to take stock of the issue so that you can form your own opinion.

That's what the Bitcoin revolution is all about: Don't Trust, Verify. I'll give you some arguments that you can incorporate into your thought process, and then you can decide for yourself!

To begin with, you need to understand that there has never been such an agreement between Saudi Arabia and America. The petrodollar did emerge in 1974, three short years after the end of the Bretton Woods Agreement, but there is no written agreement. The U.S. dollar is not backed by Saudi kings or oil but rather by the fact that U.S. Treasury bonds are the most liquid market in the world. An agreement between Saudi Arabia and America has nothing to do with that.

On the other hand, if the BRICS governments want to break away from the US dollar, they're not going to do it with press releases. Nor can they do so by choosing to denominate their oil in anything other than US dollars. That would have no impact.

Denomination doesn't matter; what matters is what's held in cash balances.

To weaken the US dollar, governments can only choose to put their cash reserves into assets other than US Treasury bills. The problem boils down to that phrase you've been hearing for decades about the US dollar: There Is No Alternative. You may be more familiar with the acronym TINA.

The Euro is a dollar to which you add European risk. China doesn't have an open capital market for foreign governments to hold its bonds, unlike the US dollar. The other economies are too small. What's more, their monetary and fiscal policies are frequently worse than those applied in America. Gold is too expensive to move and verify.

If governments wanted to move into gold, they would negotiate and work out authorization mechanisms instead of issuing meaningless press releases. Such a gold switch could only take place if governments were to return to a gold standard, but this is not the path being followed, as all countries are statist.

A move towards gold would, however, open their eyes to an obvious reality. To challenge the domination of the dollar king, we need to turn to Bitcoin. But the BRICS countries are still a long way off. As you can see, China, Russia, India, and Saudi Arabia have no desire to cede their monetary sovereignty to a neutral, apolitical system that belongs to the people.

Bitcoin is synonymous with freedom in the broadest sense of the word, whether financial or personal. Do you think that the Chinese Communist Party wants to offer its people such freedom on a platter?

For the Chinese Communist Party, freedom is synonymous with danger. The CCP has installed a society of mass surveillance in China over the past few years, and there's no question of turning back. On the contrary, the e-RMB is in an advanced testing phase and is the last missing piece in China's mass surveillance system.

The idea that the BRICS countries are opting for Bitcoin together seems to me to be mistaken, but only time will tell. In any case, beware of all these announcements of the imminent death of the dollar king or the petrodollar system. These announcements have been going around for years, yet the dollar is still the hegemonic king!