Saudi Arabia and Russia are moving away from the economic dominance of ‘The US Dollar’. This move is a strategic geopolitical and financial strategy that marks a decline in USD dominance. And it will have profound implications for global finance and geopolitics. Let’s explore these dynamics and speculate on their potential impact on the world and India.
Saudi Arabia Moves Away from the Petrodollar
Saudi Arabia has decided not to renew its 80-year petro-dollar deal with the United States. Now Saudis can sell oil and other goods in multiple currencies, including the Chinese RMB, Euros, Yen and other currencies.
Is it the end of the Petro-Dollar era? Petro-Bitcoin era soon? pic.twitter.com/UTKvveKRBO
— Gabor Gurbacs (@gaborgurbacs) June 12, 2024
The dollar has dominated the world since the 1970s when it started to decouple the value of its currency from gold reserves. Saudi Arabia-led OPEC cooperated with the US in exchange for security in 1974. The deal fostered economic and military cooperation between the US and Arab nations.
However, the decline in the US dominance and the rise of BRICS has made OPEC wary of complete reliance on the USA or the West.Â
Therefore, Saudi Arabia made a groundbreaking decision not to renew its 80-year petro-dollar agreement with the United States. This contract, which expired on 9th June 2024, was pivotal in cementing US economic dominance globally. Now, Saudi Arabia is ready to sell oil in multiple currencies, including the Chinese RMB, Euros, Yen, INR, and Yuan. This ends the exclusive stronghold US dollars had in petroleum trades. This decision marks a significant departure from the petrodollar system established in 1972, potentially accelerating the global shift away from the US dollar.
Saudi Arabia Joins Project mBridge
In another strategic move, Saudi Arabia has joined Project mBridge. This project explores the idea of a multi-central bank digital currency (CBDC) platform. The Bank of Thailand, the Central Bank of the UAE, and the People’s Bank of China are part of this system among many others. The aim is to facilitate instant cross-border payments and foreign exchange transactions using distributed ledger technology.
With over 26 observing members, including the South African Reserve Bank, the European Central Bank, and the Federal Reserve Bank of New York, Project mBridge represents a significant step towards a decentralized and diversified global financial system. India is not yet a member of this project. However, a parallel pilot project of CBDC between India and OPEC is already in place.
Russia’s Rejection of the Dollar and Euro
In response to escalating sanctions from the Biden administration, Russia makes a significant move to distance itself from the USD and Euro. This will hurt the drowning economy of Western nations vastly. The Biden administration’s sanctions target semiconductor chips and other critical goods, aiming to cut off resources supporting Vladimir Putin’s war in Ukraine. These measures extend to all previously sanctioned Russian entities, including major banks like Sberbank and VTB. They also target new LNG projects and Russia’s main stock exchange, Moex.
Therefore, Russia’s main exchange has halted trading in US Dollars and Euros, branding them “toxic” due to Western sanctions.
This move highlights Russia’s efforts to reduce reliance on Western currencies, increasing the share of the yuan in its trading activities. The Russian central bank will use bank and over-the-counter data to set the rouble’s exchange rates to these currencies. The move may have emboldened China and strenghtened its claim on BRICS leadership!Â
G7’s Dysfunctional Response!?
The G7 leaders are planning to use profits from frozen Russian sovereign assets to provide Ukraine with $50 billion in aid. The dysfunctional transaction is machiavellian in nature. It will use the profits the West has made on Russia’s assets to fund the nation that Putin is fighting against!Â
This decision does not just underscore the West’s support for Ukraine, it is a warning to all Nations who have assets secured with the West!Â
On one hand this move aims to further isolate Russia economically. But, on the other hand, it tells other nations that the G7 leaders are capable of freezing their assets to fund nations hostile to them!! The West has also called on China to stop enabling Russia’s war efforts, highlighting concerns about Beijing’s role in circumventing trade restrictions.
Speculative Outcomes and Global Impact
The rejection of the USD by Russia and Saudi Arabia will reshape global financial systems and alliances. For the world, this could mean an international financial system with multiple competing currencies and a rise in the use of digital currencies. India will need to navigate these changes carefully, balancing economic interests with geopolitical realities.
Bharat, with its strategic autonomy, might find opportunities in this shifting landscape. Therefore, strengthening ties with multiple global powers and diversifying its economic partnerships could be key strategies. Thus, India needs a strong government and shrewd economic and foreign policies to enhance its role in the evolving global financial system.
A New Geopolitical Era
The decision by Russia and Saudi Arabia to move away from the USD signals the dawn of a new geopolitical era. The two ongoing wars and the rising global inflation show that this is a period of upheaval and realignment. However, this will present Bharat with both challenges and opportunities. Thus, India must adapt to these changes to safeguard the nation’s interests and leverage new avenues for growth and cooperation. The decline of the dollar’s dominance may mark an end to US dominance. May global finance herald a future of increased financial multipolarity.