History
Due to the crashing value of the dollar, the high debt from the Vietnam War, and domestic spending, President Nixon steeply pulled out of the Bretton Woods Accord, which assure the dollar to the price of gold and based the value of other currencies on that of the dollar. Labeled the “Nixon Shock,” these actions left the American States bursting with debt and low on cash, with many of its key allies such as Germany, Britain and France questioning whether the U.S. was justified in its position as the leader of the global economy.
While the U.S. economy steped a nose dive, another geopolitical event was unfolding which increased the economic free fall.
In 1973 Egypt and Syria, backed by few other Arab Nations, launched an attack on Israel which marked the beginning of the Yom Kippur War. The War placed increased pressure on oil prices, and when the United States provided Israel with financial arms and aid, the Arab Nations responded.
In 1960 the OPEC (Organization of Petroleum Exporting Countries) was formed. At the kernel of this organization were Kuwait,Libya, Iran, Qatar, Saudi Arabia, Iraq and the UAE (United Arab Emirates) – countries which were opposed to U.S. interference in the 20-day war.
By 1974 the Price of Oil nearly quadrupled following U.S. provisions to Israel, resource rich OPEC placed an oil embargo on all those thought to have aided Israel, including the U.S., Britain, Canada, Japan, the Netherlands and even South Africa and Portugal.
Saudi Arabia became the de facto leader of OPEC.
In 1974, desperate to return value to the U.S. dollar, President Nixon and Secretary of State Kissinger started negotiations with the Saudi Royal Family. In the agreement, the U.S would provide Saudi Arabia with assist and arms with the protection of oil fields. In exchange, Saudi Arabia was to price all oil sales in U.S. dollars and invest surplus oil proceeds in U.S. debt securities, by 1975, all oil-producing members of OPEC followed suit. This was the beginning of the petrol-dollar.
The petrol-dollar has since elevated the U.S economically and politically throughout the world, but after years of unprovoked wars and geopolitical belligerence, U.S. influence has started to fade.
Over and over again there have been a number of attempts to move away from the petrol-dollar system, especially within OPEC. Another strong candidate of change is Russia, which suggested to Japan and China to purchase oil in yen or yuan.
Bitcoin - the Russian Miner Coin and the Cryptoruble
A Kuwaiti finance firm, however, took this debate a step further, recomending in 2014 that the Gulf Cooperation Council could benefit from trading oil for bitcoin. The suggestion was based on the idea that the GCC could save time and money with faster, cheaper, and more efficient transactions.
This idea has been debated, with some suggesting that the anonymity factor could usher in a new era of world peace. The new Idea “petrol-bitcoin,” countries would be immune to currency manipulation from governments, which has clear global impacts. In an decentrelized-blockchain could act as a great medium for doing business on a global scale.
China, indeed, has taken the lead in the fight against the petroldollar.
In 2012, Iran began trading oil in yuan, and also this year, in response to U.S. sanctions, OPEC member Venezuela began pricing its oil sales in Chinese yuan. China now was trying to push Saudi Arabia to do the same. The most notable efforts from China to tackle the petroldollar was the country’s yuan-priced crude oil benchmark, which it recently unveiled.
While China pushes for the petrol-yuan, Russia is also making moves which could have implications for the U.S. dollar.
In addition to the Russian Miner Coin, the Kremlin announced that it will be creating a new state-endorsed cryptocurrency backed by gold. The goal of this coin is to allow free exchange between the cryptoruble and the Ruble, and to reduce dependence on foreign currency while stimulating the domestic online economy.
While few details of the cryporuble are known, the technology does seem to be blockchain-based, as Putin has met with Ethereum and WAVES advisors to create the platform.
With these big moves from China and Russia, there is no doubt that the dollar will see downward pressure in the coming years. As the world’s major economies vie for geopolitical power, it is recomended to follow the growing role of bitcoin and cryptocurrencies.