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China to deal final blow to dollar

From Birch Gold Group

If you leave your sliding glass door open, you might let in a stray cat, raccoon, or bugs without knowing it.

Some intruders are worse than others. All can be annoying. But let in a thief, who robs your home… and it only takes that one time to change your life forever.

The U.S. has essentially left their “sliding glass door” open, and on March 26 China is set to become the intruder that may very well deal a death blow to the dollar.

China Prepares Death Blow to the Dollar

On March 26 China will finally launch a yuan-dominated oil futures contract. Over the last decade there have been a number of “false-starts,” but this time the contract has gotten approval from China’s State Council.

With that approval, the “petroyuan” will become real and China will set out to challenge the “petrodollar” for dominance. Adam Levinson, managing partner and chief investment officer at hedge fund manager Graticule Asset Management Asia (GAMA), already warned last year that China launching a yuan-denominated oil futures contract will shock those investors who have not been paying attention.

This could be a death blow for an already weakening U.S. dollar, and the rise of the yuan as the dominant world currency.

But this isn’t just some slow, news day “fad” that will fizzle in a few days.

A Warning for Investors Since 2015

Back in 2015, the first of a number of strikes against the petrodollar was dealt by China. Gazprom Neft, the third-largest oil producer in Russia, decided to move away from the dollar and towards the yuan and other Asian currencies.

Iran followed suit the same year, using the yuan with a host of other foreign currencies in trade, including Iranian oil.

During the same year China also developed its Silk Road, while the yuan was beginning to establish more dominance in the European markets.

But the U.S. petrodollar still had a fighting chance in 2015 because China’s oil imports were all over the place. Back then, Nick Cunningham of OilPrice.com wrote

Despite accounting for much of the world’s growth in demand in the 21st Century, China’s oil imports have been all over the map in recent months. In April, China imported 7.4 million barrels per day, a record high and enough to make it the world’s largest oil importer. But a month later, imports plummeted to just 5.5 million barrels per day.

That problem has since gone away, signaling China’s rise to oil dominance…

The Slippery Slope to the Petroyuan Begins Here

The petrodollar is backed by Treasuries, so it can help fuel U.S. deficit spending. Take that away, and the U.S. is in trouble.

It looks like that time has come…

A death blow that began in 2015 hit again in 2017 when China became the world’s largest consumer of imported crude

Petroyuan graph

Now that China is the world’s leading consumer of oil, Beijing can exert some real leverage over Saudi Arabia to pay for crude in yuan. It’s suspected that this is what’s motivating Chinese officials to make a full-fledged effort to renegotiate their trade deal.

So fast-forward to now, and the final blow to the petrodollar could happen starting on March 26. We hinted at this possibility back in September 2017

With major oil exporters finally having a viable way to circumvent the petrodollar system, the U.S. economy could soon encounter severely troubled waters.

First of all, the dollar’s value depends massively on its use as an oil trade vehicle. When that goes away, we will likely see a strong and steady decline in the dollar’s value.

Once the oil markets are upended, the yuan has an opportunity to become the dominant world currency overall. This will further weaken the dollar.

The Petrodollar’s Downfall Could be a Lift for Gold

Amongst all the trouble ahead for the dollar, there are some good news too. The U.S. might have ditched the gold standard in the 1970’s, but with gold making a return to world headlines… we could see a resurgence.

For the first time since our nation abandoned the gold standard decades ago, physical gold is being reintroduced to the global monetary system in a major way. That alone is incredibly good news for gold owners.

A reintroduction of gold to the global economy could result in a notable rise in gold prices. It’s safe to assume exporters are more likely to choose a gold-backed financial instrument over one created out of thin air any day of the week.

Soon after, we could see more and more nations jump on the bandwagon, resulting in a substantial rise in gold prices.

 

What are your thoughts? Participate in the poll below:

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  • moosegringo

    Buy silver for even better leverage – it’s historically undervalued as compared with gold.

  • spoogla

    I am with the rest of the world why should America get a free ride on oil……Trade wars for steel such a small market compared to controlling oil for all these years……America should be wiping their bums with$100 bills…..nope broke ,broken gone.

  • Rod Scott

    The US of A was number one for a long time, we invented the petrodollar, but we are slipping into the abyss, the same as England, France, Spain and others, nobody seems to stay as king of the world for very long, China is the heir apparent, and they are doing exactly what we would do in the same situation. Don’t think of this as like an act of war, but more like a natural progression.

  • Jack

    First, we don’t get a free ride on oil. It is structured so oil is priced and bought with our currency which makes our currency more valuable. Yes ridiculous deficit spending by Bush & Obama abused this privilege and that is wrong. BUT it is a privilege that is earned and well deserved. The US, the most generous people by far, has provided more economic assistance, aid, grants via our government, people, NGO’s, and charities than any other country over the past 80 years! We subsidize NATO, the UN, the IMF, World Bank, etc. We spend our money and military blood (check out the June 6th D-Day US graves in France) protecting our selfish, ungrateful allies. While we pay for their defense, Europe uses their money to provide socialism and medical care to their people and unfairly subsidize their industries to undersell US companies overseas and at homes. Iran uses their money to fund terrorism and hatred for Israel and the US. Third world countries use the money for corruption and to enrich their leaders while their people wallow in poverty and then they tell them it is because of the greedy white westerners. China and Russia use their money to undermine the US so they can one day be the world powers they yearn to be knowing there is no other country other than the US to keep their desires for world power domination (economic, military, political, etc,) in check. Be careful what you wish for as you and the rest of the world continue on your one world crusade. The collapse of Rome ushered in the dark ages, luckily we recovered centuries later, because the Roman empire was much smaller on global scale. The collapse of the American Experience with the weapons of today will usher in another dark age – nuclear war and the environmental disaster and catastrophe that will follow with little chance of recovery for mankind. A new and fair global currency and trade system to rebalance things, Yes. A new system designed primarily to punish and weaken the US, as most nations of the world want to do. will simply be the beginning of the end.

  • Gary Sparks

    Look..is it true that China eill need ALL of the Silver it can buy to go tptslly SOLAR by 2024 ? …also if the dollar gets so worthless ..who do you SELL your Gold and Silver too ?!…and WHEN ?

  • Gary Sparks

    How dors a relatively normal everyday citizen sign up for potential work on Mars etc. ? I believe the Space Program is just a shuttle service off planet for thr Rich and Powerful..go aheaf and laugh

  • Blankety-Blank

    While I fully agree with everything else you said, I cannot for the life of me understand why you would join those who tarnish the notion of reining in the obscene costs and absurd inadequacies of American pseudo-health care. If you believe there is value in our Declaration of Independence, then you have to acknowledge that all citizens are entitled to “LIFE, liberty, and the pursuit of money… ooops, happiness.” You can’t expect much life in modern times without proper health care. Our wealthy have life expectancies far exceeding the national average because they can afford competent care, while the poor get either nothing or sub-par ineptitude. We have abysmal statistics for outcomes, yet our health-care costs are twice the next most expensive country in the world.

    It is not incompatible with all of your other insightful observations to insist that a vital element in modern government is to regulate and oversee equitable, competent, universal distribution of health care. Medicare, for all its flaws, is still the only model of health care in this country which competes with the great achievements of the otherwise failing nations of the West.