Saudi Arabia's Bold Move Shakes Global Markets: The End of Dollar Dominance?"
Saudi Arabia Ends Petrodollar Agreement: Implications for Dollar Dominance and Global Trade
Saudi Arabia has not renewed the 1974 "petrodollar" agreement with the United States, which required oil sales to be conducted exclusively in US dollars. This landmark decision marks a significant shift away from the dollar's dominance in the global oil trade, according to the Atlantic Council.
The petrodollar deal, established to provide stability to the dollar and strengthen its role as a reserve currency, involved Saudi Arabia recycling traded greenbacks into US bonds. This agreement was crucial in maintaining the dollar's supremacy in global finance. However, several factors have led to the decision not to renew the agreement. Since the 1960s, the US's share of global GDP has decreased from 40% to 25%, and its reliance on Saudi oil has diminished due to increased domestic production.
China's emergence as Saudi Arabia's largest oil customer, accounting for over 20% of the kingdom's oil exports, has facilitated Riyadh's alignment with the de-dollarization movement. This movement seeks to reduce the dollar's dominance in global finance. Saudi Arabia's potential membership in the BRICS economic bloc and collaboration with China on the mBridge cross-border payments system underscore this shift.
Ending the petrodollar agreement could weaken US Treasury liquidity and diminish the dollar's global influence. This shift suggests a future where the dollar is complemented by other major currencies like the Chinese renminbi, the euro, and the Japanese yen, reflecting the international footprint of their respective economies.
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