LETTER #25: THIS IS THE END GAME.
The dollar is losing its hold on being the reserve currency of the world.
After the US defaulted on its gold holdings back in 1971, the dollar’s dominance around the world was crumbling.
To fix this, the US government came up with an idea that will strengthen the dollar’s position in the global markets. The idea was to somehow convince Saudi Arabia - the world’s largest exporter of oil - to sell its oil in dollars. This would create a sort of demand for the dollar globally because every country needs oil.
Fast forward to today, the US dollar’s dominance is crumbling again and this time it has no chance to maintain its dominance.
About 80% of the global oil sales are done in dollars and if this deal succeeds, the US dollar’s dominance in the global petroleum market can be under real threat.
Saudi Arabia is the biggest exporter of oil and China is the biggest importer of oil. Even pricing some of its oil sales to China in yuan will be a major drawback for the dollar.
As Saudi Arabia’s unhappiness grows with America, it might be possible that they struck a similar deal with other oil-importing countries too. For example, selling oil to India in rupees rather than dollars.
Everything that starts has to end. The dollar can never be the reserve currency of the world forever. The end game is nearing and things are escalating quickly.
One thing is clear: the global macro and geopolitical environment are changing and the future financial system is not going to be the same. How do I know? From warning signs like the one discussed in this letter.
A fool sees the warning sign and does nothing.
A wise person sees the warning sign and prepares accordingly.
Which one are you?
FINAL THOUGHT….
Listened to Chopin’s nocturnes today. The guy was a wizard of the keys.