Deep Knowledge Investing: The Petrodollar Is Dying
The world runs on two things: The U.S. dollar as a reserve currency, and oil. However, a growing number of developing countries, particularly oil-rich ones, are moving away from using the dollar for trade. Instead, they’re opting for bilateral agreements, using their respective currencies.
No single move is a big deal. However, developing countries now house over half the world’s population and nearly a quarter of global GDP. These collective moves could lead to an end to the dollar’s supremacy.
Amid the gradual reduction of the dollar in global trade, there’s been a rise in discussion about alternatives. So far, other currencies such as the Euro or Chinese Yuan haven’t met the criteria for a global reserve currency.
However, we could see the rise of more regional currencies similar to the Euro. Or there could be a digital currency that many nations could use as a means of payment.
The shift away from the dollar has big implications. For Americans, it will likely mean more inflationary pressure. With less global demand for dollars, there will be fewer places for newly-printed money to go.
The move would also suggest the end of U.S. geopolitical supremacy. Like prior nations that have held the reserve currency, such as Great Britain or Spain, it may mean a move towards permanently slower growth.