Summary :
Petrodollars are US dollars exchanged for crude oil exports. The 1974 agreement between Saudi Arabia and the United States, established in the aftermath of an oil crisis, ensured Washington a steady flow of crude oil and a market for its debt, while Saudi Arabia received military aid and equipment. Experts suggest this development could signal a major shift in the global financial order, indicating that the dollar's dominance is no longer guaranteed.
The petrodollar agreement, originally signed on June 8, 1974, played a crucial role in establishing US global economic influence.
Saudi Arabia has opted not to renew its 80-year petrodollar agreement with the United States, which expired on Sunday, June 9, according to media reports.
Originally signed on June 8, 1974, this agreement was a cornerstone of US global economic influence.
The deal established joint commissions for economic cooperation and addressed Saudi Arabia's military needs. At the time, American officials anticipated that it would prompt Saudi Arabia to increase oil production and bolster economic ties with Arab nations.
By opting not to extend this contract, Saudi Arabia can now sell oil and other goods in various currencies, such as the Chinese RMB, Euros, Yen, and Yuan, instead of exclusively using US dollars. There is also discussion about exploring digital currencies like Bitcoin for transactions.
This decision represents a significant shift away from the petrodollar system established in 1972 when the US ceased linking its currency directly to gold.
It is anticipated to accelerate the global trend of using currencies other than the US dollar in international trade.
Additionally, Saudi Arabia has joined Project mBridge, a collaborative initiative exploring a digital currency platform shared among central and commercial banks.
This project aims to enable instant cross-border payments and foreign-exchange transactions using distributed ledger technology.
Project mBridge, which began in 2021, involves several prominent central banks and institutions worldwide. It recently reached the Minimum Viable Product (MVP) stage, inviting private-sector firms to propose innovations and use cases to further develop the platform.
Saudi Arabia's participation in this project signals the beginning of a significant shift in global economic dynamics, though the full implications for international trade and finance remain to be seen.
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