When the Petrodollar Dies, the Empire Dies

by | Apr 18, 2023

When the Petrodollar Dies, the Empire Dies

by | Apr 18, 2023

51672318914 048e67989b b

Future historians may say that the most significant event of 2023 had nothing to do with Donald Trump, other 2024 presidential candidates, or even the war in Ukraine. Instead, the event with the most long-term significance may be one that received little attention in the mainstream media—Saudi Arabia’s movement toward accepting currencies other than the US dollar for oil payments.

After President Nixon severed the last link between the dollar and gold, his administration negotiated a deal with the Saudi government. The U.S. would support the Saudi regime, including by providing weapons. In exchange, the Saudis would conduct all oil transactions in dollars. The Saudis also agreed to use surplus dollars they accumulated to purchase U.S. Treasury bonds. The resulting “petrodollar” is a major reason why the dollar has maintained its world reserve currency status.

Also this year, China and Brazil made an agreement to conduct future trade between the countries using the countries’ own currencies rather than dollars. Brazilian President Lula da Silva has called on more nations to abandon the dollar.

This de-dolarization movement is driven in part by resentment of America’s foreign policy, including, in particular, the U.S. government’s increasing use of economic sanctions. Dethroning the dollar from its world reserve currency status makes it easier for countries to ignore these sanctions.

De-dolarization will negatively impact the U.S. government’s ability to manage its over 30 trillion dollars debt. With a few exceptions, there is still no real support in Congress for spending cuts. Republican leadership members may say they will not support a debt ceiling increase unless it is tied to spending cuts. However, after the Biden administration accused the Republicans of wanting to cut Social Security and Medicare, House Speaker Kevin McCarthy declared a reduction in spending on Social Security and Medicare—big drivers of the federal deficit—“off the table.” Similarly, despite the growing skepticism of foreign interventionism among Republicans, the military-industrial complex maintains a viselike grip on congressional leadership and the White House. Therefore, do not expect any reduction in military spending. Instead, the Pentagon’s budget will likely increase.

The Federal Reserve will face continuing pressure to monetize ever-increasing federal debt and keep interest rates (and thus the federal government’s borrowing costs) low. The resulting inflation will lead to more support for ending the dollar’s world reserve currency status. As more countries abandon the dollar, the Fed will become less able to monetize the federal government’s debt without creating hyperinflation. This will result in a dollar crisis and an economic meltdown worse than the Great Depression.

This crisis will lead to the end of the welfare-warfare-fiat currency system. While history suggests this will lead to the rise of even more authoritarian political movements, the growing popularity of libertarian ideas suggests the collapse will also fuel the further growth of the liberty movement. This could mean that the crisis leads to a restoration of limited government and an advancement of liberty. The key to taking full advantage of the opportunity presented by the crisis is to keep spreading our ideas. Fortunately, we do not need a majority; we just need a tireless, irate minority committed to the cause to regain our liberty.

This article was originally featured at the Ron Paul Institute for Peace and Prosperity and is republished with permission.

About Ron Paul

Ron Paul is a doctor, author, former member of Congress, Distinguished Counselor to the Mises Institute, and Chairman of the Ron Paul Institute for Peace and Prosperity.

Our Books

latest book lineup.

Related Articles

Related

Last Weekend, Iran Changed Everything

Last Weekend, Iran Changed Everything

On April 13, Iran responded to Israel’s attack on its embassy compound in Damascus that killed seven Iranian officers, including a very senior military official, General Mohammad Reza Zahedi, by launching over 300 drones and missiles at Israel from Iranian soil. U.S....

read more
FISA Exchanges Real Liberty for Phantom Security

FISA Exchanges Real Liberty for Phantom Security

House Speaker Mike Johnson betrayed liberty and the Constitution by making a full-court press to get a “clean” reauthorization of Section 702 of the Foreign Intelligence Surveillance (FISA) Act through the House. Section 702 authorizes warrantless surveillance of...

read more
Embracing Deflation

Embracing Deflation

In recent years, the specter of inflation has loomed large over the global economy, fueled by unprecedented monetary stimulus measures and supply chain disruptions. As prices have surged, concerns about the erosion of purchasing power and the threat of runaway...

read more
One Hundred Years of IRS Political Targeting

One Hundred Years of IRS Political Targeting

One hundred years ago, Senator James Couzens, a Michigan Republican, took to the Senate floor to denounce the Bureau of Internal Revenue for abusing its power and trampling innocent taxpayers. Couzens launched a sweeping Senate investigation of federal tax collectors....

read more
Gold Is Doing Its Job

Gold Is Doing Its Job

On Monday, the U.S. Commerce Department announced it was awarding Taiwan Semiconductor Manufacturing Company (TSMC) a $6.6 billion CHIPS Act subsidy for the fabrication of computer microchips in Phoenix, Arizona. TSMC will also receive up to $5 billion in low-cost...

read more