In a landscape where global economic power dynamics are rapidly evolving, the once unassailable dominance of the US dollar is now facing significant challenges.
The CEO and founder of deVere Group, one of the world’s largest independent financial advisory and asset management firms, underscores the urgency for investors to reassess their strategies amidst this shift.
Decline of the Dollar: A Pivotal Moment in Global Finance
Nigel Green, the head of deVere Group, has sounded a crucial alarm about the implications of recent developments in global oil trading.
He emphasises that the consequences of these changes will reverberate through economies worldwide, impacting investors across various sectors.
Green points to the April summit between Russian President Vladimir Putin and Chinese President Xi Jinping as a landmark event signalling a potential departure from the US dollar in oil trade.
Putin’s endorsement of the Chinese yuan for oil settlements with China indicates a strategic move by the world’s largest energy exporter and the second-largest economy to challenge the US dollar’s supremacy in the international financial system.
The Rise of the Yuan: Oil Trade and Economic Realignment
Adding to this shift, Saudi Arabia’s state-owned oil giant, Aramco, has entered into agreements to supply nearly 690,000 barrels of crude oil daily to two Chinese companies.
Reports suggest that Saudi Arabia is exploring the possibility of settling these trades in yuan rather than dollars.
This marks a significant pivot, as the kingdom, holder of the world’s largest oil reserves, aligns more closely with Beijing’s economic sphere.
These moves signal the formation of a new economic bloc led by US rivals, particularly China.
Should Saudi Arabia proceed with using the yuan for oil transactions, it could catalyze a massive realignment in the global economic order.
The Dollar’s Diminishing Role in Global Markets
Traditionally, oil—the world’s most traded commodity—has been priced and transacted in US dollars. This system has cemented the dollar’s role as a cornerstone of global finance, with countries needing to hold significant dollar reserves to participate in oil markets.
However, a shift to alternative currencies like the yuan could drastically reduce demand for the US dollar, leading to its devaluation.
Green warns that a decline in the dollar’s value could trigger a cascade of economic disruptions, including heightened inflation within the US and potential volatility in global financial markets.
Geopolitical and Economic Ramifications
The transition away from the US dollar in oil trading could also escalate geopolitical and economic competition.
Increased usage of the yuan in global trade would enhance China’s economic influence, potentially diminishing the United States’ dominance in international affairs.
These changes are not speculative but are occurring in real time. Green advises that investors should begin to revise their portfolios to mitigate risks associated with these shifts.
The changing landscape means that currency fluctuations could significantly affect the value of investments, necessitating a strategic re-evaluation.
Industry-Specific Risks and Economic Impact
Companies heavily reliant on oil revenue or associated services will particularly feel the impact of this currency transition.
Investors in these sectors must carefully assess the potential effects on their holdings if oil trading moves away from the dollar.
Oil’s critical role in numerous industries means that changes in its trading currency could lead to widespread economic repercussions.
As Green notes, the shift in the currency used for oil trading would profoundly impact the global financial system.
Preparing for the Future
For serious investors, the decline of the US dollar’s global dominance is a pressing concern that requires immediate attention.
Green’s message is clear: the time to prepare for these changes is now.
The original version of this article was created and published by Energy Monitor, a GlobalData-owned brand.
