First established in the 1970s, the Petrodollar was engineered with a purpose in mind: to establish the US supremacy and control over the Oil & Gas resources. A privilege stretching 40 years onwards and still counting, although losing its luster lately. This is partially due to the emergence of exciting cryptocurrencies like the Bitcoin.
President Nixon isn’t only famous for the Watergate scandal. Around his presidency, the US dollar lost a big deal of its value. The public debt skyrocketed, as did the external debt of a country licking its wounds after the Vietnam war. President Nixon abruptly resigned from the Bretton Woods system, used to establish the convertibility of the US dollar to gold, while being the sole reference to other currencies on the trade market.
These economic measures, a.k.a the Nixon Shock prompted an unprecedented economic recession. Severe cash flow shortages occurred, not to mention a rising doubt regarding the position of the United States as a world economic leader.
Petrodollar, Wars and geopolitics
With an already collapsing US economy, the 1973 Yom Kippur war between Israel and major OPEP Arab countries exacerbated the crisis. Not so much for boosting the economy, when choosing to support extravagant war costs, as a strategic Israel’s ally. The Arab coalition stroke back with diplomacy: a total shut-down on Middle Eastern Oil from flowing to Israel’s allies (including USA, Canada, Netherlands, and Japan to name a few). This led to an Oil prices boom, propelling Saudi Arabia to the de facto leadership position of OPEP. It was time to go back to the roundtable for President Nixon and Secretary of State Kissinger. Signing deals with Saudi royals to supply weapons and on-demand protection for the Saudi oil fields, the US dollar established itself as the unique currency for international oil trade.
Interestingly enough, by 1975, all OPEP members agreed to the same terms. This kick-started a monumental Petrodollar reign, re-establishing the political and economic supremacy of the USA on the world scene.
A rather reluctant Russia joined other countries in trying (and succeeding to a certain extent) to hinder the US domination, by offering to China and Japan the option of buying its gigantic oil production using their local currencies (Yuans and Yen).
Bitcoin, RMC and Crypto-ruble
A Kuwaiti funding firm took this debate to the next level by suggesting in 2014, to Arab Gulf countries major oil producers to trade their production using cost-effective, utterly-efficient, and quick-to-trade Bitcoin. The idea ignited a polarizing debate with parties going to proclaim such a scheme as THE peace-inducing platform the world desperately chases. A non-politicized Petro-Bitcoin would assert neutrality and prevent -often than not- disastrous governments involvement. An impartial Blockchain would host the excellent framework for the worldwide trade.
Even with such a promising scheme, neither the USA, nor China consented to compromise their power.
In its war against the Petrodollar, China reached agreements with key oil producer, like Iran and Venezuela, to trade their production in Yuans, starting 2012. Soon enough, other OPEP producers joined the trade, in an interesting turn of event, with the strategic US ally and Petrodollar core, Saudi Arabia, joining the trade.
The market soon overflooded with Petro-currencies. Petro-Yen, Petro-Yuan, Petro-ruble, and the recent RMC or “Russian Miner Coin” emerged. RMC is fundamentally a cryptocurrency, government-approved, and referenced to the value of Gold. It would guarantee the exchange between Crypto-ruble and Ruble while curbing foreign currencies influence, and boosting the Russian economy.
Although not inherently clear, the RMC seems to be developed around the Block-chain framework and technology. A hint came about from President Vladimir Putin and Ethereum co-founder Vitalik Butirin meetings during the design phase.
With all these factors in mind, it’s fair to say we are witnessing the end of the Petrodollar area, suffocated by geopolitics. More importantly, the emergence of crypto-currencies like Bitcoin has been the coup de grâce. A story to closely follow.