Could Bitcoin Break the Petrodollar Monopoly and Bring World Peace?
Could bitcoin bring world peace by disrupting the current economic order, but while also reviving the U.S. economy? To answer, we must look at oil and the existing “petrodollar monopoly”.
Also read: As the Global Economy Falters, bitcoin Offers an Alternative for Prosperity
According to one study, “capitalism is an economic structure; war is a political act”. It shows how retaining the petrodollar monopoly serves the Federal Reserve’s interests, even at the expense of peace for countries such as the U.S., Iran, or China.
What is the Petrodollar Monopoly?
The term “petrodollar monopoly” refers to the exclusive use of U.S. dollars as the pillar that upholds the banking cartel’s economic power.
To regain its dollar monopoly after the historic Bretton Woods Agreement collapsed in 1971, the U.S. struck a deal with Saudi Arabia. The petrodollar was formed as oil was sold exclusively in dollars, and surpluses were held in U.S. debt securities. In return, the U.S. provided arms and protection.
Many on both sides of U.S. politics find this relationship unsavory, claiming it often runs counter to American interests and even causes conflict.
The petrodollar and the Bretton Woods Agreement alike caused economic strain, especially for developing countries like China. With turnover volumes from domestic exports and oil imports, holding on to depreciating U.S. debt securities begun to make less economic sense for China.
To ease the pressurizing situation, China contemplated moving away from the dollar monopoly, or lowering its production costs.
Recent Events and Their Risks to the Dollar
Let’s look at some interesting events from the past few years. While they may seem unrelated at first, they may combine to have implications for both the dollar and bitcoin.
- In 2012, China started a movement away from the petrodollar when Iran agreed to trade oil in Chinese yuan instead (sometimes referred as “petro-yuan”). Later on, more oil-producing countries followed suit.
- Since 2013, China has been keeping bitcoin transactions active, occasionally driving up bitcoin value through actions such as proposing bitcoin as “people’s rights”, looking to launch its own digital currency, etc.
(See also: “Visiting Tibet: An Inside Look at China’s bitcoin Mining Mega-Facilities”)
- In 2015, China planned to displace the U.S. dollar’s monopoly. “…(the Chinese) are dropping their U.S. Treasury bonds, stockpiling gold reserves, and opening regional distribution banks for their own national currency….” said Sputnik News.
- In 2016, the IMF added the Chinese yuan into the SDR currency basket of reserve currencies.
There are more risks to the U.S. dollar than just losing prestige from China’s trade activities. The IMF’s effort to loosen China’s control over the yuan essentially creates a new trading currency for the rest of the world.
The devaluation of the Chinese yuan may have lured the Chinese into bitcoin and caused its value to spike. But it may not be the key motivator. If China’s capital controls were the main cause for bitcoin price hike, the IMF’s efforts would have eased it. But it did not.
Let’s assume that bitcoin could be deployed as a tool in international oil trading activities. The price hike could reflect efforts to meet the daily global turnover needs i.e. An aggregated “petro-bitcoin” value of around US$4.6 billion* equivalents. Would this make a sound explanation for the spike?
*US$4.6 billion: [94 mil barrels x Average annual OPEC crude oil price 2015 at $49.49]
Risks to the Federal Reserve, but Not to the U.S. Economy
At first glance, the precedent risks and the idea of a “petro-bitcoin” appear to be all-cons for the U.S. economy. Especially when bitcoin’s anonymity could encourage any country plotting to displace the dollar monopoly to do it surreptitiously, without souring relationships. However, it is noteworthy that this feature also allows the U.S. and others — who may not have already established friendlier ties with China — to start investing in Chinese yuan heavily.
The key factor is that bitcoin knows no “owner”. Regardless if it is China (or any other countries) as the driving forces behind the idea of “petro-bitcoin”, the main concern is described below.
In the event the U.S. Federal Reserve’s dollar “zeroizes” and the “Great Global Reset” occurs, countries’ weakened oil purchasing power will result in less than optimal production abilities; hence prolonging a recession.
During the gloom, bitcoin prices (just like gold prices) will likely surge. With the intervention of “petro-bitcoin”, every country would enjoy continuity in their economic activities despite dollar “zeroizing”. The anonymity helps to put aside “capitalism and war” — thus bringing world peace and a focus on global economy recovery.
To conclude, these perils would starve the Federal Reserve rather than the U.S. economy. A global “petro-bitcoin” could be preferable due to its neutrality — just like unbiased blockchain technology — and capable of pulling the U.S. or any country through rough economic times. It would also serve to prevent dangerous alliances and unnecessary conflict.
Don’t you think it is about time that the U.S. acknowledges bitcoin’s role as a savior, rather than a disturbing risk? Let’s hear your thoughts.
Image Credit: Techinasia, U.S. Energy Information Administration
Source: The Balance, Follow The Money Daily
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