Liberty Rising Brief: Diminishing Dominance of the US Dollar

“For though the flame of liberty may sometimes cease to shine, the coal can never expire.” ― Thomas Paine

THE DAY AHEAD:

Today, we're assessing Saudi Arabia's latest threat to sell its oil to China and be paid in yuan instead of dollars.

The proposal would create long-term economic concerns by weakening the US dollar's dominance and changing the market breakdown. Saudi Arabia's switch from the dollar to the yuan may also trigger a domino effect. For instance, Libya, Iraq, Iran, and Syria have all moved away from the dollar. However, all except Iran have yet to face repercussions for the economic decision.

Saudi Arabia, like most countries, uses USD as its reserve currency. Therefore, when its own currency is devalued, the country can peg its currency to the dollar. This system led the USD to become the “gold standard” of the 21st century. Consequently, oil deals with yuan signals a distancing from the dollar reserve system, which threatens American dominance.

According to Business Insider,

About 80% of global oil sales are done in dollars, and Saudi Arabia has conducted its deals exclusively in the greenback since 1974. So if a Saudi-yuan deal were to be made, it would bolster China's currency at the expense of the dollar as Beijing looks to challenge US leadership in financial markets.

The US is making similar proposals, according to The Hill,

The U.S., which last week banned Russian oil imports, has joined calls for increased oil production from OPEC+, a group of oil-producing nations that includes Saudi Arabia and the UAE.

Last week, Secretary of State Antony Blinken said oul-producing nations must “stabilize global energy markets, to make sure that there remains an abundant supply of energy around the world.” 

However, Saudi Crown Prince Mohammed bin Salam reportedly refused to meet with President Biden to discuss the Russia-Ukraine War and increase oil production.

Furthermore, the US and Saudi Arabia's relationship has gone downhill, especially amid the Biden Administration's hesitancy to involve itself with the Yemen civil war and its efforts to revive the Iran nuclear deal.

All things considered, the oil industry is suspected to continue on its current rocky trajectory.

In other economic news, the Federal Reserve approved a quarter percent increase on interest rates. This marks the first increase since December of 2018, and more are predicted to follow in the coming months. According to CNBC,

Along with the rate hikes, the committee also penciled in increases at each of the six remaining meetings this year, pointing to a consensus funds rate of 1.9% by year's end. That is a full percentage point higher than indicated in December. The committee sees three more hikes in 2023 then none the following year.

The Federal Reserve officials also noted a significant increase in inflation compared to their December predictions, along with slower GDP growth.

Fed Chairman Jerome Powell said,

We are attentive to the risks of further upward pressure on inflation and inflation expectations. The committee is determined to take the measures necessary to restore price stability. The U.S. economy is very strong and well-positioned to handle tighter monetary policy.

Moving forward, the economic impact will also be illustrated by the cryptocurrency market. With regard to BitCoin, analysts suggest the coin will remain resilient to rising interest rates, even amid inflation and geopolitical tensions. Although, Joseph Orsini of Eaglebrook Advisors suggests cryptocurrency will continue mirroring the ups and downs of economics and politics.

Furthermore, cryptocurrency is continuing to become more popular and mainstream in America and abroad. For instance, Ukraine just legalized the cryptocurrency market after recognizing its greater potential compared to more volatile systems.

White House press secretary Jen Psaki said Biden was speaking from his heart about what he has seen on the news about the ‘barbaric actions by a brutal dictator.' Psaki noted that there is a separate legal process to determine whether Putin has violated international law and committed war crimes. That process currently is underway at the State Department, she said.

While Americans have been sent to surrounding European countries, the US has yet to be formally engaged.

American Liberty News will continue reporting on the war, and its economic and social impacts as it unfolds.

Thank you for reading today's morning brief!