Zero Hedge: “Several months ago, when Russia announced the much anticipated “Holy Grail” energy deal with China, some were disappointed that despite this symbolic agreement meant to break the petrodollar’s stranglehold on the rest of the world, neither Russia nor China announced payment terms to be in anything but dollars. In doing so they admitted that while both nations are eager to move away from a US Dollar reserve currency, neither is yet able to provide an alternative.
This changed in late June when first Gazprom’s CFO announced the gas giant was ready to settle China contracts in Yuan or Rubles, and at the same time the People’s Bank of China announced that its Assistant Governor Jin Qi and Russian central bank Deputy Chairman Dmitry Skobelkin held a meeting in which they discussed cooperating on project and trade financing using local currencies. The meeting discussed cooperation in bank card, insurance and financial supervision sectors.
And yet, while both sides declared their operational readiness and eagerness to bypass the dollar entirely, such plans remained purely in the arena of monetary foreplay and the long awaited first shot across the Petrodollar bow was absent.”
Opinion: What is the Petro dollar?
In 1971 Richard Nixon was forced to close the gold window, taking the U.S. off the gold standard and setting into motion a massive devaluation of the U.S. dollar. In an effort to prop up the value of the dollar, Nixon negotiated a deal with Saudi Arabia that in exchange for arms and protection they would denominate all future oil sales in U.S. dollars. Subsequently, the other OPEC countries agreed to similar deals thus ensuring a global demand for U.S. dollars and allowing the U.S. to export some of its inflation.
Since these dollars did not circulate within the country they were not part of the normal money supply. Economists felt another word was necessary to describe the dollars received by petroleum exporting countries (OPEC) in exchange for oil, so the term petrodollar was coined by Georgetown University economics professor, Ibrahim Oweiss.
Because the United States was the largest producer and consumer of oil in the world, the world oil market had been priced in US dollars since the end of World War II.
Russia’s Gazprom was exempt from US/EU sanctions imposed on Putin’s Russia principally because the EU gets 30% of its natural gas from the Russian company.
With Gazprom’s moves to accept payment in euros and yuan (renminbi), 90% of Gazprom clients have “de-dollarized”, setting the stage for the day it finally would push the button to skip the dollar entirely. Which it just did.
The move away from the dollar as world reserve currency is not an overnight event but like a glacier, the move to replace the greenback is slow and powerful.