Since President Richard Nixon blew up the gold standard in 1971, the value of the U.S. dollar has depended solely on the full faith and credit of the federal government. Thanks to the aggression of the Federal Reserve’s aggressive monetary contraction, the greenback has soared in the foreign exchange market, but the crucial component contributing to the dollar’s value (its sheer dominance of use across the globe) is being actively undermined by the White House.
President Joe Biden’s deliberate attempts to insult Saudi Crown Prince Mohammed bin Salman and his refusal to unleash domestic oil manufacturing have led the dollar to clear the way for the ascent of the Chinese yuan. Not only is Saudi Arabia now considering adopting the Communist Party’s currency for its oil trades, but France has already begun to do so.
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In a blink-if-you-miss-it headline from Beijing, the Shanghai Petroleum and Natural Gas Exchange announced that for the first time ever, a Chinese oil company had completed a yuan-settled liquefied natural gas trade through the exchange. The trading partner in question was not an enemy of Washington but rather our oldest ally. However noble the American campaign to convince her allies to bypass Russian oil markets, it has pushed our European allies, France included, into reliance on Chinese oil.
The Shanghai Exchange revelation is just the tip of the iceberg. Across the planet, the CCP has eagerly filled the void left by Biden’s mystifying foreign policy. Since its invasion of Ukraine, Russia has replaced its greenbacks and euros with yuan. This process of “dedollarization” explicitly aims to unseat the dollar as the reserve currency of Russia and, in the long run, that of the world.
The global dominance of the greenback has long been on the wane, falling from more than 70% of the world’s foreign exchange reserves by the turn of the century to less than 60% in 2021. While the yuan only comprises 3%, Beijing has already begun to execute its plans to unseat the prominence of the dollar.
The ploy is most obviously at play in Saudi Arabia, and Biden’s ineffectuality is on display.
After Biden blasted the crown prince on the campaign trail for the killing of Jamal Khashoggi, and then not actually doing anything about it once he became president, and ignoring and offending the de facto Saudi leader anyway, Riyadh allowed China (of all nations) to broker a rapprochement deal between the kingdom and Iran, undoing four years of the Trump administration’s actions to reorient the Middle East away from Tehran’s fundamentalist dictatorship. Now, the stage is set for the crown prince to gift the CCP its endgame: Saudi Arabia accepting yuan, not the dollar, for oil sales to China, more than a quarter of its total oil exports.
Where does Biden fit into all this? The problem isn’t the oil sanction campaign against Russian oil, without which the rest of our Ukraine funding would have been neutralized. Rather, the crime is the White House’s refusal to allow us to fill the Russian void of oil supply and Biden’s willingness to completely cede diplomatic ground to the Chinese.
The greenback has a few points in its favor. While both political parties are happy to accrue unsustainable levels of debt, markets clearly trust the Fed’s determination to restore American price stability, rein in our money supply, and maintain the real domestic value of the dollar, thus rendering it more attractive for global exchanges. Even with the worst inflation crisis in 40 years, the rest of the federal government has not managed to wreck the work of the Fed, though not for a lack of trying.
But Fed Chairman Jerome Powell cannot go to Saudi Arabia and beg the kingdom to continue to demand dollars for oil. He cannot allow new drilling permits to export oil to our European allies who are voluntarily starving themselves of Russian oil in support of Ukraine, and he cannot coerce the Chinese into stabilizing the convertibility of the dollar to yuan.
Biden may have avoided the fiscal apocalypse here at home, if only because of the Fed, but his refusal to assert American agency abroad comes with real costs, not just for our citizens, but for all holders of the dollar worldwide.
