In 2012, Iran began to accept yuan for its oil and gas payments, followed by Russia in 2015. If this takes off, this could literally spell the beginning of the end of US global power. The dollar is the world’s leading reserve currency, in the main, only because oil is currently traded in dollars. Countries seeking foreign exchange reserves as insurance against crises within their own currencies tend to look to the dollar precisely because it is effectively ‘convertible’ into oil, the world’s number one commodity. This global thirst for dollars is what allows the US to print endless amounts of them, virtually for free, which it can then exchange for real goods and services with other countries. This is what is known as ‘seigniorage privileges’; that is, the ability to absorb ever-increasing amounts of goods and services from other countries without having to provide anything of equivalent value in return. In turn, it is this privilege which helps to finance the staggering costs of the US military machine, now running at over $600 billion per year. Yet this whole system falls apart once other countries stop using the dollar as their prime reserve currency. And they stop doing this once oil stops being traded in dollars. This is one reason why the US was so keen for Saddam Hussein to go after he began trading Iraqi oil in euro. In 2012, the People’s Bank of China announced it would no longer be increasing its holdings of US dollars. At the same time, China has been on a gold-buying spree, setting up its own twice-daily pricing of gold in yuan in 2012 as part of what the chair of the Shanghai Gold Exchange called the ‘internationalization of renminbi [yuan]’, ultimately aiming towards making yuan fully convertible to gold. Once this happens, the choice for oil-producing countries between trading oil for ever-more-worthless paper dollars, or trading it for convertible-to-gold renminbi will be a no-brainer.
Dan Glazebrook, ‘The Qatar blockade, petro-yuan & coming war on Iran’, RT