Bitcoin & Geopolitics - Week 50

Stateless, uncensorable and non-inflationary, bitcoin is carved out like an international reserve currency. Any erosion of the petro dollar brings us closer to the end.

The Riyadh-Beijing axis is getting stronger

While the United States is busy pitting Europe against Russia, the Middle Kingdom is advancing its pawns in the Middle East.

Chinese President Xi Jinping’s three-day visit to Saudi Arabia confirms the rapprochement between the Gulf countries and the multipolar BRICS alliance.

The pomp of Xi’s reception stands in stark contrast to the humiliation of the US president this summer. Joe Biden had come to beg for an increase in oil production to finally see OPEC reduce it by two million barrels a day!

Conversely, a salvo of cannon fire and alpha jets painting the colors of the Chinese flag in the sky of Riyadh greeted the arrival of his Chinese counterpart, freshly re-elected as head of the CCP.

Here, the very warm farewell:

His last visit was in 2016, when the Saudi kingdom agreed to join the New Silk Roads. This titanic project connects 68 countries (4.4 billion inhabitants) through the construction of port, rail, land, mining and energy infrastructures.

Xi met around 30 heads of state there on the occasion of this very first Sino-Arab summit. Many contracts have been signed. The China Energy Corp, for example, will build a sprawling 2.6 GW solar power plant in Saudi Arabia.

More interestingly, the Chinese will teach the Saudis how to create nuclear fuel from its vast uranium resources. The goal is obviously to bring closer of the nuclear bomb, like Iran, its Shiite neighbor and rival.

This embryonic nuclear program was probably one of the conditions for considering the sale of Saudi oil in yuan.

Petro Yuan?

Xi Jinping has called on Friday the leaders of the main Gulf states to sell their oil in yuan:

China will continue to import large quantities of crude oil from Gulf Cooperation Council countries. We will increase our imports of liquefied natural gas. We will strengthen cooperation in engineering services, storage, transportation and refining of hydrocarbons. And we will make full use of Shanghai’s financial markets to settle oil and gas trade in yuan.”

This statement certainly sounded like a thunderclap in Washington. But so is the world. The Chinese have long since become the first trading partner of the Arabian Peninsula.

Trade between China and Saudi Arabia soared 40% in 2021 to $88 billion. Meanwhile, US-Saudi trade has fallen from $76 billion in 2012 to just $29 billion last year.

The fact that the Saudis want to join BRICS+ is also an unmistakable sign. Especially since Argentina, Turkey, Iran, Indonesia and Algeria are already on the threshold.

This is crucial information because the BRICS are making no secret of their ambition to dedollarize global trade… As a pledge of goodwill, the Indonesian central bank recently demand its importers and exporters to stop using the dollar.

The emergence of a multipolar world will unfortunately not be smooth sailing. Uncle Sam will not allow his monetary hegemony to wither away without a fight.

Petro-Dollar?

The United States has benefited from an exorbitant privilege since the 1970s. That is to say when OPEC was forced to sell its oil exclusively in dollars. Do not miss our article on this dirty story…

Since then, many other commodities have been denominated in dollars. The greenback reigns supreme in world markets. Whether oil, wheat or copper, their prices are fixed in dollars. Even tea or Airbus planes…

It follows that nations prefer to accumulate dollars in reserve. According to the IMF, the dollar represents 59% of central bank reserves. That is 6,650 billions of dollars. The rest is essentially made up of euros, gold and yen.

It is as much money that comes to finance the public debt of the United States while protecting the country from a collapse of its exchange rate. And this despite a chronically negative trade balance.

In sum, the dollar’s exchange rate would be much lower if the dollar were not the international reserve currency. In other words, the Americans would be forced to balance their trade balance and tighten their belts.

It is therefore a foregone conclusion that the United States will not sit idly by if Saudi Arabia embraces the yuan.

Bitcoin to gently replace the Dollar?

Let us recall in conclusion that the Iraq war was a demonstration of force. The objective was to defend the petrodollar and show Europe and all the Gulf countries what it costs to threaten the imperial currency.

Oil sales will be restored in dollars immediately after the defeat of Saddam Hussein who, two years earlier, had denominated his oil in euros rather than dollars.

All this to say that the United States maintains hundreds of military bases abroad and could bang its fist on the table if OPEC challenges them.

The American Empire will not politely cede its exorbitant privilege to China. It will be war. The proxy war in Ukraine is also the sad consequence of this geopolitical showdown.

However, it may be that Washington agrees to play on equal terms by agreeing to return to gold. Except that moving gold bars around the world is far too slow and costs far too much.

This is a problem Bitcoin does not have. Instantly sending the equivalent of millions or billions of dollars in bitcoins to the other side of the earth is absolutely no problem.

In addition, no country could sanction such shipowner or such airline which would transport gold towards a country under embargo. Nobody can be “disconnected” from Bitcoin.

Thus, Saudi Arabia would do well to take an interest in Bitcoin. If there’s one nation that can take a bit of volatility while waiting for bitcoin to hit the trillions, it’s it. “Better believe it…”

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