Certain things in life are acknowledged but not openly discussed. For instance, I recall my uncle, bald throughout my childhood. He had a large, shiny, bald head. Then one day, he didn’t come to our monthly Sunday family gathering, but when he reappeared, he had a full head of hair, parted down the center, hanging down to his eyes like some boyband member. No one mentioned it, but we all knew what had happened. We just accepted it. My father commented, ‘You’ve been away, haven’t you? You got a lovely glow.’
This situation can be compared to the state of the US Dollar. The bald head represents the once dominant currency, while the wig symbolizes the threat that it may no longer be the top choice as the world reserve currency. However, just like in the story, the issue still needs to be addressed and unspoken. Everyone seems aware of the changes, yet no one wants to discuss them.
The world’s largest oil exporter, Saudi Arabia, has maintained a currency peg to the US dollar for numerous decades and is now looking to enhance its relationships with crucial trade partners, particularly China, by exploring payments in currencies other than the USD. The kingdom is a cornerstone of the petrodollar system established in the 1970s based on pricing its crude oil exports in the US currency.
The petrodollar system that came into existence in the 1970s has come under stress, with oil being traded increasingly in non-US-denominated currencies. The recent tensions between the US and Saudi Arabia over a range of issues, in the wake of ongoing Russia–Ukraine war and growing ties of GCC states with both Russia and China, have only worsened problems for the petrodollar system, which may potentially have profound implications for the global financial and economic order.
The global concern is a pressing matter. However, the recent sharp increase in interest rates raises concerns and appears to be an impulsive reaction rather than a demonstration of stability. The consequences of this decision may fall upon the shoulders of the American consumer as credit card debt reaches unprecedented levels and annual percentage rates escalate to 19%. Additionally, the current mortgage rate of 6.33% may add to the financial burden. While it may seem that savers may benefit temporarily from the situation, it is ultimately the savings of the general population that is sustaining the economy in the present moment, making any potential gains short-lived. With discussions of a “BIG RESET,” the rise of Central Bank Digital Currencies (CBDCs), and widespread national investments in gold, as well as a trend towards alternative currency used for transactions, it’s evident that the United States requires a moment of innovation, similar to OpenAI’s GPT-3, to reverse the current economic decline.
Failure to do so may result in a bleak financial outlook not even my uncle’s wig could disguise.