By; Sanbeer Singh Ronhotra
Infront of sleepy Joe, Putin is sending the Petrodollar to ruins and bringing back the golden era
Why the world should move away from petrodollars and go back to the gold standard?
Then came the petrodollar system. Since the dollar had become the world’s reserve currency, as well as the benchmark, crude oil transactions were undertaken using dollars. The windfall which emerged for countries in the Gulf after the oil boom was simply so large that they had to take the money out of their own countries and put it in Wall Street.
Why the Petrodollar System Must be Abolished
Many countries are now whispering the question: Why should the United States’ currency be the standard around the world? Why should petrodollars be the dominant mechanism by which oil is bought and sold? Why should one currency be made so strong that any significant fluctuations in its value can turn the world economy upside down? Finally, why should the focus of all countries be towards ensuring that the stability of the U.S. dollar is maintained?
But the most important factor which should make the world depart from the petrodollar system is that an abandonment of the same will bring the Gold Standard back to life. Each currency will be pegged to the value of gold. For example, the value of one rupee will be measured against the cost of one ounce of gold, instead of the value of one US dollar.
Given how the world economy has come to be centred around the dollar, making the United States a financial hegemon, it is time for the Gold Standard to be adopted once again.
The Gold Standard
The Gold Standard is a monetary system where a country’s currency or paper money has a value directly linked to gold. With the gold standard, countries agreed to convert paper money into a fixed amount of gold.
Recently, the Russian central bank announced that it will put the ruble on a gold standard. The bank pegged 1 gram of gold to 5,000 rubles. When a currency is backed by gold rather than the US dollar, it becomes more stable and stronger. Russia’s move to embrace the Gold Standard is very significant, as it can potentially lead to many countries reviving the millennia-old system.
Prior to the acceptance of the dollar as a “global currency”, international trade was settled using physical gold. Nations with trade surpluses accumulated gold as payment for their exports, while those with trade deficits saw their gold reserves getting depleted.
Russia had a massive pool of $630 billion in foreign reserves. A significant portion of these reserves was in dollars. So, when the sanctions came down on Moscow, a bulk of its forex reserve was rendered worthless. That is a major problem with the internationalisation of the dollar. It gives disproportionate power to one man in the White House to control the world economy and the fate of entire countries.
The realisation is beginning to dawn on many countries. They now realise that they have vested too much power in the hands of the United States and that it is time for a change. The Gold Standard is the best way to move forward, and of course, in the long run, it can be replaced with an even better system. The primary objective of all countries, however, must be the de-dollarisation of their economies.