Countries around the world have long suffered under the yoke of petrodollar hegemony. For decades, the entire globe has been under the shadow of petrodollar dominance. However, de-dollarization has now become a trend, and the petrodollar hegemony is facing significant challenges, collapsing before our eyes!

01 The Petrodollar is Collapsing

The United States, leveraging the status of the dollar in international trade, has been continuously reaping wealth from around the world. Yet, this hegemony is undergoing change!

It is well-known that the collapse of the Bretton Woods system and the decoupling of the dollar from gold did not end the dollar's hegemony; on the contrary, it further strengthened it. The dollar was directly tied to oil, the world's most important energy source. In international commodity trade, most transactions are ultimately settled in dollars. For a long time, the United States has used the petrodollar hegemony to harvest wealth from the entire world!

However, this year, the proportion of the dollar in global foreign exchange reserves has been continuously declining!

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Data shows that global foreign exchange reserves have shrunk by about $1 trillion to $12 trillion this year, a decrease of 7.8%, the largest drop since records began in 2003. The dollar's share in global foreign exchange reserves reached 58.81%. On one hand, this is due to valuation factors caused by exchange rate conversions, but more importantly, it is because central banks around the world are using a large amount of foreign exchange reserves to wage a "currency defense war."

This indicates that the international currency status of the dollar is weakening.

1) Russia's Gas Ruble

Let's look at a few significant events to understand this better. First, let's talk about Russia's gas ruble!

This year, due to the Russia-Ukraine conflict, Russia was sanctioned by Western countries, not only freezing a large amount of dollars and assets overseas but also expelling Russia from the international financial clearing system. Shortly after the outbreak of the conflict, the United States made a fierce statement, vowing to turn the ruble into rubble!Against this backdrop, the Russian ruble is not only not the most severely devalued currency; on the contrary, under Russia's regulation, a decree on gas settlement for "unfriendly countries" has been introduced. These countries must use rubles to import Russian energy, which has led to a continuous appreciation of the ruble, reaching its highest value in decades.

What does Russia's move signify? It is akin to the US petrodollar system, where to purchase Russian gas, one must settle in Russian rubles. Unlike the US, whose oil comes from the Middle East, Russia's gas is sourced from its own country!

Russia is the world's leading natural gas power, supplying 40% of the natural gas needs of EU countries. Thus, in the face of Russia's gas ruble policy, EU nations have no choice but to capitulate.

The emergence of the gas ruble has significantly undermined the status of the petrodollar and has shown all countries that only by possessing food, such as resources, minerals, land, gold, and so on, can one truly have a say.

2) India: All international trade must be settled in rupees

Following Russia's gas ruble, India has also made a bold move, suddenly announcing that all international trade must be settled in rupees, with the value of the rupee determined by international offshore exchange rates.

India is entirely adopting Russia's "ruble settlement model"! India also hopes, like Russia, to see the appreciation of the rupee. However, for the US, this poses a challenge. The US has previously established an international trade settlement system in dollars, and India's move deals a heavy blow to the already precarious dollar hegemony! It reduces the dollar's ability to reap profits and challenges the US dollar hegemony.

In fact, these are just more prominent situations this year. We should be able to see how the dollar's hegemonic position has reaped global benefits over the past two years, with the US's monetary easing since 2020, which has driven up global inflation and shifted inflation to other countries!

In 2022, as the US entered a rate-hiking cycle, the currencies of other countries depreciated significantly, with the euro, yen, and renminbi being hit one after another, with vast wealth being reaped in the process, causing worldwide distress and hardship!

3) The influence of the petrodollar hegemony in the Middle East is declining.In fact, when it comes to the petrodollar hegemony, the Middle East is even more aggrieved!

Over the past few decades, the United States has deployed a significant military presence in the Middle East to ensure that its petrodollar hegemony remains unshaken, persuading the oil powers in the Persian Gulf to peg their oil to the US dollar. Since then, the US has established its dollar hegemony.

Anyone who dares to resist is attacked; the Iraq War and the Libyan War, which were both fought because they sought to undermine the petrodollar hegemony, are prime examples!

Thus, the Middle East is aggrieved, but for us, the world's largest importer of oil, it is also a source of frustration! However, in recent years, the influence of the dollar hegemony in the Middle East has been rapidly diminishing.

Russia, India, and the Middle East are all moving away from the US dollar, and the continued weakening of the petrodollar hegemony will be a major trend in the future. It will also be difficult for the United States to construct the next generation of hegemony! After gold came oil, and after oil, what? Without international credibility, the credibility of the US dollar will also decline!

02 The Internationalization of the Renminbi is Facing Opportunities

As the petrodollar hegemony is on the decline, the internationalization of the renminbi is facing opportunities!

Iran has already begun to settle oil transactions with China in renminbi, and China and Iran have signed a 25-year agreement where renminbi settlements replace the US dollar! The oil settlements and trade between China and Iran will use Chinese renminbi and China's newly launched digital renminbi for settlements.

What does this mean? In today's international community, most oil-producing countries rely on selling oil priced and settled in US dollars, which has an absolute monopoly. The appreciation and depreciation of the US dollar will significantly affect the economic lifelines of oil-producing countries.

Using China's digital renminbi for settlement is equivalent to bypassing the US dollar, further ensuring the security of oil and enhancing the internationalization of the renminbi!In addition, the United States' staunch ally Saudi Arabia and several other oil-producing countries have also implemented partial yuan transactions for oil. If Iran abandoned the US dollar out of helplessness due to US sanctions, then why do countries like Saudi Arabia want to break away from the petrodollar system?

The first point, as mentioned earlier, is that the Middle East has long suffered under the United States, and in recent years, the influence of the dollar hegemony in the Middle East has been rapidly diminishing!

The second point is the impact of China's rise. China has become the world's largest oil importer, and when doing business with China, engaging in trade, and exchanging our oil for their infrastructure, goods, and development, they are well aware of the benefits and where to stand!

The third point is that the status of oil is gradually diminishing. With the advent of the new energy era, many oil-rich nations must consider long-term development! Take Qatar, for example; even though it has become wealthy from oil, everything behind it is made in China! Our yuan is accelerating its internationalization!

The central bank has quietly issued a notice supporting the cross-border yuan settlement for emerging foreign trade formats, supporting the use of yuan for cross-border trade payments, which will be implemented starting July 21st! This is undoubtedly a signal that the internationalization of the yuan is already underway!

At present, in the global foreign exchange reserves, the US dollar accounts for 58.81%, the euro 20%, and the Japanese yen and British pound are ranked third and fourth, respectively, in the global foreign exchange reserve rankings. Compared to these currencies, the yuan's share is relatively small, with a 2.88% share in the first half of the year's data, but compared to 2.1% in 2021, the yuan's position in the international currency market has indeed been enhanced!

I believe that in the future, with the rapid development of our country's economy and the continuous strengthening of our comprehensive national power, the yuan's position in the international market will be further enhanced!

Of course, this will definitely take time. The collapse of the petrodollar does not mean that the dollar hegemony is about to collapse, just as the collapse of the gold-dollar system did not mean the end of the dollar hegemony. The United States found oil to link with it, just as it did with gold. Will the United States find something that can replace oil? But for now, it is still very difficult!

However, even so, our improvement also needs more time!

Of course, although China's yuan is not pegged to an absolute value of goods, our country is the world's largest manufacturing country and the world's largest trading nation! Continuing to enhance China's comprehensive strength and promoting the yuan to the world has become an inevitable trend!Now, major oil countries in the Middle East are already settling in yuan with China. In the future, will using the yuan for oil trade become a trend? Will more countries follow suit? Let's wait and see!