Countries around the world have long suffered from the dominance of petrodollars. Now, de-dollarization has become a trend, and the petrodollar hegemony is facing significant challenges. At the same time, the internationalization of the renminbi is a major trend, which is backed by the rise of China. Although the path to petro-renminbi is long and arduous, its significance lies in breaking the dollar hegemony and establishing the international status of the renminbi. Of course, petro-renminbi will not follow the old path of petrodollars.

01 Petrodollar is collapsing, petro-renminbi is being built

At the just-concluded China-Saudi Arabia, China-Gulf Cooperation Council (GCC), and China-Arab "trilateral summit," the most concerning issue was the progress of petro-renminbi!

China emphasized that in the future, China and the GCC countries will "carry out oil and gas trade in renminbi settlement" and "deepen cooperation in digital currencies, promoting the multilateral central bank digital currency bridge project." This is undoubtedly exciting!

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We say we want to buy a large amount of oil and gas resources, and the Middle Eastern countries accept settlement in renminbi. This time, it can be said that the number of cooperation partners is large, and the volume of crude oil trade involved is significant!

Although petro-renminbi has not made significant progress, the settlement of some oil and gas resources in renminbi is a major step forward! After all, building petro-renminbi is a long and arduous process that requires a transition from quantitative change to qualitative change.

However, it can be confirmed that the traditional "petrodollar system" is facing challenges, and the petro-renminbi system is being built!

In our previous articles, "Is the petrodollar collapsing, can the dollar continue its global hegemony? The internationalization of the renminbi is on the way," we have discussed this issue. Although there has not been much progress in petro-renminbi this time, we must recognize this fact.

In global foreign exchange reserves, the dollar accounts for 58.81%, the euro 20%, and the Japanese yen and British pound are ranked third and fourth in the global foreign exchange reserve rankings, respectively. Compared to these currencies, the renminbi's share is indeed very small, 2.1% in 2021, and 2.88% in the first half of this year's data. It can be seen that the share is indeed too small. We say that quantitative change leads to qualitative change, and the quantity is not enough yet!Of course, we can also see that although the proportion is low, the growth rate is fast, which also means that the status of the renminbi in the international currency market is indeed rising!

What about the petrodollar system? Why is it collapsing? In fact, we have already demonstrated in our previous article that since 2000, many countries have started to try "oil-non-US dollar currency", and the trend of diversification of oil settlement currencies has just begun to emerge.

From the decline of the influence of the US dollar oil hegemony in the Middle East, Middle Eastern countries have begun to confront the United States, and the oil exports to China have begun to be settled in renminbi, especially the deterioration of the relationship between the United States and Saudi Arabia, and Saudi Arabia has also begun to consider non-US dollar currency settlement of oil transactions, the US dollar's pricing and settlement system in the oil field is facing challenges.

Then, this year, Russia began to use gas rubles, India followed suit, and wanted to settle in its own currency, the rupee, and now at the China-Saudi Arabia, China-Gulf, and China-Arab "trilateral summit", our country proposed to settle oil with the Middle East in renminbi, all of which can be seen, such a phenomenon, the world is de-dollarizing!

At the same time, China is rising, and China's international influence is gradually increasing. From the data, in the past decade, our country's import and export volume of goods trade has continuously reached new highs, and our country has become the world's largest country in goods trade.

Moreover, China is the world's largest oil importer, and doing business with China, trade exchanges, using our oil to exchange for their infrastructure, goods, and development, they know the benefits and where to stand!

In Qatar, which is currently hosting the World Cup, even though it has become rich from oil, the Chinese team did not go, but almost all of them are made in China, what does this mean? Made in China, China's manufacturing and trade strength are very strong! This will also have a great driving effect on other Middle Eastern countries and oil-producing countries!

In fact, the behavior of Saudi Arabia and other countries at this meeting also has a demonstration effect on other oil-producing countries in the Middle East. Taking Saudi Arabia as an example, the rapid development of our economic and trade activities has also laid a solid foundation for the settlement of oil trade in renminbi. The significance of this for our country's further development of the "oil renminbi" system is self-evident.

Of course, we say that our oil renminbi system will never follow the old path of the oil dollar, this is something we must be aware of! Why do we say this, let's talk about it next!

02 Oil Renminbi Will Never Follow the Old Path of Oil DollarWhy is it said that the petroyuan will never follow the old path of the petrodollar? We must start with the hegemony of the US dollar!

The hegemony of the US dollar is built on two things: one is the Bretton Woods system, the gold-dollar system, and the other is the petrodollar. Of course, behind all this is the comprehensive strength of the United States in terms of economy, military, politics, and technology.

1) Why did the Bretton Woods system of gold-dollar collapse?

The reason why the previous Bretton Woods system collapsed is that the gold-dollar system could not be maintained. What is the reason for not being able to maintain it? It is because gold is limited, and at the same time, the Triffin dilemma appeared!

Gold-dollar did indeed make the US dollar dominate the world, but later it could not be played, because the Triffin dilemma appeared. The premise of the US dollar as the core of international currency is that the value of the US dollar must be stable, which in turn requires the United States to be a country with a long-term trade surplus.

However, the US dollar crisis and economic crisis frequently broke out, and under the hegemony of the US dollar, it was also difficult to have a surplus in dollar exports. These two requirements are contradictory and paradoxical, so it could not be sustained!

Under this background, let us think, if your economy often has problems, people do not trust you. When everyone comes to exchange money for gold, who can bear it? No matter how much gold reserves there are, they will be exhausted. Therefore, when Europe wanted to exchange its dollar reserves for gold, the United States could not bear it, and the Bretton Woods system could only collapse.

2) What difficulties does the petrodollar face?

After the collapse, it was not directly pegged to oil and established the hegemony of the petrodollar. This actually took a long time, after all, let us think, the foundation of the petrodollar is oil, can you the United States have the final say?

Obviously not, oil is not unique to the United States, the center of oil is in the Middle East, and the world's major oil-producing countries are: the United States, Russia, Saudi Arabia, Canada, Iraq, China, the United Arab Emirates, Kuwait, Brazil, and Iran. The above 10 countries are the world's largest oil-producing countries, with a daily oil production of millions of barrels. And what about oil reserves? Middle Eastern countries are even richer!So, in order to establish the petrodollar hegemony, the United States has spent a considerable amount of financial resources in the Middle East over the years!

Just think about it, why would the Middle East, with oil in hand, use the US dollar for settlement? Therefore, you have to offer benefits. The United States employs both soft and hard tactics, providing aid, protection, and construction, so that you use the US dollar for settlement, which allows the petrodollar to be maintained. But is the Middle East that obedient? Of course, there are times when they are not obedient, so what should be done?

We see why the Middle East is always unstable? What about the Iraq War, Afghanistan, Libya, and the sanctions on Iran and Saudi Arabia? Aren't they all because of the petrodollar? The military bases the United States has established in the Middle East are not just for show, so it can be said that the world has long suffered from the tyranny of the US dollar.

In addition, the United States has also spent a lot of financial resources in Middle Eastern wars, which have led to an imbalance in the US fiscal budget!

Furthermore, to maintain the hegemony of the petrodollar, the United States also needs to continuously export a certain scale of US dollars to the world, so that the world can use the US dollar for settlement. How to export? That is through trade deficits and foreign investments, with the United States buying more foreign materials.

Military expenditures, buying sprees, and foreign investments have led to an imbalance in the US fiscal budget. So, what to do at this time? US debt has entered a mode of frantic expansion!

Now, US debt has already soared above 30 trillion US dollars, once reaching as high as 31.41 trillion US dollars, exceeding the debt ceiling of 31.4 trillion US dollars, causing panic among people.

Many people have always had a perception, even including some financial bloggers, to cater to the public, saying that the United States, because of the existence of dollar hegemony, does not have to worry about debt issues, because it can print money to repay debts. Does this logic hold? Obviously, it does not hold. Having such a view can be considered naive; otherwise, would we be the second-largest holder of US debt?

3) US debt approaching the limit poses a debt crisis

No matter what, debts must be repaid, and it is also impossible to rely solely on printing money to repay debts!What does printing money mean? It's what we refer to as lowering interest rates, easing monetary policy. What happens when you ease monetary policy? It first inflates your own economy, then exports inflation globally. How is inflation in Europe and America now? Everyone knows if they watch the news!

Moreover, debt isn't something you can issue as much as you want. Otherwise, why would there be a debt ceiling, and why would there be disputes every time the debt ceiling needs to be raised?

Furthermore, when you issue new debt, it actually affects the existing creditors. You have to consult with the opinions of the major holders. Otherwise, why would the current U.S. Treasury Secretary Yellen keep wanting to communicate with us? So, whether you want to default on your debts or print money to repay them, in the long run, it's not feasible!

Due to the U.S. debt crisis, we have been continuously selling off U.S. debt, reducing it to below trillion. Other holders are also selling, which can be said to be a global selling wave. What happens when you sell? U.S. debt will fall, and if it falls, won't it trigger even bigger problems? So, this is a bit of a vicious cycle!

Moreover, in this process, a new Triffin dilemma has emerged, which is the export of the U.S. dollar, the hollowing out of U.S. manufacturing, and domestic employment issues. So now the U.S. is overburdened, with manufacturing returning and capital flowing back.

At this point, U.S. debt is towering, the credibility of the dollar is declining, and the world is challenging the hegemony of the petrodollar. For the U.S., if the petrodollar collapses, how to build a new dollar hegemony, and what to peg the dollar to, is a question!

For China, even if our future oil-yuan accelerates, we will not follow the old path of the petrodollar! The oil-yuan will not peg the yuan to oil!

What is the significance of oil-yuan?

Oil-yuan, internationalization of the yuan, how to export the yuan, trade deficit is not feasible!

Oil-yuan will not rely on a single commodity, it will be Chinese manufacturing, high-tech products produced by China, and all competitive industrial products!The Chinese yuan will never reap other countries; the yuan must be on par with infrastructure and technological products to form a lasting foundation!

Currently, in our trade with the Middle East, it includes not only crude oil but also natural gas. This meeting has looked forward to key areas of cooperation, specifically including five points, involving energy, financial investment, technology, aerospace, and language culture. Transactions settled in yuan help to reduce the foreign exchange risks faced by enterprises.

When Middle Eastern countries receive yuan, on one hand, it can be more convenient for trade settlement with China, especially for Chinese infrastructure and manufacturing, as it can save the step of currency exchange. Of course, in addition to that, this money will not just lie idle in accounts; entering these countries' sovereign funds can buy Chinese assets, which is a delightful prospect!

Furthermore, China and the Gulf Cooperation Council (GCC) countries will actively cooperate in the field of digital currency. The development of digital currency also helps to promote the internationalization of the yuan.

On the Russian front, they will also settle oil and gas transactions with us in yuan. In the future, more countries, especially in the oil sector, will prefer to settle in yuan!

Looking ahead, the petro-yuan, and the pricing system for related commodities will also have a say, which can promote the enhancement of the yuan's pricing power for global mainstream energy commodities. The yuan's function as a payment currency and reserve currency is steadily strengthening.

Of course, from a deeper perspective, the petro-yuan is actually reshaping the global distribution order.

In the global distribution, it is quite clear that the United States is in the first tier, European countries are in the second, we are in the third, and some Southeast Asian low-end manufacturing countries are in the fourth. But what does the petro-yuan mean? We aim to break through this order upwards! Directly challenging the United States!

The United States is also encircling and suppressing, which can be seen in the field of technology! Now the United States is almost turning TSMC into "AmeriTSMC," aiming to monopolize the discourse in the field of technology.

Therefore, our petro-yuan will not be very smooth, and the internationalization of the yuan will face many challenges, especially at the Middle Eastern level. Why can't the Middle East fully promote the petro-yuan now? It is because of U.S. sanctions!In addition to this, there is another challenge for the internationalization of the Chinese Yuan, which is the construction of the currency's investment and financing functions. This is of great significance in breaking through the bottleneck of the internationalization of the Chinese Yuan.

To sum up, the path to the internationalization of the Chinese Yuan and the establishment of a "Petro-Yuan" is long and challenging, but it has already become a major trend!

With the rise of China's high-end manufacturing, more Chinese manufactured goods are flowing into other countries. We are bound to break the Petro-Dollar system and build a Petro-Yuan system, but it will definitely not be the old path of the Petro-Dollar!

At that time, the purchasing power of our Chinese Yuan will increase, and perhaps the good life for everyone will come! The life that everyone admires in the United States may also appear in the future, and everyone's fortune is yet to come!