Saudi Arabia Ends Longstanding US Petrodollar Deal

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Saudi Arabia Ends Longstanding US Petrodollar Deal

Saudi Arabia has decided not to renew its 50-year petrodollar agreement with the United States, prompting a significant shift in global financial markets.

Saudi Arabia has opted to terminate its half-century-long petrodollar agreement with the United States, a move that is expected to have far-reaching implications for global financial markets, according to MSN.

This decision allows Saudi Arabia to sell its oil and other goods in multiple currencies, including the Chinese renminbi, euros, yen, and digital currencies such as bitcoin, rather than exclusively in U.S. dollars. Analysts predict that this shift could accelerate the global move away from the dollar as the dominant currency in international trade.

The original petrodollar contract, signed on June 8, 1974, and expiring on June 9, 2024, was a cornerstone of the economic relationship between the two nations. The agreement was part of a broader security arrangement that established two joint commissions focused on economic cooperation and Saudi Arabia’s military needs.

The United States aimed to encourage Saudi Arabia to increase oil production and to foster cooperation with other Arab nations. This security agreement came after the U.S. decoupled its currency from gold in 1972, establishing the petrodollar system.

In a significant move reflecting its evolving financial strategy, Saudi Arabia has joined Project mBridge. This initiative explores a multicentral bank digital currency (CBDC) platform designed for instant cross-border payment settlements and foreign exchange transactions. Project mBridge leverages distributed ledger technology and includes central and commercial banks from more than 26 nations, such as the Federal Reserve Bank of New York, International Monetary Fund, World Bank, European Central Bank, and central banks from countries like Australia, Israel, France, Bahrain, Egypt, Jordan, Namibia, and South Africa.

Project mBridge was launched in 2021 by five leading financial institutions: the BIS Innovation Hub, the Bank of Thailand, the Central Bank of the United Arab Emirates, the Digital Currency Institute of the People’s Bank of China, and the Hong Kong Monetary Authority. This collaboration aims to streamline international financial transactions and reduce dependency on any single currency, further supporting Saudi Arabia’s shift away from the U.S. dollar.

As Saudi Arabia transitions to this new financial paradigm, the effects on global markets and international economic relations will be closely monitored.