This is probably one of the most significant stories of the past month (and perhaps the last decade), but has garnered little attention:
Something momentous happened within the global economy on the 6 September this year, but no-one seems to have noticed.(Full story here). It wasn't completely unnoticed (see here, for instance).
According to various websites and influential bloggers, there may be a conspiracy of silence or everyone was too busy watching something else.
In fact on that day, former US president Bill Clinton was giving a polished and rabble-rousing speech to the US Democratic convention endorsing President Obama's re-election hopes.
However in China, an announcement was issued stating that the country had made the decision to trade oil, not in US dollars, but in its own currency, the Yuan. This decision broke a historical precedence that has kept the US economy the most powerful global force, and an agreement with the House of Saud and the Middle East oil dynasties which always seemed unbreakable.
. . . But the petrodollar wars seem to lie in the geopolitical battleground of the Middle East and in particular Iran. China began buying crude oil from Iran in May this year, using the Yuan to bypass the US sanctions. These sanctions have made it hard for the Iranian authorities to take payments in US dollars, and calls by the US for China to join in the international boycott has fallen on deaf years. Shortly afterwards the US granted a six month reprieve to both China and Singapore because they promised to cut Iranian oil imports.
Song also points out the Yuan has been used in some oil-for-loans deals that involve the China Development Bank. She says: "In Venezuela for example, in return for crude oil and/or products, some portions of the payment for oil are disbursed from the CDB directly to Chinese local companies that are contracted to do infrastructure work in Venezuela."
The problem is the impact on the value of the dollar. Right now, for some reason, the dollar is still seen as a safer investment than other currencies. However, that will change:
Compounding the problem is a large multinational push to eliminate the dollar as the settlement medium for oil.(See also here).
On Sept. 7, Russia and China announced an agreement where Russia would sell unlimited quantities of oil to China for either Chinese Yuan or Russian Rubles.
Mexico is also in the process of closing a deal to sell oil to China for Yuan or Pesos.
China is also trying to complete a deal with Canada to buy the oil that would have flowed down the Keystone Pipeline to us.
China is aggressively trying to make the Yuan the world reserve currency and has made settlement agreements with Brazil and Japan to settle in Yuan.
Additionally, in April 2010, some 200 oil sheiks met in Abu Dhabi where a general consensus was reached that Arab oil producers should shift out of dollars into other currencies.
This would be the beginning of the end of the dollar as the world reserve currency and an explosion of inflation as those dollars came home.