🔴 America's greatest fear has finally come True.
Marjanul Islam
The biggest weapon of America—the US Dollar—is now being directly challenged by the new gold-backed Chinese Yuan.
Saudi Arabia is an energy-exporting nation, while China is an energy-importing nation.
Saudi Arabia used to sell oil to China in dollars and reinvest the money in US government bonds.
China also earned dollars from its global exports and invested them in US Treasury bonds.
But both countries faced a similar problem with US Treasury bonds.
What’s the problem?
US Treasury bonds are failing to retain their real value. Their purchasing power is deteriorating due to consistent inflation in the dollar.
So what Saudi Arabia saves now by selling oil, it won’t be able to use to buy the same quantity of oil 50 years from now with that money in US Treasuries.
The same goes for China. It’s saving its export earnings in US Treasuries but will not be able to buy the same amount of energy in the future that it can today. In simple terms, they are losing money in energy value.
So both came up with a solution: trading OIL using GOLD instead of the US dollar.
How does that help?
In the past 100 years, oil prices haven’t increased in gold terms. Gold has preserved its purchasing power.
But there’s a problem with using gold for payments.
What is it?
There are 2 serious issues: one is the high security risk, and the other is the high transaction cost.
Carrying 10 tonnes of gold from Shanghai to Dubai costs about 1% of the gold’s value per trip. So if you do that 100 times, the total cost equals the entire value of the gold.
So, physical gold transactions every time are not viable.
Instead, a credit or token is issued backed by gold. Parties exchange these tokens or promises and can convert them into physical gold from a vault when needed.
But the problem is - all of China’s gold is in vaults in Shanghai.
China has strict capital controls, meaning dollars or gold can’t leave the mainland without government permission. So no one fully trusts that China will provide physical gold in exchange for paper or digital Yuan.
Even China understands this, which is why the Chinese government took a new initiative.
They created an offshore Yuan, which isn’t strictly controlled by the government and can move freely.
China says it will provide real physical gold in exchange for offshore Yuan.
Most importantly, the gold vault won’t be in Shanghai—it will be in Riyadh, Saudi Arabia.
The Chinese government will build it, and Saudi Arabia will manage the convertibility between gold and Yuan.
This is a clear threat to the US dollar.
America will never willingly give up its dollar dominance.
Trump started the trade war by imposing tariffs; now Xi is waging a currency war against the US.
The worrying part is that historically, currency wars are the final stage before direct conflict between great powers.
Trump is visiting Riyadh in 3 days—will he try to stop MBS from doing such business with China?
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