Brace yourselves, finance folks!
Saudi Arabia has made a bold move by choosing not to renew its 50-year-old petro-dollar deal with the United States, which officially ended on Sunday, 9 June 2024. This shift is set to rock the financial world and potentially reshape global currency dynamics.
A Brief History Lesson
Back in 1974, the US and Saudi Arabia struck a deal to boost economic cooperation and address Saudi Arabia’s military needs. This agreement marked the beginning of a strong alliance between the two nations, with hopes of increasing Saudi oil production and fostering economic ties with other Arab countries.
The Big Shift
Fast forward to today, and Saudi Arabia’s decision to let the deal lapse ( on the 9th of June 2024) means they’re no longer tied to selling oil exclusively in US dollars. Instead, they can now trade in a mix of currencies like the Chinese RMB, Euros, Yen, and Yuan. There’s even talk of incorporating digital currencies like Bitcoin into their transactions.
This move signals a major departure from the petrodollar system established in 1972, following the US’s decision to decouple its currency from gold. Analysts predict this will accelerate the global shift away from the US dollar’s dominance.
Enter Project mBridge
In an exciting twist, Saudi Arabia has also joined Project mBridge. This initiative explores the potential of a multi-central bank digital currency (CBDC) platform, which could revolutionize cross-border payments and foreign exchange transactions. Built on distributed ledger technology (DLT), the platform aims to enable instant settlements and streamline transactions.
Who’s Involved?
Project mBridge has a growing list of over 26 observing members, including big names like the South African Reserve Bank, Bank of Israel, European Central Bank, and even the International Monetary Fund. This collaboration highlights a significant global interest in digital currency solutions.
The Evolution of mBridge
Launched in 2021, Project mBridge is the brainchild of the BIS Innovation Hub, the Bank of Thailand, the Central Bank of the UAE, the People’s Bank of China, and the Hong Kong Monetary Authority. Following a successful pilot with real transactions in 2022, the project is now at the Minimum Viable Product (MVP) stage.
What’s Next?
As Project mBridge moves forward, it’s inviting private-sector firms to bring new solutions and use cases to the table. This collaborative effort aims to fully develop the platform and unlock its potential.
The Bottom Line
Saudi Arabia’s strategic pivot away from the US dollar and their involvement in pioneering digital currency projects like mBridge are clear signals of a shifting financial landscape. For traders, investors, and finance enthusiasts in the UK, these developments are worth watching closely. The future of global finance is evolving, and staying informed is key to navigating these exciting changes.
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