Can Bitcoin break the monopoly of the "petrodollar" and revive the global economy?

Can Bitcoin subvert the existing economic order, promote world peace, and revitalize the U.S. economy at the same time? To answer this question, we must first talk about crude oil and the existing "petrodollar monopoly" phenomenon.

A research report once pointed out: "Capitalism is an economic system; war is a political act." The report stated that the petrodollar monopoly is completely in the interests of the Federal Reserve, so the United States will do everything, even at the expense of the peaceful coexistence of many countries (including the United States, Iran, China, etc.), just to maintain its status.

What is the petrodollar monopoly?

The term “petrodollar monopoly” refers to the fact that the banking cartel (Translator’s note: the Federal Reserve is jointly owned by the US banking cartel and is not actually a government agency) uses the US dollar as the exclusive currency in this field in order to ensure its economic power.

In 1971, after the collapse of the Bretton Woods Agreement, the United States and Saudi Arabia reached an agreement to regain the monopoly of the US dollar. Saudi Arabia's oil exports can only be bought and sold in US dollars, and the surplus funds after deducting the funds used to develop the domestic economy and other domestic expenditures are used to purchase US bonds. In return, the United States provides it with weapons and military protection.

Most American politicians are not optimistic about this agreement because such a relationship often goes against the interests of the United States and even causes unnecessary conflicts.

Agreements like the petrodollar and the Bretton Woods Agreement only create economic tensions and are extremely harmful to developing countries, especially China. As domestic export and oil import patterns change, the impact of the depreciation of US bonds on China will become less and less.

China plans to ease economic pressure by breaking away from the dollar monopoly system or reducing production costs.

Risks to the US dollar from recent events

Let’s review some of the more interesting events in recent years. Although they may seem unrelated, once put together, we can see that these events have important significance for both the US dollar and Bitcoin.

1. In 2012, Iran agreed to trade crude oil in Chinese yuan (also known as the “petro-yuan”), marking the beginning of China’s move away from the petrodollar system. Several oil exporting countries soon followed suit.

2. Bitcoin trading in China has been active since 2013, and certain domestic policies have often driven up the price of Bitcoin, such as defining Bitcoin as a "right" and the issuance of central bank digital currency.

3. In 2015, China plans to completely break the monopoly of the US dollar. According to the Russian Satellite Network: "...China has begun to sell US bonds, increase gold reserves, and open banks for RMB in many places..."

4. In 2016, the International Monetary Fund (IMF) approved the inclusion of the RMB in the Special Drawing Rights currency basket.

If China is lost as a trading partner, the status of the US dollar will be even more precarious. The IMF's move is intended to break China's control over the RMB and bring a new type of trade currency to other countries.

The depreciation of the RMB may be the trigger for Chinese people to turn to Bitcoin, which also leads to the rise in Bitcoin prices. But it is not the main factor promoting the development of Bitcoin. If China's capital controls are the main reason for the surge in Bitcoin prices, then the IMF should adopt an accommodative policy towards the RMB, but it turns out that it did not do so.

Assuming that Bitcoin can be used as a tool for international crude oil trade, the rise in its price is to meet the demand for daily crude oil circulation, that is, the rise in Bitcoin prices is to make the value of "PetroBitcoin" equal to the value of the crude oil market (US$4.6 billion: 94 ml/barrel * the average price of crude oil in OPEC countries in 2015, US$49.49). Is this a reasonable explanation for the rise in Bitcoin prices?

The Fed will face risks, but the U.S. economy will not

At first glance, the above risks and the concept of “石油比特币” seem to be harmful to the US economy. In particular, the anonymity of Bitcoin can be used by any country to secretly replace the monopoly of the US dollar without damaging international relations. However, it is worth noting that this feature of Bitcoin can help the United States or any other country that does not have close relations with China to invest in RMB.

The most important point is that the holders of Bitcoin are unknown. Whether it is China or any other country, if they try to create the "petro-Bitcoin" phenomenon, they should first consider the following issues.

Once the US dollar returns to its origin and the global pattern is reset, the crude oil purchasing power of various countries will decline, and productivity will also decline, thus causing a global economic recession.

In this period of economic recession, the price of Bitcoin (like gold) will surely rise. With the emergence of the concept of "PetroBitcoin", each country will tend to have a coherent economic activity. The anonymity of Bitcoin will help eliminate the phenomenon of "capitalism and war", thus promoting world peace, while also helping the global economic recovery.

In summary, the above scenario would put the Fed’s position at risk, while the U.S. economy would not be affected too much. The concept of “PetroBitcoin” is more reasonable due to its neutrality – just like the impartial blockchain technology, it can help the U.S. and any other country in an economic crisis. “PetroBitcoin” can also prevent dangerous international alliances and unnecessary conflicts.

Translator's note: In fact, the concept of "petro-bitcoin" is not an empty talk. The first bitcoin crude oil trading website has already appeared. You can review Babbitt's previous reports.