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How the Death of the Petrodollar System
Will Put an End to the US Dollar

The US dollar is still the reserve currency of the World in 2013. 60 % of the World's foreign currency reserves are in US dollars.

For decades, countries have been stockpiling the American currency to use for trade among each other. In the 20th century, the US dollar has become almost indispensable in successful international trade - to any country. In fact, it has almost become a global currency. US dollars were easy to trade everywhere.

This huge demand has kept interest rates low, ensuring strength to the US dollar.

But this is not the only thing that still keeps the US currency in power. The petrodollar system is the other important factor to keep an eye on.

In fact, the long-predicted crash of the US dollar will most likely happen when the petrodollar system ceases to exist.

Let's look into this matter...

 What is the Petrodollar System?

Oil price is officially calculated in US dollars. This commodity is also sold in the same currency. Therefore, in order for a country to buy oil, US dollars are needed. And, in order to obtain the dollars, the buyer will have to either sell their own products or services to the US or buy US government debt. One of the most common ways is to buy US bonds.

The petrodollar system literally created a strong link between oil and the American currency. The two seemed inseparable until recently...

 The First Steps Towards the End of the Petrodollar System Have Been Set

For political and economic reasons, certain countries have been avoiding the US dollar in trade. This makes the transactions somewhat more complicated, but the result is a negative one on the dollar.

Major oil exporting countries (and not only) have been ditching the dollar either in favor for their own or their partner's currency or even their own, but some have also been trading oil for gold or have even engaged into bartering.

Iraq started trading oil for euros in the year 2000, Iran has been selling oil to India for gold and in ruble to Russia, the United Arab Emirates has already started selling oil to China for Yuan, Venezuela and Russia are using the bolivars and the rubles in bilateral trade.

These are just a few examples of how the US dollar's importance in trading oil is diminishing.

 It Will Be a Gradual Process, Not a Sudden Crash

The crash of the US dollar will most likely be a gradual one, not as sudden as many have been predicting.

The immense debt accumulated by the USA, the mortgage bubble, the threat posed by the retiring babyboomers, the nearing fiscal cliff, the quantitative easing rounds that are increasing inflation. all these are just some of the factors often talked about, but the petrodollar system's demise seems to be far nearer!

In fact, by taking a look at all these threats, you'll notice that the petrodollar system's termination is more of a threat than most others. It's one of the nearest threats to the US dollar.

Steps have been already been set towards the end of the petrodollar system: more and countries are selling oil for anything else than US dollars.

 The Tremendous Importance of Oil in the Dollar's Strength

Crude oil is in fact the most traded commodity in the World. Until several years ago, every country needed US dollars to buy oil. Currently, an increasing number of major oil sellers have been quitting the usage of dollars.

The obvious result is a decrease of demand for the US dollar. This will eventually fatally weaken the American currency.

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