Editorial: Saudis ditch dollar, lesson for CFA countries.

It was said to have heralded an era of increasingly close co-operation between the two countries.  American officials at the time expressed optimism that the deal would motivate Saudi Arabia to ramp up its oil production. They also envisioned it as a blueprint for fostering economic collaboration between Washington and other Arab countries.

The crucial decision, with global ramifications on the monetary and geopolitical impact, will allow Saudi Arabia to sell oil and other goods in multiple currencies, including the Chinese RMB, Euro, Yen, and Yuan, instead of exclusively in US dollars. Additionally, the potential use of digital currencies like Bitcoin may also be considered.

This latest development signifies a major shift away from the petrodollar system established in 1972, when the US decoupled its currency from gold, and is anticipated to hasten the global shift away from the US dollar.

According to economists, the US economy benefits greatly from being able to export dollars and issuing debts in the form of treasury bonds, which creates a stable economy, lower interest rates, and financial market liquidity in their country and the reserve abroad.

The decision, as seen from diplomatic and geopolitical perspectives, would undermine the status of the dollar as the world's main reserve currency, reduce Washington's clout in global trade and weaken its ability to enforce sanctions on nation states.

Following the invasion of Ukraine by Russia last year, the United States and its European allies imposed wide-ranging sanctions on the Russians.

Moscow, which used to have 70 percent of its global trade in dollars, launched a campaign under the umbrella of intergovernmental organisation comprising Brazil, Russia, India, China, South Africa, Iran, Egypt, Ethiopia, and the United Arab Emirates, known as BRICS, for a shift from the dollar system. Its trade is today less than 20 percent in dollars. 

The decision by Saudi Arabia to ditch the dollar would resonate well with big non-Organisation of the Petroleum Exporting Countries, OPEC, oil producers such as Russia, as well as major consumers, China and the European Union, which have been calling for moves to diversify global trade away from the dollar to dilute US influence over the world economy.

Russia, which is subject to US sanctions, has been selling oil in euros and China's Yuan.

Venezuela and Iran, which are also under US sanctions, sell most of their oil in other currencies, but they have done little to challenge the dollar's hegemony in the oil market.

However, with a long-standing US ally such as Saudi Arabia joining the club of non-dollar oil sellers, it is being perceived in diplomatic, financial and economic parlance as gaining significant traction. 

In the words of a diplomat, "the financial world is bracing for a significant upheaval following Saudi Arabia's decision not to renew its 50-year petro-dollar deal with the United States, which expired on Sunday June 9, 2024".

Countries and financial institutions that have their own currencies had been anticipating such a shift away from the dollar.

They are getting involved in Project mBridge, an initiative which explores a multi-central bank digital currency, CBDC, platform shared among participating central banks and commercial banks. It is built on distributed ledger technology to enable instant cross-border payments and foreign-exchange transactions.

The project has more than 26 observing members, including the South African Reserve Bank, which has been upgraded to a member.

The better known observing members of mBridge are the Bank of Israel, Bank of Namibia, Bank of France, Central Bank of Bahrain, Central Bank of Egypt, Central Bank of Jordan, European Central Bank, the International Monetary Fund, the Federal Reserve Bank of New York, the Reserve Bank of Australia, and the World Bank.

CFA countries have to depend on the Bank of France to take decisions in the mBridge project for them! They need not be told that every country bargains for the interest of its people, not for ex-colonies.

It once again evokes the burning issue of the 14 African countries still on the apron string of the FCFA, with the warp argument that it contains inflation and provides military assistance.

The Saudis had a better deal with the United States, and if they can ditch the dollar in a decision that is bound to redesign global financial architecture, Cameroon and other 13 members in the CFA basket should think of emulating the Saudis and take their sovereignty into their hands.

This story was first published in The Guardian Post issue No 3139 of Wednesday June 12, 2024