Cracks in Dollar Are Getting Larger

 

Many Daily Reckoning readers are familiar with the original petrodollar deal the U.S made with Saudi Arabia.

It was set up by Henry Kissinger and Saudi princes in 1974 to prop up the U.S. dollar. At the time, confidence in the dollar was on shaky ground because President Nixon had ended gold convertibility of dollars in 1971.

Saudi Arabia was receiving dollars for their oil shipments, but they could no longer convert the dollars to gold at a guaranteed price directly with the U.S. Treasury. The Saudis were secretly dumping dollars and buying gold on the London market. This was putting pressure on the bullion banks receiving the dollar.

China hoarding gold to challenge U.S. dollar?

The People’s Bank of China has not formally disclosed any changes to its gold holdings in years, but it’s believed that the central bank is purchasing gold to diversify its reserve holdings. In 2009, China announced that it boosted its gold reserves by 454 tonnes via acquiring gold quietly over the previous five years. That represented an impressive 76 percent increase in gold reserves. Today, China still shows that it holds 1,054.1 tonnes in reserves, but it’s speculated by analysts to actually have around 2,000 to 3,000 tonnes.Some market participants also believe China is building up its gold reserves to challenge the U.S. dollar, which is currently the world’s reserve currency. A few years ago, China’s official news agency, Xinhua, said, “International supervision over the issue of U.S. dollars should be introduced and a new, stable and secured global reserve currency may also be an option to avert a catastrophe caused by any single country.”