Lark Davis, in his recent video, delves into the shifting dynamics of global currency power. The CoinSpeech team has curated the most significant insights from his detailed exploration. You can check out Lark Davis’s new video below.
The Rise of the US Dollar
The US dollar’s dominance began during World War II when “the United States became the Allies’ supplier of weapons and goods”. By the end of the war, the U.S. had accumulated more than 70% of the global gold reserves. This vast wealth allowed the USD to become the world’s reserve currency, particularly cemented by the Bretton Woods Agreement, which tied the value of other currencies to the USD, and by extension, to gold.
The Petro Dollar Deal
In the 1970s, the U.S. leveraged its relationship with Saudi Arabia to secure the dollar’s dominance by creating the Joint bilateral Commission on economic cooperation. This agreement ensured that Saudi Arabia continued to sell oil in dollars and invested its wealth back into the U.S. markets. As Davis notes, this move “proved to be mutually beneficial for both countries”, significantly strengthening the USD’s global position.
Cracks in the Relationship
However, in recent times, cracks in the US-Saudi relationship have begun to show. Saudi Arabia is “open to settling oil sales in Chinese Yuan” and has joined the Chinese-led Central Bank digital currency project, mBridge. This shift is largely influenced by China, which is now Saudi Arabia’s largest oil customer.
BRICS and the Yuan
The BRICS nations—Brazil, Russia, India, China, and South Africa—are emerging as a significant coalition. These countries, along with other emerging economies, are fostering stronger ties with China and trading increasingly in Yuan. Davis highlights, “Brazil and China are already trading Yuan and Reals, and 90% of the trade between China and Russia didn’t use the dollar or the Euro.” This indicates a significant pivot away from USD-centered transactions.
The Yuan’s Ambitious Climb
While the Yuan has seen growth, accounting for 4.5% of global transactions in May of this year, it still pales compared to the USD’s 48% share. However, Davis points out that “China’s tight control over the Yuan” is both its strength and its weakness, maintaining stability but making it less attractive as a global reserve currency.
Protecting Yourself in the Currency War
As the competition between the USD and Yuan intensifies, Davis suggests imitating central banks: “they hoarded 39 more tons of gold in January 2024 alone.” He also advocates for Bitcoin as a “digital gold”, emphasizing its decentralized nature and resilience against capital controls.