For four decades, the dollar’s standing as the world’s most important currency—which has under-girded much of America’s post-World War II primacy in international affairs—has rested largely on the greenback’s dominant role in international energy markets.
Washington’s ability to leverage the security concerns of Saudi Arabia and other Persian Gulf Arab states to influence their decision-making on how their oil exports are priced and their petrodollar surpluses recycled has been central to consolidating and maintaining the dollar’s unique role in international energy markets.
China’s rise, as a global economic power and as Persian Gulf energy producers’ most important incremental market, poses the biggest challenge yet to the indefinite prolongation of dollar dominance, as the era of the petro-yuan begins.
In many ways the petroyuan got its start in Iran; for several years now, China has paid for some of its oil imports from the Islamic Republic with renminbi.
The emergence of the “petroyuan” alongside the petrodollar will almost certainly accelerate the ongoing erosion of America’s wider hegemony.