Will Saudi Arabia’s mBridge partnership weaken USOIL prices?

Saudi Arabia has joined Project mBridge, a cross-border central bank digital currency (CBDC) initiative spearheaded by China. This project, which also includes Hong Kong, Thailand, and the United Arab Emirates, signifies a dramatic shift in the global financial order, with far-reaching implications for traders and investors worldwide.

And yet, Western media is barely covering the news. Is mBridge so insignificant that it doesn’t deserve a story, or is it a crack in Western economic stability that central banks are afraid to acknowledge? More importantly, can mBridge act as a leading indicator for traders?

Why create mBridge?

Project mBridge aims to create a more efficient, transparent, and secure system for international trade and payments using blockchain technology. This could dramatically reduce the dependence on the US dollar, especially in the oil trade, which has been dominated by the petrodollar system for decades. By enabling direct transactions between countries mBridge promises to revolutionize the way global commerce is conducted.

The inclusion of Saudi Arabia, a key player in the global oil market, adds significant weight to the project. It signals a potential pivot away from the US dollar, as participating countries seek more financial autonomy. The project's use of blockchain technology ensures that transactions are not only faster and cheaper but also more transparent and secure, reducing the risk of fraud and increasing trust among trading partners.

Assets affected by mBridge

For traders, this CBDC development could herald a period of increased volatility in traditional fiat currencies, particularly USD-related pairs. If mBridge captures the interest of other nations in 2024, several assets could be significantly influenced in the coming weeks and months.

Oil and energy commodities

The most immediate and significant impact will likely be on oil and energy commodities. Saudi Arabia is a major player in the global oil market, and any move to transact in digital currencies rather than US dollars could disrupt traditional pricing and trading mechanisms. This could lead to increased volatility in oil prices as markets adjust to the new transaction methods and potential shifts in demand and supply dynamics.

US dollar

The US dollar, as the current global reserve currency, will be directly affected. Any reduction in the use of USD for international oil transactions will reduce demand for the currency. Traders should watch for fluctuations in USD value relative to other major currencies, as well as any shifts in forex markets prompted by changes in international trade patterns.

Cryptocurrencies

Project mBridge utilizes a custom-built blockchain called the mBridge Ledger. This platform enables instantaneous cross-border trade and other payments among participating central banks using distributed ledger technology (DLT).

Given that Project mBridge is leveraging blockchain technology, cryptocurrencies could see increased interest and investment.

Circulating rumors that XRP and Ethereum are associated with mBridge are largely inaccurate, although the underlying technology does have some similarities, but don’t bank on a specific token getting a sizable price boost any time soon.

Precious metals

Assets like gold, silver, and platinum, traditionally seen as financial havens during times of economic uncertainty, might experience increased volatility. A sentiment shift away from the US dollar could create instability and traders might turn to precious metals as a hedge against potential currency depreciation or inflationary pressures. An increasing interest in gold to hedge a weakening USD could generate some epic volatility, despite gold already riding high in its current range.

Emerging market currencies

Currencies of emerging markets participating in (or considering) such digital currency initiatives could be affected. For example, the Chinese yuan (CNY) and other Asian currencies might see shifts in value as the region adjusts to new trading norms established by mBridge. Monitoring these currencies could provide insights into broader economic impacts and potential investment opportunities.

Conclusion

Saudi Arabia's participation in Project mBridge marks a significant milestone in the evolution of global finance. Along with BRICS, mBridge proponents seem to be trying to escape their involvement in America’s debt accumulation.

Most likely, the digital oil token will first be set at the rate that USD indicates, but that price will quickly diverge due to reduced transitional costs and the possible weakening of the dollar as fewer countries hold high reserves for international trading. At some point, oil will be cheaper to buy through mBridge than with USD, which will accelerate mBridge popularity and produce a chain reaction.

The US will likely battle such a development with higher interest rates for longer, which should stave off reactionary USD price declines, but that approach will increase the national debt, which is already over $34 trillion.

Looking far ahead, the US doesn’t have any future initiatives to reduce that enormous growing debt or make USD more attractive, so don’t be surprised if you see a repeat of the 1971 “Nixon shock” on the news not long after the US elections.

Until then, trade USD-related pairs with an air of caution and see how many EU countries express interest in mBridge over the coming weeks. Remember, as a trader, you can benefit from both economic growth and collapse, so make sure you get your trading account funded and ready.