What Is the Petrodollar and Why It’s in a Crisis

Historically dollar is a uniquely useful currency for trade, but so many new ones are being created as to give doubt to its value. Some of the biggest earners of dollars are no longer storing them

Alastair Crooke (The Huffington Post – Excerpt)

THE RISE OF THE PETRODOLLAR

The dollar’s role as the world’s reserve currency was first established in 1944 with the Bretton Woods agreement. The U.S. was able assume this role by virtue of it then having the largest gold reserves in the world.

The dollar was pegged at $35 an ounce — and freely exchangeable into gold at that rate. But by 1971, convertibility into gold was no longer viable as America’s gold resources drained away.

Instead, the dollar became a pure fiat currency (decoupled from any physical store of value), until the petrodollar agreement was concluded by President Nixon in 1973.

The essence of the deal was that the U.S. would agree to military sales and defense of Saudi Arabia in return for all oil trade being denominated in U.S. dollars.

As a result of this agreement, the dollar then became the only medium in which energy exchange could be transacted.

This underpinned its reserve currency status through the need for foreign governments to hold dollars; recirculated the dollar costs of oil back into the U.S. financial system and — crucially — made the dollar effectively convertible into barrels of oil.

The dollar was moved from a gold standard onto a crude oil standard.

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About Fubar (5735 Articles)
Na meer dan 10.000 kortere en langer artikelen op dit blog en 10.000 op andere blogs ga ik langzamerhand afscheid nemen. Dit blog is in goede handen. De populariteit én onbemindheid nemen in gelijke mate toe. Een mooiere bevestiging van onze onafhankelijkheid kunnen we niet wensen. Ik blijf meekijken, en af en toe wat publiceren, maar andere projecten roepen...

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