On Friday, MSN posted an article from India Today about the end of the petrodollar. Since 1974, oil has been traded in petrodollars.
The article explains:
What are petrodollars?
Petrodollars are not a currency but US dollars exchanged for crude oil exports.
The term “petrodollars” refers to the US dollars earned by oil-exporting countries through the sale of oil.
The concept emerged in the early 1970s and has played a significant role in global economics and geopolitics.
History behind petrodollars
Initially, the Bretton Woods Agreement of 1944 established the US dollar as the world’s primary reserve currency, pegged to gold. This facilitated international trade and economic stability post-World War II.
However, in 1971, US President Richard Nixon ended the dollar’s convertibility to gold, leading to floating exchange rates and increased currency volatility.
In the following year, the Organization of Petroleum Exporting Countries (OPEC) imposed an oil embargo in response to US support for Israel during the Yom Kippur War, causing oil prices to skyrocket.
The US struck a deal with Saudi Arabia and other OPEC countries to stabilise the situation, where oil would be traded exclusively in US dollars.
The move to petrodollars was supposed to stabilize the world’s currency. It was also a boon to America because it provided some stability for the American dollar. Petrodollars were also part of what sustained the value of the American dollar despite ridiculous overspending by Congress. Obviously, the overspending by Congress continues. My fear is that we will become like many formerly prosperous countries with citizens needing to take wheelbarrows of money to the supermarket to buy groceries.
This is not being heavily reported, and I suspect that is because most Americans will have no idea what it means and the news may start an unnecessary panic.