The Petrodollar Officially Ended 5 Days Ago
The beginning of the end of the dollar as world reserve currency
It’s an odd thing to write a book about but I wrote 50% of a novel that focused on the petrodollar and what is called “dollar hegemony” almost 15 years ago. I still have the manuscript somewhere. Some of it was pretty good but I abandoned it for another effort (though I can’t remember what.) However, that time writing and researching opened my eyes to new areas of economics and geopolitics.
I learned that it all really got started with this, when Nixon closed “the gold window”.
It was the beginning of the petrodollar and the end of the gold standard.
Some people felt that detaching from gold was unwise, but they were in the distinct minority, Luddites, clinging to the “barbarous relic”.
But having a totally fiat dollar without any tie to a commodity was problematic. Some felt, particularly Henry Kissinger, that a dollar de facto backed by oil was the most viable option going forward. It would allow for more monetary flexibility but the dollar would still have a kind of tether. It would also help us finance our debt.
In 1974 the USA and Saudi Arabia agreed that all international oil business would be done in US dollars. We got increased stability in our currency and a way to fund debt, they got promised protection and advanced weapons systems. The agreement cemented the US dollar as the world’s reserve currency. If one wanted to do oil business, whether one was Belgium, China, or Brazil, one had to have dollars. We were happy to make them available to the world.
Welcome to “dollar hegemony”.
The agreement with the Saudis held for fifty years. Last week it ended. What will change?
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