In return, the Saudis would plow billions of their petrodollar revenue back into U.S. would buy oil from Saudi Arabia and provide it with military protection and weapons. The basic framework of this was strikingly simple. Remember, they could no longer be exchanged for gold… Now, all those dollars received by Saudi Arabia and other oil exporters needed to make a rate of return to be useful. And this helped the dollar to maintain its status as the world’s primary reserve currency. The upshot was that all countries still needed U.S. Set up in 1960, it has a major influence over oil supply and prices. The Organization of the Petroleum Exporting Countries (OPEC) is an international alliance of oil producers, including Saudi Arabia, the United Arab Emirates, Kuwait, and Venezuela. Oil is often referred to as “black gold” because of its color and its high economic value.īy 1975, all OPEC nations agreed to settle oil trades exclusively in dollars. This marked the opening of what some like to call the “black gold window.” dollars.Īt the time, Saudi Arabia was the third-largest oil producer in the world, behind the Soviet Union and the United States. Saudi Arabia agreed to price all international oil sales exclusively in U.S. In 1974, along with his Secretary of State, Henry Kissinger, Nixon struck a deal with the Saudi Royal Family. dollar’s position as the world’s reserve currency in danger… And it brought an end to the postwar system of international exchange rate stability. This stopped countries converting their U.S. So on August 15, 1971, he closed the international gold window. President Nixon feared a run on our gold stock. It was reaching the point where it didn’t have enough gold reserves to cover the amount of foreign-held dollars. dollar.īut in 1971, the Bretton Woods System effectively came to an end.Īt the time, the U.S.’ gold stock was dwindling. In essence, the entire Western financial system was pegged to gold, via the U.S. promised to convert any dollars brought to it by other countries into gold at a rate of $35 per ounce. dollar’s status as the world’s top reserve currency.Īnd tomorrow, I’ll tell you all about China’s challenge to undermine the U.S. So today, in the first of a two-part series, I’ll show you how the petrodollar came into existence. This is why the dollar is often referred to as the “petrodollar.” Currently over 90% of all oil traded globally is priced in U.S. This refers to oil futures contracts priced in yuan. dollar in our lifetimes, there’s no denying that China is pushing its currency, the yuan, forward on the world stage.Īt the center of these efforts is the emergence of a so-called petroyuan. Now, while I see no danger of it supplanting the U.S. (If you missed it, you can catch up here.) I recently sent you an excerpt of my 2018 book, Collusion, in which I told the story of China’s earlier efforts to undermine the U.S. That’s not to say the dollar is without its challengers… Roughly about as much of the world’s debt is also issued in dollars. It draws its strength from being the primary reserve currency worldwide.Ībout 60% of the world’s foreign exchange trading involves the dollar. dollar remains the strongest world currency. dollar losing its reserve currency status to other currencies… most notably, the Chinese yuan. They are worried about the possibility of the U.S. Several readers have been in touch in recent months to share their concerns about the U.S.
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