I just read this article by William Engdahl explaining the petro-dollar. I think I get it but I’m still fuzzy on the subject and would like to bounce my comprehension off of you guys to see if I’m really getting it. In this article, Hans Hoppe explains how the dollar reserve system, originally architected in the Bretton-Woods agreement, allowed the US to export its inflation onto subject nations. I think Engdahl is making the case that the US has been doing something similar since the 1970’s through oil reserves.
Oil is a lot like gold; it is even called black gold. Its primary differences, as regards its capacity to act as a currency, is that it is of too low a value to be used in individual transactions and it is more difficult (and costly) to store. But, in bulk quantities - like those used by central banks and national governments in manipulating the price of gold - oil is very much like gold.
In 1934, the US government statutorily banned gold ownership and orchestrated the largest single gold heist in history, seizing the gold of US citizens giving them paper exchangeable at a little more than 60% of the market value of the stolen gold. The purpose was to force Americans to use the Federal Reserve’s paper money exclusively which could not be inflated very rapidly so long as it was redeemable in gold and gold was allowed to circulate alongside of it. Once the government and central bank held all the gold, the internal checks on inflation were removed. The only limitation now was the dollar’s convertibility into gold by foreign central banks.
Basically, if the commodity which acts as a “reserve” or “settlement of accounts” between central banks or nations is out of reach of the populace, then the populace is at the mercy of the printing press which can be used to devalue the paper they are forced to hold in lieu of real commodity reserves. But this is as true of vassal central banks as it is of the populace - central banks under the umbrella of American power must submit to using dollars instead of gold as a reserve, depositing their gold for “safekeeping” by the Federal Reserve which then forces the subject economy to bear American inflation proportionally to the size of dollar reserves held by their ruling central bank. The essence of monetary imperialism is to force the subjects to use the substitute instead of the backing commodity in exchanges, reserving the commodity for balance of payments between the “big boys”, that is, between ruling central banks.
To translate this to oil, if oil is (almost) only sold in dollars, the oil itself is acting as a kind of commodity reserve backing for dollars. You can exchange dollars for oil (instead of gold) at any time. This makes dollars valuable like being able to exchange dollars for gold used to make dollars valuable. But since dollars are still fiat, no subject central bank or American can bring their dollars into the US government or Federal Reserve and ask for payment in gold or oil or anything else. Hence, the Federal Reserve is still free to print as many dollars as it likes without fear of a central bank run - as it did in 1968-1971 by the French and British - yet it is forcing the nations with oil reserves to act as commodity backers for dollars. It’s almost like we’ve forced Saudi Arabia and other subject nations to pump their oil, store it in tankers at the Federal Reserve vault in exchange for dollar reserves, and then allowed oil purchasing nations to “redeem” their dollars in oil. In the process, we’ve exported our inflation onto the petrodollar nations.
So, the war in Iraq keeps oil from being denominated in other currencies - that is, it keeps other central banks from being able to use Iraqi oil as de facto commodity backing - just as the 1934 gold heist kept gold out of the hands of Americans.
Am I close to the mark or way off?
Clayton -