I keep hearing that word.. what does it means?
The dollar is a currency totally not backed up by any commodity, including oil - there’s no fix amount of oil a dollar can buy.
So why the large use of this misleading word?
Some countries will byu agreement only price oil in dollars, so those who want ot buy oil with minimal hassle from those countries hold dollars, hence they don’t come flooding back into the US to cause inflation. Hence, petro dollar, which came about because the current system cynically makes dollars ‘redeemable’ in oil.
After Nixon closed the “gold window”, the times were a bit rough for the Dollar in the beginning of the 70s. I am not sure if this really is connected that closely, but it fits nicely. Gold went up about 400% until 1974. So 1974 Henry Kissinger traveled through the oil exporting countries and convinced them that they should sell their oil only against Dollars, which was officially declared by the Opec in 1975. Hence the expression: “Petro-Dollar”. Finally Gold stopped rising in 1975 and did in fact nearly lose 50% of its value over the next one and a half years. (Then it 8folded again)
Until end of 2000 no Opec country did in fact violate this “rule”. It was Saddam Hussein who wanted to start selling his oil against EUR (at least this is what I have heard regularly, don’t know if this is proven), but unfortunately the US had a sudden military interest in Iraq. But this is of course only conspiracy talk. It was of course only because of the WMDs that are still hidden somewhere…
This commitment of the Opec definitely pushes demand for Dollars additionally and supports its value, since every country of the world needs Dollars to buy oil. Of course certain theories might argue that if the Opec stops selling against the Dollar alone, the Dollar would soon lose its status as reserve currency. I am not sure but this sounds reasonable, don’t know what the mises crowd thinks of it.
Anyone any thoughts on it?