The Oil Drum

The concept that petro dollars don't matter.

Well lets say that your holding US dollar and the dollar declines in value then you have to buy a few Mansions or Jet Planes. You can either buy US Mansions or Planes which are now relatively cheaper or buy European which are more expensive. The point is not the transaction but the holding currency. The petrodollar consists of several things.

A reserve currency thus as its value decreases vs other currencies goods from other countries are expensive. A currency for a transaction. A currency for denominating savings.

If the currency did not matter why not say use Mexican pesos ?
Why does the US care about the petro dollar ?
What happens to the trillions of petro-dollars floating around the world if it chooses new currencies for oil transactions ?
What about Asian countries that use the dollars too by oil ?

Because in general because of its status the US is in a unique position its able to print as many dollars as it wants and they are absorbed by the global economy and better the value does not decrease. Other countries like Asian manufactures play the game to keep their currencies low for trade.

Its been a grand game for a long time with the US effectively able to print as much money as the world could take.

Its been a three way trade.

1.) US produces dollars
2.) Asian Manufactures produces goods and accept dollars and buy more using other currencies to keep the dollar high because of real or effective pegs.
3.) Asian Manufactures and US and Europe send dollars to OPEC for oil.
4.) OPEC reinvests dollars in US T Bills or other dollar denominated Assets. OPEC also
has a dollar peg so it periodically buys up dollars to protect the peg.
5.) US produces more dollars as needed.

Understand that the US has exported more dollars than any other export. If you counted the flow of dollars out of the US its our top export.

But its coming to a end.