There Are No Petrodollars, Plus the Focus Misses the Point

There is no such thing as a petrodollar. Yet, the term continues to garner use in today’s discussions about global currencies and financial arrangements. The word is frequently thrown around whenever some oil producing state does something in partnership with another country not named United States.

From a certain, narrow perspective, the mistake is somewhat understandable. The real global currency, eurodollar, has remained entirely in the dark. As so, by the time of the oil embargo in 1973, and the newfound, price-soaked gains redistributed to OPEC, it only seemed like a new currency system had been arranged out of the 1971 ashes of Bretton Woods with oil replacing gold as its commodity center.

No.

The fact that the very idea of the petrodollar keeps going to this day is instead a poignant if inadvertent acknowledgement of the limited monetary literacy provided by the dastardly discipline of statistics-obsessed Economics. We’ve all been left in the dark, and it began that way all the way back decades ago with the very people tasked with being “our” monetary stewards.

Whereas the eurodollar system was already blooming by the early 1960’s, those at the Federal Reserve were caught unprepared and struggled mightily to make sense of its designs, aims, and methods. From their primitive viewpoint, these “dollars” (there weren’t pallets of physical stacks of Federal Reserve notes, merely book entries on a shared ledger system) must have been “exported” by the loud American balance of payments (BoP) deficits. (More)

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9:55 am on June 14, 2024