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There's a lot of weird statements here. > This is the petrodollar hypothesis, a debunked theory of global trade. The petrodollar is a real thing, I'm not sure

There's a lot of weird statements here. > This is the petrodollar hypothesis, a debunked theory of global trade. The petrodollar is a real thing, I'm not sure what you mean by a debunked hypothesis. I assume you are speaking with knowledge that Nixon used the petrodollar to stabilize the dollar after the abandonment of the gold standard. [1] Can you elaborate on how this is "debunked"? > Oil is globally traded. It can be and is priced in many currencies. Not if you're buying oil from Saudi Arabia or OPEC. Which is the point of the petrodollar. > Those dollars can be reused for trade or invested, the latter supporting dollar financial markets. Both support dollar hegemony, which in turn drives its dominance in global trade and finance. There is nothing unique to the dollar in this statement. Swap the dollar for the pound, and it is also true. All currencies are traded, and more trade in that currency makes the currency stronger. The point is that the petrodollar artificially strengthens the US Dollar, because it is artificial demand for the US Dollar. > Oil is priced in dollars, and countries borrow in dollars, because dollars reign supreme. Not the other way. This is very circular logic. Please help me understand your point here. Because it seems like you are saying "The dollar is supreme, therefore the dollar is supreme." But _why_ is the dollar supreme in the first place? And it certainly isn't just because "American consumers spend in dollars." All countries's consumers spend money in their local currency. We must look at why the dollar is unique. > Argentina and Turkey’s currencies devalued relative to their trade-weighted baskets of currencies. The dollar was not a driver of their problems. The dollar is a large portion of their "trade-weighted basket of currencies". Seems weird to admit that and then say it had nothing to do with their problems. [1] https://en.wikipedia.org/wiki/Petrodollar_recycling#History https://en.wikipedia.org/wiki/Petrodollar_recycling#History

LatteLazy 7y ago
So I am no expert and I am not the commentor you replied to but... I thought the idea behind PetroDollar was that countries sold their oil, that gave them big trade surpluses, then they used that to buy US Government Bonds. They chose US government bonds because they are secure, inflation proof, liquid and it gives them geopolitical clout. The fact that many oil transactions are priced in USD isn't really relevant because if you get paid in Euro\Yuan\Rubble and immediately turn them into USD, then USD is where the demand will actually be. As OPEC members all wanted dollars because that's what you use to by US Govt Securities, that makes the USD the "petrodollar", even if they all insisted on being paid in say Euros and then sold those euros to buy USD it would make no difference. So that answers why it doesn't really matter what currency oil transactions happen in. But it represents another problem for the PetroDollar hypothesis: Who is buying US government debt and how much are they buying (net). Because that is where the real strength is, people want US bonds, not US Dollars. When all this started, there were few countries with long term surpluses, just Opec really. But since then Japan and China (Japan apparently holds more than China as of 2020 I think, but the link says the reverse as of 2017) has eclipsed them. Saudi are minor holders actually, other Opec holders not even making the top 20. https://en.wikipedia.org/wiki/United_States_Treasury_security#International https://en.wikipedia.org/wiki/United_States_Treasury_securit... Also, oil prices for the last 20+ years have been very unstable. At times (Iraq wars, the 2008 crash etc) the oil price has been high and that means Opec have a lot of cash to purchase bonds. But at other times (like now) the oil price has been low. Right now, Saudi has a trade deficit. So they are SELLING their US securities to fund that. Also, the slow erosion of market share of Opec has meant that even high prices are no longer as big a revenue boon for them. Similarly, China has become a much bigger purchaser of bonds. That sort of works in favour of the "petrodollar" (should it be petro\sino\japan dollar now?) hypothesis as it makes it easier for the US to run a government deficit. But right now, China is coming out of quarantine so their economic numbers are about to stall right? So if the Saudis (and Opec) can't afford US bonds and the Chinese and Japanese are not buying them (as their economies stall), just how interest rate resistant is the US deficit? I suspect people know that the treasury will print dollars to maintain the deficit as they have been since 2008. But that only happens without inflation when everyone else (Brits, Eurozone etc) are doing it too. But if they manage Covid-19 better than the US (and respectfully that doesn't seem hard), they wont need the same deficit funding. And similarly EU social structures mean they can deal with disasters like this without the use of central government funds. So really is this a case of Who Knows what will happen? Sorry if I am missing something here or it's all armchair economics :)

LatteLazy 7y ago

So I am no expert and I am not the commentor you replied to but... I thought the idea behind PetroDollar was that countries sold their oil, that gave them big trade surpluses, then they used that to buy US Government Bonds. They chose US government bonds because they are secure, inflation proof, liquid and it gives them geopolitical clout. The fact that many oil transactions are priced in USD isn't really relevant because if you get paid in Euro\Yuan\Rubble and immediately turn them into USD, then USD is where the demand will actually be. As OPEC members all wanted dollars because that's what you use to by US Govt Securities, that makes the USD the "petrodollar", even if they all insisted on being paid in say Euros and then sold those euros to buy USD it would make no difference. So that answers why it doesn't really matter what currency oil transactions happen in. But it represents another problem for the PetroDollar hypothesis: Who is buying US government debt and how much are they buying (net). Because that is where the real strength is, people want US bonds, not US Dollars. When all this started, there were few countries with long term surpluses, just Opec really. But since then Japan and China (Japan apparently holds more than China as of 2020 I think, but the link says the reverse as of 2017) has eclipsed them. Saudi are minor holders actually, other Opec holders not even making the top 20. https://en.wikipedia.org/wiki/United_States_Treasury_security#International https://en.wikipedia.org/wiki/United_States_Treasury_securit... Also, oil prices for the last 20+ years have been very unstable. At times (Iraq wars, the 2008 crash etc) the oil price has been high and that means Opec have a lot of cash to purchase bonds. But at other times (like now) the oil price has been low. Right now, Saudi has a trade deficit. So they are SELLING their US securities to fund that. Also, the slow erosion of market share of Opec has meant that even high prices are no longer as big a revenue boon for them. Similarly, China has become a much bigger purchaser of bonds. That sort of works in favour of the "petrodollar" (should it be petro\sino\japan dollar now?) hypothesis as it makes it easier for the US to run a government deficit. But right now, China is coming out of quarantine so their economic numbers are about to stall right? So if the Saudis (and Opec) can't afford US bonds and the Chinese and Japanese are not buying them (as their economies stall), just how interest rate resistant is the US deficit? I suspect people know that the treasury will print dollars to maintain the deficit as they have been since 2008. But that only happens without inflation when everyone else (Brits, Eurozone etc) are doing it too. But if they manage Covid-19 better than the US (and respectfully that doesn't seem hard), they wont need the same deficit funding. And similarly EU social structures mean they can deal with disasters like this without the use of central government funds. So really is this a case of Who Knows what will happen? Sorry if I am missing something here or it's all armchair economics :)