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After the breakdown of Bretton Woods, the petro-dollar was created by the US being a hegemonic power. https://www.bloomberg.com/news/features/2016-05-30/the-un

After the breakdown of Bretton Woods, the petro-dollar was created by the US being a hegemonic power. https://www.bloomberg.com/news/features/2016-05-30/the-untold-story-behind-saudi-arabia-s-41-year-u-s-debt-secret https://www.bloomberg.com/news/features/2016-05-30/the-untol... Any threats to the petro-dollar have been met with death and invasion like Libya and Iraq. It seems that any new hegemon has a chance at a reserve currency if they can force their currency as the default for commodities. China has a voracious appetite for commodities and if it pays for them in Yuan (like in Russia-China gas pipeline) this could be mean that we might be heading for a multiple reserve currency scenario globally. Fiat currency as a reserve currency requires being a hegemon and military might. So wars are not just for taking over the resources of other countries but also in how they are priced and sold. Also the rise of crypto and the “return” of gold could change matters as well as money supply of fiat currency continues to increase beyond economic growth. https://eurasiantimes.com/petro-dollar-vs-petro-yuan-is-china-set-to-replace-u-s-as-the-biggest-player-in-m-east-as-ties-grow-with-saudi-arabia/ https://eurasiantimes.com/petro-dollar-vs-petro-yuan-is-chin... https://www.reuters.com/article/us-saudi-usa-oil-exclusive-idUSKCN1RH008 https://www.reuters.com/article/us-saudi-usa-oil-exclusive-i...

JMTQp8lwXL 6y ago
The question boils down to, do people trust China (and its renminbi) or the US (and its dollar) more? Even if China is greatly involved in commodities, or has an ever-growing GDP, the political forces concerning the administration of the currency are a factor.
- sroussey 6y ago
  Trade between China and Russia has gone from 90% USD to 90% Yuan. The question is, how many bilateral agreements does it take to make it fait accompli?
  - Iolaum 6y ago
    Enough that it 'd consist a sizable amount of the trading volume. Then businesses will bother to figure out the FX costs associated with trading in Yuan. And then trading in Yuan has to be more profitable than trading in USD. Don't know enough to evaluate possible outcomes for each step.
darksaints 6y ago
I think it's actually less significant for the dollar to be a the defacto reserve currency than it is to be the defacto exchange currency. Trillions of dollars change hands every day on currency exchange markets alone...several times more than the second largest currency. This is due to the status as the exchange currency, or the most common quote currency for trading pairs. This effectively means that if a Libyan importer in Tripoli wants to buy Honduran frog legs, there is going to be one exchange from Dinar to USD, and one exchange from USD to Lempira. For this reason, global trade both depends on and is fueled by the liquidity provided by the dollar. This relationship of liquidity with the dollar is what creates the petrodollar. People and governments hoard dollars not because of its use as a means to buy oil, but because of its use to buy literally anything that is not sold in their home currency. Financial assets for hoarding can easily be replaced by other hoardable financial assets. Liquidity, on the other hand, can not.
JumpCrisscross 6y ago
> After the breakdown of Bretton Woods, the petro-dollar was created by the US being a hegemonic power This is the petrodollar hypothesis, a debunked theory of global trade. Oil is globally traded. It can be and is priced in many currencies. Most international trade was historically priced in dollars for two reasons. The second was, until recently, the unique speed and breadth of the Fedwire system. The first is the American consumer. When Americans buy, we spend dollars. This puts dollars in vendors’ hands. 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. Oil is priced in dollars, and countries borrow in dollars, because dollars reign supreme. Not the other way. Yes, the U.S. government has taken steps to bolster the U.S. dollar. Including through its Saudi relationship. But that relationship was then about securing energy supplies and is today about that and regional security.
- z3ncyberpunk 6y ago
  you naively ignore the actions the US MIC has taken in the name of power amd hegemony to keep their dollar traded and in power so that it fits your cozy illusion. the US has spent decades performing coups and destabilizing countries and regions of the world, propping up puppet leaders under their wing, political assassinations to etc all in the name of economic dominance.
- jameslk 6y ago
  > This is the petrodollar hypothesis, a debunked theory of global trade. You keep saying this[0][1], without providing any citation. What sources do you have to back up this claim? 0. https://news.ycombinator.com/item?id=22829420 https://news.ycombinator.com/item?id=22829420 1. https://hn.algolia.com/?dateRange=all&page=0&prefix=true&query=JumpCrisscross%20petrodollar%20hypothesis&sort=byPopularity&type=comment https://hn.algolia.com/?dateRange=all&page=0&prefix=true&que...
  - miles 6y ago
    Not OP, but a quick Google search turned these up: Why The Petro-Dollar Is A Myth, And The Petro-Yuan Mere Fantasy https://www.forbes.com/sites/douglasbulloch/2018/04/26/the-petro-dollar-is-a-myth-the-petro-yuan-mere-fantasy/ https://www.forbes.com/sites/douglasbulloch/2018/04/26/the-p... Debunking the Petrodollar Myth https://medium.com/@JSlate__/debunking-the-petrodollar-myth-1a4bc596472e https://medium.com/@JSlate__/debunking-the-petrodollar-myth-... Debunking the Dumping-the-Dollar Conspiracy https://foreignpolicy.com/2009/10/07/debunking-the-dumping-the-dollar-conspiracy/ https://foreignpolicy.com/2009/10/07/debunking-the-dumping-t...
bobthepanda 6y ago
Strict Chinese capital controls are going to hobble CNY's utility for quite a while. Having a bunch of CNY is kind of useless if you can't freely exchange it with the country in question, and the one benefit above all else is that the US hasn't had any sort of strong capital controls in modern history that might result in a dollar crunch. (It may also be a colossal economic collapse when China lets the floodgates open, since inflated Chinese property values being the majority of domestic household investment are a symptom of the capital controls, and the ensuing rush may cause both a collapse in those values and asset inflation elsewhere.)
- xapata 6y ago
  Continuing the dam metaphor: Why would they open the floodgates when they can release pressure more safely?
  - bobthepanda 6y ago
    Long term we know that opening the Chinese market would probably be the most healthy thing for global commerce. The problem is that currency markets are ruthless, and past crises with other currencies shown that it is unclear what kind of opening can and cannot be clamped down on. Opening up something innocuous may end up inadvertently creating a large crack. And the Chinese market is so large that even a trickle in releasing Chinese capital controls can be a deluge in other smaller markets. On the one hand China is not shy about reestablishing capital controls if need be, on the other hand using that as a tool makes CNY undesirable as a reserve currency.

JMTQp8lwXL 6y ago

The question boils down to, do people trust China (and its renminbi) or the US (and its dollar) more? Even if China is greatly involved in commodities, or has an ever-growing GDP, the political forces concerning the administration of the currency are a factor.

sroussey 6y ago
Trade between China and Russia has gone from 90% USD to 90% Yuan. The question is, how many bilateral agreements does it take to make it fait accompli?
- Iolaum 6y ago
  Enough that it 'd consist a sizable amount of the trading volume. Then businesses will bother to figure out the FX costs associated with trading in Yuan. And then trading in Yuan has to be more profitable than trading in USD. Don't know enough to evaluate possible outcomes for each step.

darksaints 6y ago

I think it's actually less significant for the dollar to be a the defacto reserve currency than it is to be the defacto exchange currency. Trillions of dollars change hands every day on currency exchange markets alone...several times more than the second largest currency. This is due to the status as the exchange currency, or the most common quote currency for trading pairs. This effectively means that if a Libyan importer in Tripoli wants to buy Honduran frog legs, there is going to be one exchange from Dinar to USD, and one exchange from USD to Lempira. For this reason, global trade both depends on and is fueled by the liquidity provided by the dollar. This relationship of liquidity with the dollar is what creates the petrodollar. People and governments hoard dollars not because of its use as a means to buy oil, but because of its use to buy literally anything that is not sold in their home currency. Financial assets for hoarding can easily be replaced by other hoardable financial assets. Liquidity, on the other hand, can not.

JumpCrisscross 6y ago

> After the breakdown of Bretton Woods, the petro-dollar was created by the US being a hegemonic power This is the petrodollar hypothesis, a debunked theory of global trade. Oil is globally traded. It can be and is priced in many currencies. Most international trade was historically priced in dollars for two reasons. The second was, until recently, the unique speed and breadth of the Fedwire system. The first is the American consumer. When Americans buy, we spend dollars. This puts dollars in vendors’ hands. 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. Oil is priced in dollars, and countries borrow in dollars, because dollars reign supreme. Not the other way. Yes, the U.S. government has taken steps to bolster the U.S. dollar. Including through its Saudi relationship. But that relationship was then about securing energy supplies and is today about that and regional security.

z3ncyberpunk 6y ago
you naively ignore the actions the US MIC has taken in the name of power amd hegemony to keep their dollar traded and in power so that it fits your cozy illusion. the US has spent decades performing coups and destabilizing countries and regions of the world, propping up puppet leaders under their wing, political assassinations to etc all in the name of economic dominance.
jameslk 6y ago
> This is the petrodollar hypothesis, a debunked theory of global trade. You keep saying this[0][1], without providing any citation. What sources do you have to back up this claim? 0. https://news.ycombinator.com/item?id=22829420 https://news.ycombinator.com/item?id=22829420 1. https://hn.algolia.com/?dateRange=all&page=0&prefix=true&query=JumpCrisscross%20petrodollar%20hypothesis&sort=byPopularity&type=comment https://hn.algolia.com/?dateRange=all&page=0&prefix=true&que...
- miles 6y ago
  Not OP, but a quick Google search turned these up: Why The Petro-Dollar Is A Myth, And The Petro-Yuan Mere Fantasy https://www.forbes.com/sites/douglasbulloch/2018/04/26/the-petro-dollar-is-a-myth-the-petro-yuan-mere-fantasy/ https://www.forbes.com/sites/douglasbulloch/2018/04/26/the-p... Debunking the Petrodollar Myth https://medium.com/@JSlate__/debunking-the-petrodollar-myth-1a4bc596472e https://medium.com/@JSlate__/debunking-the-petrodollar-myth-... Debunking the Dumping-the-Dollar Conspiracy https://foreignpolicy.com/2009/10/07/debunking-the-dumping-the-dollar-conspiracy/ https://foreignpolicy.com/2009/10/07/debunking-the-dumping-t...

bobthepanda 6y ago

Strict Chinese capital controls are going to hobble CNY's utility for quite a while. Having a bunch of CNY is kind of useless if you can't freely exchange it with the country in question, and the one benefit above all else is that the US hasn't had any sort of strong capital controls in modern history that might result in a dollar crunch. (It may also be a colossal economic collapse when China lets the floodgates open, since inflated Chinese property values being the majority of domestic household investment are a symptom of the capital controls, and the ensuing rush may cause both a collapse in those values and asset inflation elsewhere.)

xapata 6y ago
Continuing the dam metaphor: Why would they open the floodgates when they can release pressure more safely?
- bobthepanda 6y ago
  Long term we know that opening the Chinese market would probably be the most healthy thing for global commerce. The problem is that currency markets are ruthless, and past crises with other currencies shown that it is unclear what kind of opening can and cannot be clamped down on. Opening up something innocuous may end up inadvertently creating a large crack. And the Chinese market is so large that even a trickle in releasing Chinese capital controls can be a deluge in other smaller markets. On the one hand China is not shy about reestablishing capital controls if need be, on the other hand using that as a tool makes CNY undesirable as a reserve currency.