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One thing I don't understand: > The COVID-19 pandemic hit in early 2020, which halted global trade and contributed (along with a structural oil oversupply issu
by ruuda 6y ago
One thing I don't understand:
> The COVID-19 pandemic hit in early 2020, which halted global trade and contributed (along with a structural oil oversupply issue) to a collapse in oil prices. The dollar quickly spiked, foreigners began outright selling Treasuries and other US assets to get dollars
Earlier on the article explains that in the petrodollar system, foreigners need dollars to buy oil. If they can now buy oil for less dollars, then why do they want to get more dollars?
- thedudeabides5 6y agoThey want to get more dollars because their liabilities are denominated in dollars. So when things go bad, and the price of dollars goes up, everyone who's "short" dollars (via having liabilities priced in dollars vs local currency assets) sees the value of their debt appreciate, and it's painful.
- ruuda 6y agoThanks, that makes sense.