Why is the US dollar used as a currency for the oil trade?

That is not everywhere. There are exceptions.It used to be linked to gold, since 1971 change has been introduced thanks to Nixon.

The reason for the change is duplicate, the United States then had to deal with high inflation, and Nixon did not trust that agreements could be reached in addition to the then current Bretton-Woods system of monetary agreements.Many of the monetary agreements stem from that system which was drafted in negotiations in 1944.

The reason for Nixon’s mistrust came not only by advice, but also because Nixon was paranoid and most likely suffered from paranoid personality disorder.

Inflation has in turn emerged from attracting Japanese and West German economies and the high U.S. government debts sustained thanks to the Vietnam war.

The reason that the US could lead the negotiations in 1944 was because, since that time the US had over half the world gold stock under control or protection and the reason for that is the geographic location of the US and of course the Second World War.

There have also been agreements between companies in which the value of Texan oil has been used as a guideline and since this is in the US, it is obvious to express it in dollars.

In fact, it basically comes down to the fact that it is a confluence of historical circumstances and practices that took care of it.

Not all countries trade oil in dollars.Russia and China have long wanted to trade raw materials in rubles and yuan, although about 80% of all oil is paid with US dollars. However, there is more need than utility to use the dollar as currency in the international oil trade. Whoever wants to abolish the dollar runs the risk of being punished by the United States.

We see this on both Saddam Hussein and Gadaffi.Both gentlemen wanted to disconnect their oil trade from the dollar and we know how it ended with them. Gadaffi wanted to go the furthest. His intention was to introduce a new currency in Africa, the gold dinar. This currency would have actually been linked to the gold price and therefore much more valuable than the oil dollar.

According to Willem Middelkoop and Paul Buitink in the world now the end of the dollar as a world currency is in sight.This is partly due to the fact that the sovereign debt in America has risen to $20,000 billion in the last 10 years. For Europe, Russia and China a reason to work a new standard that the dollar should go to replace. Wim Boonstra, professor of economic and monetary policy at VU University Amsterdam, writes on the Rabobank website that Europe needs a new currency anchor.

That has grown so far.The US was one of the first oil countries, so went on to trade in USD. The Middle East would have liked to have dollars because they used it mostly in America. Or in the rest of the world, but the USD was also a standard currency. This strengthens itself.

Leave a Reply