Will the Oil collapse lead the Dollar collapse?
The petrodollar is any U.S. dollar paid to oil-exporting countries in exchange for oil . The dollar is the preeminent global currency. As a result, all international transactions, including oil , are priced in dollars. Oil-exporting nations must receive dollars for their exports, not their own currency.
In addition, most of them own their oil industries. That makes their national income dependent on the dollar’s value. If it falls, so does their government’s revenue.
As a result, most of these oil exporters also peg their currencies to the dollar. That way, if the dollar’s value falls, so does the price of all their domestic goods and services. That helps these countries avoid wide swings in inflation or deflation.
The petrodollar system is tied to the history of the gold standard. After World War II, the United States held most of the world’s supply of gold . It agreed to redeem any U.S. dollar for its value in gold if the other countries pegged their currencies to the dollar. Other countries signed onto this deal in the 1944 Bretton Woods conference. It established the U.S. dollar as the world’s reserve currency.
On February 14, 1945, President Franklin D. Roosevelt initiated the alliance with Saudi Arabia.
Will the Dollar follow oil?