Fake News on the End of The Petrodollar System?
There has been some news that the 1974 petrodollar system, or as officially known “The U.S. - Saudi Arabia Joint Commission on Economic Cooperation” has come to an end.
As a quick recap: The petrodollar system is a mutually beneficial agreement between the US and Saudi Arabia, where the US agreed to provide military aid and protection and in exchange, Saudi Arabia would sell its barrels of oil in US dollars and invest all of that money into US government bonds. It has not confirmed if the agreement actually ended or not or if it’s somewhere in between. Below are some important highlights:
- Nixon removed the dollar’s convertibility to gold in 1971. The US supported Israel in the Yom Kipur War of 1973 and then experienced an oil embargo which put it into a dark economical path. With the US dollar’s future at risk, the smart decision was to make a somewhat behind the scenes deal to ensure that the commodity that economies needed to grow and develop (oil) was priced in US dollars.
- According to the US Treasury data, Saudi Arabia is the 17th largest holder of US Treasuries, although some sources say that this could be much more. They might not have the incentive to move away so abruptly from the US dollar as doing so would only hurt their sovereign reserves.
- Their purchases of US Treasuries were also made via add-on auctions, which are excluded from official auction totals. It took the The Freedom-of-Information Act in 2016 to get the Treasury department to disclose Saudi Arabia’s holdings.
- The Saudi Arabian Riyal is pegged to the US dollar. Picking a fight with the US dollar might only hurt them more.
- The petrodollar agreement has no stated end date, rather it would remain in effect for 5 years (starting in June 1974) and renewed by mutual agreement and could be terminated by either government with 180 day written notice. No official written notice has surfaced, yet.
- Saudi Arabia was invited to join BRICS, but this still has not been confirmed. If they do, it could be another step to reduce their reliance on the US and its currency; TBD.
The petrodollar system is what made the US dollar the global reserve currency and ending it could potentially affect its value over time. It went from being backed by gold to nothing, to a proxy-backing by oil and a money printer.
Rodrigo
npub1m7…jtvh9
2024-06-27 13:37:02
Author Public Key
npub1m7hssyvr3pdqq6w8jwhj7j7ts9uznfzt83rdzp72lmhqvuj2gngqqjtvh9Published at
2024-06-27 13:37:02Event JSON
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"content": "Fake News on the End of The Petrodollar System?\n\nThere has been some news that the 1974 petrodollar system, or as officially known “The U.S. - Saudi Arabia Joint Commission on Economic Cooperation” has come to an end.\n\nAs a quick recap: The petrodollar system is a mutually beneficial agreement between the US and Saudi Arabia, where the US agreed to provide military aid and protection and in exchange, Saudi Arabia would sell its barrels of oil in US dollars and invest all of that money into US government bonds. It has not confirmed if the agreement actually ended or not or if it’s somewhere in between. Below are some important highlights:\n\n- Nixon removed the dollar’s convertibility to gold in 1971. The US supported Israel in the Yom Kipur War of 1973 and then experienced an oil embargo which put it into a dark economical path. With the US dollar’s future at risk, the smart decision was to make a somewhat behind the scenes deal to ensure that the commodity that economies needed to grow and develop (oil) was priced in US dollars.\n\n- According to the US Treasury data, Saudi Arabia is the 17th largest holder of US Treasuries, although some sources say that this could be much more. They might not have the incentive to move away so abruptly from the US dollar as doing so would only hurt their sovereign reserves.\n\n- Their purchases of US Treasuries were also made via add-on auctions, which are excluded from official auction totals. It took the The Freedom-of-Information Act in 2016 to get the Treasury department to disclose Saudi Arabia’s holdings.\n\n- The Saudi Arabian Riyal is pegged to the US dollar. Picking a fight with the US dollar might only hurt them more. \n\n- The petrodollar agreement has no stated end date, rather it would remain in effect for 5 years (starting in June 1974) and renewed by mutual agreement and could be terminated by either government with 180 day written notice. No official written notice has surfaced, yet.\n\n- Saudi Arabia was invited to join BRICS, but this still has not been confirmed. If they do, it could be another step to reduce their reliance on the US and its currency; TBD.\n\nThe petrodollar system is what made the US dollar the global reserve currency and ending it could potentially affect its value over time. It went from being backed by gold to nothing, to a proxy-backing by oil and a money printer. ",
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