Nations limit greenhouse gas emissions to combat global warming. When they switch to electric vehicles and solar or wind power generation, they threaten the profitability of oil-producing nations. The United States has lost its competitive advantage in these technologies at the cost of China and the European Union. As a result, petrodollar could lose its role as the world`s dominant currency. Even though American companies have stopped working in Russia. Saudi Arabia, Venezuela, any other country cannot defeat the petrodollar system for a reason you know at the end of this article. The petrodollar system is linked to the history of the gold standard. After World War II, the United States held most of the world`s gold shipments. It said it would ingest every dollar for its gold value if other countries kept their currencies on the dollar.
Other countries signed the agreement at the Bretton Woods Conference in 1944. It has established the U.S. dollar as a reserve currency in the world. Foreign Minister Kissinger and Prince Ibn Abdel Aziz, the second deputy prime minister of Saudi Arabia and half-brother of King Faisal, signed the six-page agreement this morning at Blair House, across from the White House. As the world`s most sought-after commodity, oil, is in U.S. dollars, petrodollar has helped make greenback the dominant currency in the world. With its high status, the U.S. dollar enjoys what some have called the privilege of constantly financing its current account deficit, spending dollar-denominated assets at very low interest rates and becoming a global economic hegemony. A petrodollar is every dollar exchanged for oil. Producer countries – such as those of the Organization of the Petroleum Exporting Countries (OPEC), Canada or Russia – are paid for their resources beyond the USD. The revenues are then transferred to the national currency and re-injected into the energy sector or the local economy. Unlike the dollar gold system, which encouraged the Fed to pay 35 ounces of gold per dollar it prints (as a buy-in), the petrodollar made a spontaneous hedge for every dollar reprinted (without any liability).
Many traders in the capital market are unable to determine why the price of the dollar goes against the price of oil; In other words, if each barrel of oil is X number of dollars, the more U.S. dollars were asked, the more barrels of oil were sold, and the prices of both rose together and vice versa. Recognizing that the United States and the rest of the world would need and consume more oil, much more oil and much more oil, and that Saudi Arabia wanted to sell more oil to the world`s largest economy (by far the United States), Nixon and Saudi Arabia reached an agreement that Saudi oil could only be purchased in U.S. dollars.