Petro Dollar
What is a petro dollar and it’s future as BRICS are trying to create an alternative global financial system, how it will affect dollar’s domination of world economy alongside possible American response to that.
Intro :
Petro dollar is a term synonymous when US dollars are being used as a currency for international oil trading.
First coined in 1970s during times of oil crisis, Saudi Arabia and other oil rich nations had agreed to price their oil exports in US dollars only.
This made dollar the dominant currency in global oil trade, which has establishing a strong relationship between US and the oil-rich Middle East.
Consequently, US dollar became world’s reserve currency that is widely used in global trade and this supremacy still continues.
It has significantly changed global economic scenario while cementing America’s world domination, both economically as well as geopolitically.
The Present :
Yes, the petro dollar still exists today which continues to play a significant role in global economic order.
As most international oil transactions are still conducted in US dollars, that is why most countries hold large US dollar reserves to facilitate these transactions.
However multiple efforts in recent years has been made to challenge this domination, where use of other currencies have been floated from time to time.
Despite such efforts petro dollar system still functions today, where it remains world’s reserve currency for global trade, that no doubt comes with it’s own advantages that plays a significant role in global economic order.
When it ends :
If petro dollar were to lose its status as the dominant currency for oil trading, it could have significant implications for global economy.
For sure US dollar will depreciate in value as demand for it decreases, which could lead to inflation and other economic challenges.
It could also reduce America’s ability to influence global economic policies, while weakening it’s geopolitical power.
In extreme case countries that hold large US dollars as foreign reserves could potentially sell them off, which could flood the market depreciating it’s value even further.
In nutshell, this hypothetical scenario with demise of petrodollar that we know today, would be a significant event with far-reaching consequences.
Future :
For sure the petro dollar is not going to last for ever, as other emerging currencies continue to gain prominence in international trade.
Experts are not sure yet if petro dollar will gradually lose its dominance over time, or will remain a standard currency for oil trading at least for the foreseeable future.
Naturally US government has a strong interest in maintaining status quo, and historically they have taken measures to protect its financial dominance.
But in ever evolving global economy and geopolitical scenario, the jury is still out about petrodollar and it’s future.
BRICS Effect :
BRICS countries, Brazil Russia India China & South Africa have been exploring ways, where they can reduce their reliance on US dollar and the petro dollar system.
Recently they have taken steps to increase use of their own currencies in international trade, as they have established currency swap agreements among themselves.
Potentially it will reduce demand for dollars thus weakening petro dollar system’s domination, at least that is what might happen theoretically.
Also they have talking about creating a new BRICS currency but nothing has been announced as of now.
Remember when euro was launched same was said at that time, but it could only muster a small share in international trade.
America’s reaction :
When countries try to significantly reduce their dependance on petro dollar system, it could have significant implications for US and its economy.
Americans have a strong interest in maintaining dominance and they has historically taken steps to protect it.
Measures like diplomatic pressure economic sanctions have been used in the past, that could lead to international tensions as some countries tries to resist.
How US reacts will depend on multiple factors, circumstances involved the degree of shift and lastly Geo political effect of it.
Experts believe nothing is going to happen overnight, but jury is still out how the economic order that we know now is going to change in the future.