(ANTIMEDIA Op-ed) — Once upon a time, the U.S. dollar was backed by the gold standard in a framework that established what was known as the Bretton-Woods agreement, made in 1944. The dollar was fixed to gold at a price of $35 an ounce, though the dollar could earn interest, marking one notable difference from gold.
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The system ended up being short-lived, as President Richard Nixon announced that the U.S. would be abandoning the gold standard in 1971. Instead, the U.S. had other plans for the future of global markets.
“The essence of the deal was that the U.S. would agree to military sales and defense of Saudi Arabia in return for all oil trade being denominated in U.S. dollars.”
This system became known as the Petrodollar Recycling system because countries like Saudi Arabia would have to invest excess profits back into the U.S. It didn’t take long for every single member of OPEC to start trading oil in U.S. dollars.
A little-known economic theory, rejected by the mainstream, stipulates that Washington’s stranglehold over financial markets can be at least partially explained by the fact that all oil exports are conducted in transactions involving the U.S. dollar. This relationship between oil and currency arguably gives the dollar its value, as this paradigm requires all exporting and importing countries to maintain a certain stock of U.S. dollars, adding to the dollar’s value. As Foreign Policy – a magazine that rejects the theory – explains:
“It does matter slightly that the trade typically takes place in dollars. This means that those wishing to buy oil must acquire dollars to buy the oil, which increases the demand for dollars in world financial markets.”
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