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RandomMrdan's avatar

Is the Petrodollar going to die out and be replaced by a stronger currency?

Asked by RandomMrdan (7382 points ) September 19th, 2012

I’ve been reading online about certain events taking place in regard to China and Saudi Arabia. And all the sources I’ve found regarding this information seems to be from a blog or something of the sort, or less reputable sources of news.

You can read the articles in particular here:
here

And here

And really, if the petrodollar were to be replaced, it would mean in return super inflation here in the United States. Or just really, really bad times in general I suppose.

I realize, not many news networks, if any, are reporting anything about this… unless I’m mistaken. Buuuut, I also consider the media to be something of a method of control over the masses. And perhaps they aren’t reporting this sort of thing as to not cause panic and disorder.

Is this something I should really be concerned with, or are these blogs/new sources just crazy conspiracy theorists?

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7 Answers

RandomMrdan's avatar

Oh, and a lot of these things I’m reading online seem to go hand in hand with documentaries I’ve watched in the past…

Zeitgeist, Collapse, and others alike.

zenvelo's avatar

The dollar as the basis of oil pricing isn’t going away.

The Saudis haven’t found a replacement currency to rely on. The Euro was coming close but has had its own miseries. The Renmimbi is controlled too closely by the Chinese Government, and is pegged to the dollar, so it is a lousy candidate too. And nothing else is available on a global level.

Those blogs will also advise you to buy gold coins to use when you need gas next year.

RandomMrAdam's avatar

Here is another good link—unfortunately it appears that any site that references details about this are ”radical” and many people shrug them off as Conspiracy Theories.

As you mentioned, the deal between China and Russia (and China and Suadi, Brazil, and Australia) is very real and China seems to be staging themselves for what might be a big change.

America can pretty much own the world’s oil for free, since oil’s value is denominated in a currency that America controls and prints. But if China strikes a deal with Saudi and Russia to get as much oil as they want, and then in return sell oil on the “Yuan” versus the “Dollar” then that can definitely impact the value of the dollar.

My question is—Will Saudi Arabia ever start trading oil on other currencies? It was my understanding that the “petrodollar” deal forced the world’s oil money to flow through the US Federal Reserve, creating ever-growing international demand for both US dollars and US debt. The Saudi’s agreed to this because the United States offered weapons and protection of their oil fields from neighboring nations, including Israel.

But so long as the US can get oil from Saudi (who basis oil pricing on the dollar) then it should be minimally impacting to the US, right?

tedd's avatar

Okay I had a long talk with your brother about this, let me see if I can summarize it for you.

Right now, oil is not bought using exclusively US dollars. I do not need to buy US dollars in order to purchase oil Oil is priced in US dollars. It is completely arbitrary. It would not matter if it were priced in Rubles, Yen, Pounds, or Crazy-Fun-Time dollars… it is just the arbitrary unit we have placed behind it. Think of it like this… will it change the temperature outside if you measure it in Celsius instead of Fahrenheit or kelvin?

Lets say I live in Japan. I have 100 yen and I want to buy oil from someone in India. We’ll say that 50 yen is = 1 US dollar (which is what Oil is priced in). And we’ll say that 10 Rubles (Indian money) is = 1 US dollar. I go to my vendor in India and say “Hey I have 100 yen and would like to purchase that much oil from you.” He looks at the exchange rate and sees that my yen is worth $2 (100/50 =2), and that $2 would be worth 20 Rubles… and then he gives me however much oil 20 Rubles will buy.

Let me be clear about this…. no one is buying physical US dollars to purchase oil with anymore. Back in the early 80’s before computers took over, sure that is how it was done. But not today. In fact there isn’t even enough physical paper money out there to account for half of the money “in circulation.” These days you have imaginary numbers on a computer screen. I want to buy something, my imaginary number changes to zero, the person I’m buying from sees their imaginary number go up, and then they send me the product.

Even if that were the case… The US had the most powerful economy on the planet (with low levels of inflation) for 30–40 years before the petrodollar became a “thing.” If you broke up our entire economy right now by the states but still counted us combined as an economy, California alone would be the #3 economy on the planet. There is no concern. It is conspiracy theorists who don’t understand economics.

zenvelo's avatar

@RandomMrAdam Electronic funds transfers don’t “flow” through the Federal Reserve. There isn’t some guy from Exxon Mobil flying in everyday with a trunk full of greenbacks to pay the cashier’s window at Aramco for the day’s oil production.

The actual purchase is always negotiated ina currency between buyer and seller, based on the dollar and the exchange rate. And American can’t …pretty much own the world’s oil for free, since oil’s value is denominated in a currency that America controls and prints. we still have to pay for it. And if the dollar falls the price of oil goes up.

The blogs you are linking to are essentially bogus Ron Paul type conspiracy theories.

wundayatta's avatar

It all depends on what alternate universe you live in. If you live in a world where things can happen by fiat and don’t depend on real oil and real value relative to other things, then anything you want can happen. We can change the currency of oil to ducks if you want. Or gold. Or azalea bushes.

But in the real world, counter to what some people believe, there actually is a real relationship between oil and dollars and Euros and every other currency, and you can’t change that relationship by snapping your fingers. It stays steady because the value of oil only changes fairly steadily (except in crises), and the relationship between all currencies remains pretty steady, except, again, in crises.

But if you want to imagine a cartoon world where people can walk in air and currency can change because an evil dictator says so, they go right ahead. I’ve got some nice pills you might like to take if that world ever gets a little annoying to you.

YARNLADY's avatar

@wundayatta Oh, Azalea bushes, I’m rich, I’m rich

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