I wish you would elaborate how being a net exporter relates to it being a myth. I don't see the connection. My point is that global trade of which oil is a major component needs to settle the books nightly. If the books aren't reconciled in an efficient manner trade has to slow down.
> how being a net exporter relates to it being a myth. I don't see the connection
Petrodollar a U.S. policy comes from the 1970s, when the U.S. guaranteed the House of Saud’s security in exchange for them selling their oil in dollars. The reason wasn’t to do some currency scheme, but to ensure the U.S. could always buy Saudi oil in a currency we controlled. Saudi Arabia then invested its profits in Treasuries, which closed the loop on Wall Street [1].
When America imported oil, keeping oil exporters close was strategically vital. Petrodollar recycling helped with that. Now that we don’t, it doesn’t.
I see that as a side show to the overall banking system. I trying to express that this was a reactionary response to an immediate problem rather than a key part of banking.
> see that as a side show to the overall banking system
See what? The geopolitics? The petrodollar was entirely a geopolitical affair. If anything, one could argue petrodollar recycling—together with the fall of the USSR-created the modern American banking system. (The timeline is compelling for e.g. LBO debt.)
The reaction to 70's era oil embargo as opposed to the overall global monetary system. The oil embargo was a use of the monetary system not an intrinsic part of it's development.
Oil embargo was about America not having oil. We didn’t react with a financial tool to that, but with security guarantees via our military. Putting the financial piece first reverses causation on the order of a decade.
I don't think so I think the US had many levers one might have been security guarantees. To try to separate the US influence into specific categories is the same as trying to dissect a joke or a frog.
> forcing oil to be bought with dollars, the USD was pegged to oil demand, especially from developing nations whose consumption was growing
If you give me one source, I'll break down why this is wrong.
(In case there isn't one, the U.S. dollar was never pegged to oil demand [whatever that means]. And nothing about petrodollar recycling thought about developing nations for one second.)
Hasn’t all recent oil purchases been settled using USD. My understanding is that most countries buy US treasuries to maintain US credit ratings and to settle global trade debts.
> Hasn’t all recent oil purchases been settled using USD
No. I’ve traded and settled oil in British pounds from a desk at a bank in New York.
> most countries buy US treasuries to maintain US credit ratings and to settle global trade debts
No to the first, partly to the second. Holding Treasuries doesn’t affect creditworthiness. That said, Treasuries are a universal collateral, so some lenders may require Treasuries be held in reserve for their safety (usually in a third-country bank).
The main reason countries buy Treasuries is for reserves. These are maintained so they can defend their currency. They need dollars to do this if their country trades in and/or finances with dollars. (If they trade in or finance with yuan, they should hold yuan bonds, which they can quickly turn into yuan to sell into the market to buy back their currency, thereby stabilizing it.)
The petrodollar hypothesis has been a myth since the 1990s. With America a net oil exporter, it’s an entirely stupid model to keep running.