THE PETRODOLLAR SYSTEM
How oil priced in dollars turned a national currency into the world's reserve.
Summary
After the end of gold convertibility, pricing the world's most traded commodity in dollars created perpetual global demand for the currency. This File documents the arrangement and the slow pressures now testing it.
The petrodollar is less a treaty than an equilibrium — a set of incentives that made dollars the default settlement layer of trade.
Timeline
- 1971
End of convertibility
The United States suspends dollar-gold convertibility, ending the Bretton Woods peg.
- 1974
Recycling
Oil exporters invoice in dollars and recycle surpluses into dollar assets, deepening the system.
- 2014
Sanctions as policy
Dollar-clearing access becomes a routine instrument of foreign policy, prompting hedging by some states.
Key Actors
Issuer of the reserve currency
Source of recurring dollar demand
Holders of dollar reserves
Related Files
Signals
A new bilateral settlement arrangement bypassing the dollar was announced; small in volume but directionally relevant to FILE #004.
Reserve managers continue marginal diversification away from a single reserve asset; slow but persistent, consistent with FILE #004.
Open Questions
- ?Which would erode the system faster — a credible settlement alternative, or the overuse of sanctions?
Sources
- The Dollar Trap · Princeton University Press · 2014
