What Is a Petrodollar?

Petroleum dollars are major oil exporters. Since the sharp increase in oil prices in 1973, the surplus oil surplus funds accumulated over the years in the balance of payments surplus have been called petroleum dollars because of the largest proportion of dollars. Before the 1970s, oil prices had long been monopolized by international oil companies in oil-importing countries. After the establishment of the "Petroleum Exporting Countries", oil pricing power was obtained. In October 1973, the organization adopted measures such as oil production cuts, embargoes, price increases, and nationalization to raise prices. In 1974, the price of oil soared three times, and the balance of payments of oil exporting countries showed huge surpluses. From October 1973 to July 1980, the price of oil rose from $ 3.01 to $ 32 per barrel. Since 1980, the current account balances of the OPEC member countries have generally been around $ 300 billion. ^[1]

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1973

Since the 1980s, international oil prices have been on an upward trajectory, but the average daily oil production in the world has not exceeded

Western economic experts are very concerned about how huge petrol dollars will work in the world economy. Experts say petrol dollars have to

Petrol dollars

Why not spend it or save it. If oil exporters use petrol dollars, they will expand imports from other countries and maintain global demand. However, it does not appear that they will spend a lot of money, but rather tend to maintain higher savings rates than those of oil-importing countries. UAE and Kuwait have savings rates of up to 40% of GDP. Therefore, the shift of income from oil consumers to oil producers will lead to a slowdown in global aggregate demand and adversely affect the world economy.

If oil exporters use large amounts of petrol dollars for savings and invest in global capital markets, they can finance the current account deficits of oil importing countries, which in fact amounts to borrowing money to allow importing countries to consume high-value oil. However, this increases the demand for foreign financial assets, which will increase asset prices and reduce the bond yields of oil importing countries, which will help stimulate the economic vitality of oil importing countries. Experience shows that large amounts of petrol dollars can be both good and bad for the economies of oil-producing countries. The problem is how to use and save these dollars. Some experts believe that relying on oil to make a fortune can delay economic reform in oil-producing countries. The current oil-exporting countries spend less than in the past, retaining large surpluses to pay off debts and increase assets.

After the emergence of petro-dollars, it had a huge impact on the world economy and international finance. First, it provided rich capital for oil-producing countries, promoted the economic development of these countries, changed their long-standing single economic structure, and gradually established An independent and complete national economic system. Second, a new imbalance has occurred in the balance of payments of different types of countries, and a structural change has occurred in the comparison of international reserve forces. For example, the big oil country Russia has earned more petrol dollars due to rising oil prices. It is estimated that Russia's oil export revenue in 2005 will be about 90 billion US dollars. As of September 18, 2005, Russia not only repaid the huge additional debt owed to the Paris Club in advance, but also increased its gold and foreign exchange reserves to US $ 149.754 billion. Third, the instability of international financial markets has been exacerbated. After the petrol dollar was put into the international market, on the one hand, it strengthened the international credit force and met the needs of many countries for long and short credit funds; on the other hand, it caused a large amount of hot money to flow between countries. Sometimes investing in stocks, and sometimes in gold and currencies of other countries, has caused the stock, gold and foreign exchange markets to become more volatile.

Oil dollar oil euro

The United States wants to punish Iran, and military strikes or economic sanctions seem imminent. However, instead of softening Iran's attitude, it has become more

Petrol dollars

Be tough. In addition to refusing to stop uranium enrichment activities, the Iranian government also announced that it will set up an oil exchange on March 20, 2008, and will use the euro as the currency for oil pricing and trading.

Iran s decision to replace petroleum dollars with petroleum euros has naturally received widespread attention. Because, since the 1970s, the United States and Saudi Arabia, the world's largest oil producer, have reached an "unshakable" agreement. The two sides have decided to use the US dollar as the only pricing currency for oil and receive the Organization of Petroleum Exporting Countries (OPEC) Consent of other Member States. Since then, the US dollar has been closely linked to oil, and an invisible equal sign has been drawn between the two. Any country that wants to trade oil must have sufficient US dollar reserves. If the "petroleum euro" really appears in the international oil market, it will undoubtedly pose a challenge to the "petroleum dollar" of a "big one."

On the other hand, "petroleum euro" is by no means a wild speculation. This is determined by the import and export structure of oil exporting countries. For example, from 1998 to 2002, 22.4% of the oil exports of OPEC countries were exported to the United States, and 21.1% were exported to the European Union. Among them, Algeria, Libya, and Iran exported to the EU 55, 97, and 36 respectively Percentage points, while Indonesia, Kuwait, Qatar and the UAE export mainly to Japan. Correspondingly, during the same period, 37.2% of imports from OPEC countries came from the European Union, and only 13.6% of imports came from the United States. In this case, the oil exporting countries have more flexibility to adopt import and export denominated currencies to avoid the economic impulse of currency mismatch. Looking at the long-term trend, in addition to the U.S. dollar monopoly in global oil pricing and settlement, it is not necessarily beneficial to countries outside the United States, which determines that the Group of Petroleum Exporting Countries must use international currency pricing and settlement in its own interest Basic strategy. Therefore, with the exception of the United States, the concept of petroleum euros is not exclusive.

Petrol dollars against China

First of all, with the development of China's market economy, the Chinese economy and the world economy are becoming more and more closely linked. As a huge sum of money, petro-dollars will affect China more or less if it affects the world. Secondly, due to the growth of China's economy, China has transformed from an oil exporter to an importer. In the rise in world oil prices, the Chinese economy has also paid a huge amount for petroleum dollars. How to reduce China's share of petrol dollars will be a long-term issue. At the same time, due to the existence of petrol dollars, many Gulf liquid funds have participated in speculative projects in the Chinese economy, which has brought a huge bubble to the Chinese economy, which is also an area worthy of attention. ^[2]

Petroleum dollar circulation

The circulation of petroleum dollars is a unique international political and economic phenomenon that has long attracted attention. It is generally believed that after the war the United States relied on political and economic hegemony

Petrol dollars

The dominant position makes the US dollar the most important international reserve and settlement currency. As a result, the United States is able to operate banknote printers to produce large amounts of dollars and purchase goods and services worldwide. Other countries need to exchange US dollars for exports in order to make external payments. Because of the dependence of many countries on imported oil, they must take a considerable part of the hard-built foreign exchange reserves to pay to oil exporting countries such as the Gulf countries. The remaining "petroleum dollars" of oil-exporting countries need to find investment channels. Because the United States has strong economic strength and a developed capital market, "petroleum dollars" have turned into bank deposits in the United States and securities assets such as stocks and treasuries. Filling the United States' trade and fiscal deficits, thereby supporting the economic development of the United States. With its special economic and financial status, the United States maintains a circulation of petroleum dollars, which has caused the United States to experience a coexisting deficit of consumer inflation and a large amount of foreign investment. The US economy has also been able to grow in this special pattern.

Petroleum dollar currency era

Similar to the gold standard, but different from the gold standard currency era, gold as the standard currency has unlimited legal solvency, and bank notes can be freely converted into gold coins. Anyone can apply to the National Mint to mint all their gold into gold coins or to dissolve gold coins into metal blocks. The import and export of gold can be freely transferred from country to country. Its rights and obligations are equal, and debts cannot be escaped. The only thing is that the value of gold itself fluctuates.

But the asymmetry of petroleum dollars leads to the separation of their rights and obligations. The United States makes rights (US dollars), maintains US dollar credit and deterrence (US dollars force), and oil producers provide obligations (oil). Holding dollars can be exchanged for anyone's oil resources.

By locking oil, Americans enjoy the right to fill US dollar checks due to debt, and have the obligation to maintain US dollar credit and US dollar force.

As long as the world's crude oil is still traded in US dollars, the oil-based dollar will not collapse.

Once the right to exchange dollars for oil is violated, the United States has an obligation to maintain dollar force (deterrence). Therefore, despite the Kuwaiti and Iraqi wars, the United States spent huge manpower and resources. But everything that challenges the oil standard must be severely cracked down, so the United States is not cracking down on them for no reason.

The U.S. dollar either fails because the U.S. force is insufficient to protect the oil standard, or the U.S. dollar fails to fail. In actual international activities, the failure of the force is almost impossible, because as long as the U.S. oil standard is available, the United States has the global strength to combat any challenge to the oil standard Everything.

Therefore, it is difficult for the U.S. dollar to collapse quickly. It is most likely to be weathered for a long time. The credit of the U.S. dollar continues to challenge the limits of everyone's tolerance, but no one has the ability to use global power. However, the gradual weakening is a predictable consequence. It is the final payment obligation. After the dollar is completely weak, it is unlikely that there will be any false credit checks that dominate the world. Shiyuan is just a kind of idea that people generally expect. We will wait and see how to proceed.

Petrodollar relationship

Normal relationship

As the world's largest oil consumer and net importer, the rise in oil prices will undoubtedly have a negative impact on the US economy and cause fluctuations in the real exchange rate of the US dollar. Historically, the previous oil crisis has caused the US economy to decline, and is the main reason for the fluctuation of the US dollar s real exchange rate. However, the analysis of the actual exchange rate trend of the US dollar will be different from the previous analysis of the general oil importing countries. The main reason is that international oil transactions are denominated and settled in US dollars. The rise in oil prices means that the demand for payment of US dollars increases, so the US dollar It is still possible to maintain the status of a strong currency, thereby complicating the analysis.

Theoretical research and empirical analysis by scholars have shown that the fluctuation of oil prices is the main factor that causes the real exchange rate of the US dollar to change. In summary, the sharp rise in oil prices mainly affects the nominal exchange rate of the US dollar in the following three ways, which in turn affects the fluctuation of the actual exchange rate of the US dollar.

First, rising oil prices will raise the cost of production and the cost of living in an all-round way, which will lead to an increase in inflation. Inflation will increase the demand for nominal money, which will lead to an increase in domestic demand for credit, which will attract more foreign capital to the United States. The inflow of foreign capital will cause the dollar exchange rate to rise. At the same time, the domestic monetary policy of the United States often strengthens the appreciation process of the US dollar. The Fed often adopts tightening monetary policies such as raising interest rates to control inflation at the initial stage of rising oil prices. This increase in interest rates will attract more Large foreign capital inflows have led to a rise in the nominal exchange rate of the US dollar.

Secondly, the rise in oil prices has caused trade surpluses in oil-exporting countries, and the increase in foreign exchange reserves, mainly in US dollars, has produced so-called "petroleum dollars". These petroleum dollars will enter the international financial market to purchase large amounts of US dollar assets for profit-seeking purposes. This led to an increase in the nominal exchange rate of the US dollar.

Third, the continuous rise in oil prices will lead to a recession in the world economy, making the balance of payments of oil importing countries uncertain, so these countries have increased their dollar asset ratios in their foreign exchange reserves to maintain exchange rate stability, which has further improved The demand for the US dollar has led to an increase in the nominal exchange rate of the US dollar. Under the combined effects of the above three aspects of the impact mechanism, the dollar s nominal exchange rate rose when it faced rising oil prices. When the nominal exchange rate rises, the change in the real exchange rate level depends on the ratio of domestic domestic price levels to foreign price levels. Because the United States consumes more oil than other countries, the impact of rising oil prices on the general price level in the United States is greater than in other countries. In this way, the rise in the relative price level is consistent with the change in the nominal effective exchange rate, so when the oil price rises, the real exchange rate of the US dollar will rise.

When international crude oil prices rise due to demand or political factors, the US economy, which is highly dependent on imported crude oil, will decline. In order to protect domestic interests, as the world currency, the US dollar can promote exports through devaluation to stimulate domestic economic growth. However, in order to avoid the loss caused by the depreciation of the US dollar, professional investors will choose to buy commodities such as crude oil, gold or agricultural products in the futures market to offset the value loss caused by the depreciation of the currency. This kind of speculation will further push up commodity futures prices, and excessively high futures crude oil prices will intensify producers' worries and further suppress the U.S. economy, resulting in lower investor expectations and a worsening economic environment. Down. The falling stock market will further intensify the vicious circle, with capital escaping and pushing up futures, eventually leading to inflation. To avoid this vicious circle, central banks often have to take action to control the supply of money to avoid excessive fluctuations in currency exchange rates.

Abnormal relationship-weaker US dollar reverses oil prices

The US economy is down, oil consumption is decreasing, demand is falling, and oil prices are falling. But on the other hand, the US economy has fallen, the dollar has depreciated, and oil has been denominated in dollars. Therefore, the dollar has fallen and oil prices have risen.

Analysts believe that the rise in oil prices is mainly due to a weaker US dollar, not a change in supply and demand. As of 19:00 Beijing time on October 13, the main contract of the New York Mercantile Exchange (NYMEX) crude oil futures contract was $ 82.62 / barrel, up 0.95 US dollars, or 0.66%; London Brent (IPE) crude oil futures The contract was quoted at $ 84.30 / barrel, an increase of $ 0.78 / barrel.

The continued depreciation of the US dollar is the driving force behind the scenes. Analysts believe that due to the weakening of the US dollar, the attractiveness of commodities as alternative investment products has gradually increased, and international oil prices and the US dollar have become increasingly negatively correlated.

(expand)

As a world currency, the appreciation and depreciation of the US dollar is subject to a certain degree by the market economy, which is determined by the supply and demand of the currency. Crude oil, as a non-renewable energy source, is the driving force and basis for the development of the world economy. Other effective energy sources can be substituted. So, is there a relationship between the dollar and oil? If so, what factors are leading it subconsciously?

The origin of the relationship between the dollar and crude oil

After the outbreak of World War II, the world economic system centered on Europe was on the verge of collapse as France, Germany, and Britain were hit hard during the war. The United States, on a par with it, has not only been harmless, but also benefited a lot from this war. At the Bretton Woods Conference, he arbitrarily fixed the price of gold, the traditional precious metal that resists inflation, at 35 US dollars per ounce in a dictatorship, thus mastering the world trading system. But since the 1970s, due to the spread of the economic crisis, the US dollar began to depreciate sharply, and the United States could not fulfill the promise made at the previous meeting-the business of exchanging gold when the trade deficit appeared. However, governments of various countries and major banks still settle the gold settlement currency on the US dollar, which makes the dollar exchange rate and the trend of gold prices have a negative correlation. Once the US dollar as a foreign exchange reserve depreciates, it will make governments sell Selling the dollar back for gold with value preservation, so that the price of gold rose.

Under such circumstances, the fixed exchange rate between the US dollar and gold can no longer be implemented. In 1975, the "self-centered" United States again found a relationship that was in its own interest-linked to crude oil, so it held several negotiations with OPEC (including Iraq, Iran, Saudi Arabia, Venezuela and other major crude oil exporters) and finally reached an agreement Agreement on crude oil trade in US dollars only. In other words, the US dollar has become the international currency for the calculation and settlement of crude oil. Rising crude oil prices will increase the market's payment demand for the US dollar, which will cause the nominal exchange rate of the United States to rise. At the same time, the United States is also the world's largest consumer of crude oil, so the real exchange rate of the dollar will also rise. This has caused the following situations in the market: buy USD buy crude oil increase demand for crude oil payment exchange rate rise. This is a thing that favors the US dollar, but it must be reversed. In fact, the continuous rise in crude oil prices has brought pressure on the rise of the US dollar exchange rate, that is, the rise in crude oil prices increased operating costs in various industries increased prices of other commodities Residents consumption costs increase Minimize consumer demand Consumer confidence index declines The US economy shows signs of slowdown or even a recession Exchange rate decline US dollar depreciation.

Although the depreciation of the US dollar can promote U.S. exports and stimulate investment activities in the market to a certain extent, it has reduced the willingness of US dollar-denominated crude oil producers to increase production to curb oil prices, and brought high oil prices, that is, the depreciation of the US dollar the US dollar Decline in crude oil prices Crude oil producers reduce output (the market demand has not been reduced) Crude oil supply exceeds demand Oil prices have risen Stimulating speculative activities in the market Pushing up oil prices The dollar exchange rate has strengthened. For this reason, the relationship between the US dollar and crude oil inadvertently began a journey of negative correlation similar to a "seesaw".

USD and Crude Oil Today

Comparing the above chart of Euro / USD and crude oil prices, we can find that at the beginning of February 2008, both crude oil prices and Euro / USD exchange rates fell. Since then, when crude oil began to form a long position and it was fully charged, the Euro The USD / USD is not far behind, the moving average system is in a long position, and the exchange rate has continued to rise for more than a month. Until nearly April, crude oil has undergone a period of consolidation process, and by no means, the EUR / USD exchange rate has also entered. The rest period; but when the crude oil is ready to go, soaring skyward, the euro / dollar exchange rate has also begun to move forward and hit a new high. Wave after wave, wave after wave, the price of crude oil and the euro / dollar exchange rate are always in a state of "following the shadow".

In mid-July, driven by the surge in crude oil prices, the exchange rate of the U.S. dollar fell sharply, and the huge losses of the two companies, Freddie Mac and Fannie Macao, also hurt the United States. The economy was hit hard, and the U.S. dollar was once again in a state of heavy selling. As the market speculates whether the US economy will be able to survive in desperate circumstances, the fall in the price of crude oil will allow the dollar exchange rate to return to its original range, and a life-and-death duel will be launched against the euro. No result. It seems that before the price of the "Mustang" has come off, there may be a glimmer of vitality in the dollar's rally.

Petrol dollar summary

Looking at the current US dollar and crude oil, the "on-off" relationship between the two has been relatively fixed, but what we cannot ignore is that as a non-renewable resource, crude oil will one day be exhausted, and the other will go against each other. Will the US dollar stay on the base of the seesaw or peak as the "opponent" disappears? Similarly, if the continued depreciation of the US dollar makes crude oil producers no longer subject to the agreement with the United States, and adopts currencies such as the euro to price crude oil, the world currency status of the US dollar will likely be replaced by other currencies. To this end, if the US dollar continues to be dominated by 10,000 people, effective measures must be taken. On the one hand, the sluggish U.S. economy can be restored to its glory and glory; on the other hand, the United States must understand the "prophecy" principle. When it hasn't really run out, look for a new resource to replace it, just like crude oil replaced gold in 1975.