PETRODOLLAR PART 1: HOW IT STARTED

Now the BRICS countries are gaining traction and trade grows in non-dollar backed currencies, it is speculated that the petrodollar will reach all-time lows in the forthcoming years. But what is the Petrodollar, and how did it impact our global sphere for so long? In a follow-up part we will discuss the role of Saudi Arabia and what to expect in the future (red.) When the allies saw World War II was all but won, a crucial meeting took place to discuss national & global reconstruction, financing reconstruction, and rebuilding the global monetary system. This meeting was termed the ‘Bretton-Woods’ conference, a meeting that laid out the fundamental structure for the global economy’s mode of operation since. Forming the institutions that would later become the World Bank (WB) and International Monetary Fund (IMF), amongst others. Two plans were laid out, the US’ White proposal, or Keynes’ proposal from the UK (Li and Zhang 2017). White argued in order to finance future development, nations continuously deposit their local currency into international financial institution[s], they return US$ to nation states when requesting assistance with international balance of payment (import>export) issues. Here, the White plan specified that under this new order, the US$ would serve as a global reserve currency. Reserve currencies are those “held by governments and institutions outside the country of issue and are used to finance international economic transactions, including trade and the payment of debts” (Gokay 2016 p.1152). Keynes’ plan, however, had proposed for a supranational and untouchable settlement account supported by all nations at the expense of the monetary sovereignty of each nation state (Li and Zhang 2017). THE WHITE PLAN With some adjustments, the White plan was chosen. Meaning US Dollar was chosen as the main currency for international trade, and it was also decided that the USA would ‘protect’ other countries gold in exchange for these US$. The US Dollar would be fixed against gold, at $35 an ounce as the ‘gold standard’, and all currency exchange rates would be pegged (fixed) against the dollar. This was known as the “double peg”, allowing foreign currencies to redeem excess dollars for gold, at $35 dollars an ounce (Clark 2005, Doran 2012, 2016, Gokay 2016, Li and Zhang 2017, Yu 2021). National economies were under this plan forced to hold dollar reserves in order to conduct international trade and debt payments, and in return the USA would hold 90-95% of the World’s gold reserves to ensure systemic stability (Ross 2022). In theory, global systemic stability could be maintained by encouraging nations to retain higher levels of foreign (US$) exchange reserves case to ward off cases macroeconomic turbulence in the global economy. Providing a clear pathway for nations to retrieve their gold stocks under the fixed exchange mechanism; when nations were no longer experiencing payment problems, or held excessive amounts of US$, they can return their US$ for their gold. This system mediated was by the IMF until 1971 (Doran 2016 p.1121, Li and Zhang 2017). END OF BRETTON WOODS As long as the USA had the largest gold reserves, and continued as the most productive and efficient producer, this system would remain effective (Clark, 2005, Doran, 2012; 2016). The simultaneous impact of flagrant US spending on their war on Vietnam and rapid growth of the global economy had undermined the minor flexibility allowed by the fixed exchange rate. Between 1950 and 1970 US gold stock had dropped from $20 billion to $9 billion and the US balance of trade (imports-exports) had turned negative. This led to the USA beginning to ‘abuse’ the issuance of these dollars, a contradiction known as the ‘Triffin Dilemma’ (Li and Zhang 2017). This ‘currency abuse’ benefitted the US economy, and the forces of international capital, at the expense of all other global currencies (Clark 2005, Doran 2012, Yu 2020 p.498). The Triffin dilemma caused three crises between 1960 and the termination of the Bretton Woods system in 1971, with its third crisis proving terminal for the system. French President Charles De Gaulle had raised concern towards American currency abuse and the ‘exorbitant privilege’ that the US$ universal reserve status granted. De Gaulle was then the first leader to withdraw their nation’s gold investment en-masse in the late 1960s, and in 1971 the British were the last to request a withdrawal of $3 billion dollars (2600 tonnes of gold) before Nixon ended the ‘gold standard’ in 1971 (Clark 2005, pp.19-20). (Part 2 expected next week, red.) REFERENCES CLARK, W.R. (2005). Petrodollar Warfare : Oil, Iraq and the Future of the Dollar . Gabriola Island, B.C.: New Society Publishers. DORAN, C. (2012). Making the World Safe for Capitalism : How Iraq Threatened the US Economic Empire and Had to be Destroyed . London: Pluto Press. DORAN, C. (2016). Petrodollar Imperialism. In: Z. COPE and I. NESS, eds., The Palgrave Encyclopedia of Imperialism and Anti-Imperialism . Palgrave Macmillan, pp.1120–1128. GOKAY, B. (2016). Two Pillars of US Global Hegemony: Middle Eastern Oil and the Petrodollar. In: Z. COPE and I. NESS, eds., The Palgrave Encyclopedia of Imperialism and Anti-Imperialism . Palgrave Macmillan, pp.1150–1160. LI, Y. and ZHANG, X. (2017). Imbalance and Rebalance: To Create A New Framework of Global Governance . Springer. ROSS, S. (2022). What Countries Have the Largest Gold Reserves? [online] Investopedia. Available at: https://www.investopedia.com/ask/answers/040715/what-countries-have-largest-gold-reserves.asp#citation-7 [Accessed 16 Aug. 2023]. YU, B. (2021). Neo-imperialism, the Final Stage of Imperialism. International Critical Thought , 10(4), pp.1–24. doi:https://doi.org/10.1080/21598282.2020.1871800.

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PETRODOLLAR PART 1: HOW IT STARTED

THE FOUNDATIONS OF PETRODOLLAR SUPREMACY

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