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PAR · 10-21-2014, 07:19 AM

You can thank Nixon for the "Petrodollar" In early 70's the USwent off the gold standard resulting in a massive devaluation of the U.S. dollar.
To prop up the value of the dollar Nixon made a deal with OPEC to exchange arms and protection for all future oil sales in U.S. dollars.

OPEC agreed ensuring a global demand for U.S. dollars and the U.S. was able to (and still is) export some of its inflation.

There was a time that the United States was the largest producer and consumer of oil in the world, this set a president that the U.S. dollar be used as the standard used by the world oil market.
Oil has been priced in United States dollars since the end of World War II.

International oil prices were based on discounts or premiums relative to that for oil in the Gulf of Mexico.
But, although oil sales prior to 1973 were denominated in U.S. dollars nothing precluded settlement in local currency.

In October 1973, OPEC declared an oil embargo in response to the United States' and Western Europe's support of Israel in the Yom Kippur War and this tension led to fear that the dollar would become insignificant in the oil trade. This fear is now starting to become realized.

That said large inflows of petrodollars into a country often has an impact on the value of its currency.
For example Canada it was shown that an increase of 10% in the price of oil increases the Canadian dollar value versus the US dollar by 3% and vice versa.

10-21-2014, 07:19 AM
PAR Confirmed User Industry Role: Join Date: May 2005 Posts: 1,835	You can thank Nixon for the "Petrodollar" In early 70's the USwent off the gold standard resulting in a massive devaluation of the U.S. dollar. To prop up the value of the dollar Nixon made a deal with OPEC to exchange arms and protection for all future oil sales in U.S. dollars. OPEC agreed ensuring a global demand for U.S. dollars and the U.S. was able to (and still is) export some of its inflation. There was a time that the United States was the largest producer and consumer of oil in the world, this set a president that the U.S. dollar be used as the standard used by the world oil market. Oil has been priced in United States dollars since the end of World War II. International oil prices were based on discounts or premiums relative to that for oil in the Gulf of Mexico. But, although oil sales prior to 1973 were denominated in U.S. dollars nothing precluded settlement in local currency. In October 1973, OPEC declared an oil embargo in response to the United States' and Western Europe's support of Israel in the Yom Kippur War and this tension led to fear that the dollar would become insignificant in the oil trade. This fear is now starting to become realized. That said large inflows of petrodollars into a country often has an impact on the value of its currency. For example Canada it was shown that an increase of 10% in the price of oil increases the Canadian dollar value versus the US dollar by 3% and vice versa.