$200 a Barrel not far off
- Thread starter ozstone
- Start date
ccodiane
New Member
"At the end of World War II, the USA was the world's biggest national economy and the only great power whose industrial base was not damaged by the war. America's huge productive capacity made the U.S. dollar the easiest currency to spend in the global market and consequently the most acceptable foreign currency outside the USA. By the late 1950s, however, the recovery of Europe and Japan caused a suspicion that there were too many dollars in circulation. Central bankers began to exchange their dollars for gold under the terms of the 1944 Bretton Woods treaty, whereby the currencies of participating countries were backed by gold. In 1971, in response to the depletion of U.S. gold reserves, President Richard Nixon announced that the dollar would no longer be redeemable for gold. So the system of fixed exchange rates via gold-backing fell apart. It was thought that the dollar would decline in value as traders relied less on the dollar and more on the emerging European and Asian currencies. But support for the dollar came from an unlikely quarter.
In 1973, the Organization of Petroleum Exporting Countries (OPEC) quadrupled the price of oil but continued to accept only U.S. dollars in payment, so that demand for dollars soared. From then on, the dollar was effectively backed by oil instead of gold -- and the U.S. government didn't even have to own the oil!
Because dollars can buy oil, exporters in countries that need to import oil -- i.e. most developed countries -- will accept dollars for their exports. Hence everyone who needs to buy from those exporters will accept dollars as payment for other things, and so on. To pay their bills, importers must have reserves of dollars. To prop up their currencies against speculative attacks, the central banks of all countries must have reserves of dollars. To get capital, poor countries must borrow dollars, and to service these debts they must export goods to obtain more dollars. About 2/3 of all currency reserves, more than 4/5 of all currency transactions, more than half of the world's exports, and all loans from the International Monetary Fund (IMF) are denominated in dollars. As these things create demand for the dollar and shore up its value, oil exporters are the more willing to accept payment in dollars. So the process is self-reinforcing; it's called "dollar hegemony". "
A good read.