The petrodollar

With gold gone, the dollar needed a new reason to be wanted. The United States found it in oil. If every country has to buy oil, and oil can only be bought in dollars, then every country has to hold dollars — anchor restored, no gold required.

The deal

In the mid-1970s, the US struck an arrangement with Saudi Arabia and, in time, the wider OPEC bloc. In broad strokes:

• Oil producers would price and sell their oil exclusively in US dollars.
• In return, the US provided military protection and security guarantees.
• Producers would recycle their dollar surpluses back into US Treasury bonds — lending America’s money straight back to America.

Why it works so powerfully

Oil is the lifeblood of every modern economy, so pricing it in dollars manufactures permanent, worldwide demand for dollars. A country in Asia or Africa that will never trade directly with the US still needs dollars just to fuel its economy. That demand lets the United States print money and issue debt on a scale no gold standard could ever have permitted, while the currency stays strong.

A system under strain

The petrodollar order is now several decades old and increasingly contested. Sanctions that freeze nations out of the dollar system, the rise of rival powers seeking to trade in other currencies, and the sheer scale of US debt have countries openly exploring alternatives. Whatever replaces or reforms it, the episode makes the central lesson vivid: the current global money is a political construction, and politics can change it.

People have argued fiercely about whether all this printing and debt is clever stewardship or slow-motion disaster. Those arguments belong to rival schools of economic thought — Austrian, Keynesian and Modern Monetary Theory — which we compare next.