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Sand_Trout t1_jegdp7a wrote

The Dollar being used for oil transactions provides a degree of confidence and stability in the currency without being explicily tied to the value of a commodity.

This allows the US to engage in flexible monitary policy without running as much of a risk of severe inflation or deflatation, as even if the dollar loses some value, people will not be prone to quickly dump all of their dollars in favor of some other currency.


ThatsTooOP t1_jegdnrx wrote

Well, imagine you and your friends like to play a game where you trade toys with each other. If everyone agrees to use marbles as the currency for this game, it becomes easier to trade toys because you all know how much marbles are worth.

Now, imagine that many countries around the world trade oil with each other. They also need a currency that they all agree is worth something, so they can trade oil easily. For a long time, they agreed to use the US dollar as the currency for trading oil. This means that when countries buy or sell oil, they use US dollars to do it.


aresyves OP t1_jegeiih wrote

Thanks for this! I have another question based on what u/ejpierle said above. Now that we all agreed on marbles as the currency to trade for toys, what happens to toy trades if I create or aka print more marbles?


ThatsTooOP t1_jegf5x4 wrote

If you print more marbles in the toy trading game, their value decreases. Similarly, if a country prints more currency for trading, its value decreases, leading to inflation. In the case of oil trading, if the US prints more dollars, the dollar's value may decrease, and other countries may find a different currency to use for oil trading or create their own.


Kelend t1_jegikzy wrote

> what happens to toy trades if I create or aka print more marbles?

Nothing. You can just keep making/printing more marbles with no ill effects. Some people will claim this causes "inflation", but its not true.


BigPawh t1_jegwrwi wrote

This take is very against the grain and I'd like to hear further explanation if you don't mind


Tuga_Lissabon t1_jegph8e wrote

Even more important:

Let's say you now want to force John to lend you his bike. He doesn't want to. If you're the one who decides that this person can't use marbles, suddenly you stop him from trading with everyone else.

It is really good to have that power.

The issue occurs if you abuse your power too often, then guys will say "let's skip marbles, how about we also do trade in Sports Cards?"


Loki-L t1_jegdpo0 wrote

If countries only buy oil in dollars they need to get dollar from somewhere. They need to sell something else and get paid in dollars.

This is and advantage if you have dollars.

Furthermore since the price of both dollars and oils goes up and down all the time, you don't wan to exchange your own currency or sell stuff for dollars at a bad time.

You wan to get dollars while they are cheap and use them later when you can buy oil with those dollars cheaply.

This requires you to keep a certain amount of dollars in reserve.

Dollars that you don't actually use to do anything with them but keep nonetheless available to you if you need it.

This all adds up to people need dollars much more than they would otherwise.

Supply and demand happens and since so many people have a demand for dollars you can add more supply without making it worth less.

It is all much more complicated than that, but it all adds up to a huge advantage for the US and the people in the US who have money.


aresyves OP t1_jegf543 wrote

Now I understand why they called the dollar a reserve currency. Your response was helpful and also made me think of that board game, Settlers of Catan lol


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LouSanous t1_jegkndd wrote

The US maintains the trade of oil for dollars at the point of a gun.

They do this because it allows the US to create a perpetual demand for dollars worldwide. That demand maintains the value of the currency.

This allows for unequal exchange, where the US can purchase goods from around the world for significantly less than they are worth, maintaining poverty and thus cheap labor around the world.

It also simultaneously allows the US to maintain trade deficits without losing the value of its currency. Thus Americans can consume multiple times what other people around the world consume without having to actually produce it. It also allows US people to have an advantage in any transaction abroad.

All currency is convertible to another currency. The arguments that somehow accounting for fluctuating currencies makes the system easier ignores that the US dollar fluctuates in value just as every other currency does. The real reason for this arrangement is that it is a major part of US economic hegemony.

When the US controls oil via its financial systems and enforces this rule militarily, the US becomes, in a sense, the de facto ruler of the world as oil is a necessary resource for every modern economy.

The reason we are starting to see this break down is because the Chinese have shifted the world's economic center of gravity eastward while alternative forms of energy are becoming more and more viable. Oil will have to be abandoned for climate change eventually, so it makes sense for other countries to start pushing back now, rather than waiting for later.

It should be clear that the USD being the forced currency for oil is a great arrangement for the US and a shitty one for everyone else.


pk10534 t1_jegyb8v wrote

The USD is not losing its status as the world’s reserve currency anytime soon, especially not to China.


LouSanous t1_jegyxs1 wrote

Nobody said it is, but it is declining and there is an effort to dedollarize.


VinylJitsu t1_jegb4hq wrote

A country has control over transactions made with its currency. If all the oil in the world is bought and sold in dollar, the USA can allow or disallow every oil transaction in the world, which means they can cut off oil from anyone they want to.


ejpierle t1_jegdkdi wrote

You got a source for this? Because I can't find one. I don't think the US has any say over whether Nigeria can buy oil from Saudi Arabia in US dollars. If Nigeria holds US dollars that it obtained legally, I don't see any way that the US can stop them from using them from purchasing good and service from anyone who will accept them as payment.

The real answer is that as long as the USD is the reference currency of commerce around the world that other currencies base their value on, the US can continue to print money without it greatly affecting its value. That's why we work so hard to make sure that the USD is what everyone uses...


Omniwing t1_jegfdzd wrote

We do though. The Nigeria can not buy oil from Saudi Arabia for any currency other than U.S. dollars. So if Nigeria doesn't have dollars, the easiest way to get them is to sell goods to the US for dollars, and then use those dollars to buy oil.

Also, Henry Kissinger went to Saudi Arabia in 1973, and we made a deal with them that they will not sell oil for any other currency other than dollars, and we will make sure the Sauds stay in power in the region and in their kingdom.

This is one way the U.S. holds it's hegemony over the world.


ejpierle t1_jeghjrr wrote

>The Nigeria can not buy oil from Saudi Arabia for any currency other than U.S. dollars. So if Nigeria doesn't have dollars, the easiest way to get them is to sell goods to the US for dollars, and then use those dollars to buy oil.

Well, that's not exactly the same thing. We can try to make sure a country we don't like doesn't have dollars to spend by not trading with them, but if they have dollars they can trade them for goods with anyone who will accept them. We can't say, "hey, you can't use your dollars to buy what you want bc that's our currency." And bc USD is the reference currency and is held by governments and private entities worldwide, what's to stop Nigeria from trading with someone else to get THEIR dollars and then using them to buy oil? The most circulated bill worldwide is the $100 USD. It's the currency of everything from commerce to crime all over the world.

>According to the Federal Reserve Bank of Chicago, nearly 80 percent of $100 bills—and more than 60 percent of all US bills—are overseas, up from roughly 30 percent in 1980.

There's no stopping the world from using their dollars amongst themselves for whatever they want.


aresyves OP t1_jeger9c wrote

Yeah I was a little weary of that response too. Only because then wouldn’t other countries start a war with US for blocking oil transactions? Hopefully I understood this correctly