[DesuMaiden]

It is backed up by oil after all. It is called the petrodollar because it is backed up by petroleum. I think the usa currency is not necessarily a fiat currency because it is backed up by petroleum apparently. Hence it is called the petrodollar. Or am I wrong and that the USA currency is backed by nothing of value at all...? But petroleum has great value, so that is why the USA currency is backed up petroleum.

[SeaGypsy]

Better do more reading Desu. All printed currency is fiat. No major currency is backed by anything except a promise from the issuing central bank. Things were different when many currencies were back with gold. You can't back a currency with oil, as it is a consumable commodity, with not unlimited shelf life. The Petrodollar is about the international trading monopoly begun decades ago between the USA & Saudi Arabia, which has since permeated & eventually utterly dominated international trade, initially in commodities primarily, but of perhaps equally huge importance in taking the place of reserve currency on the international monetary exchange network. Every time you buy any commodity from anywhere in the world, or change money anywhere in the world, at some point in the transaction it will be converted to $USD. This central position in the markets strengthens the $USD considerably, probably immeasurably. There are moves afoot to unseat the petrodollar, with some big contracts involving China, Russia & a few lesser countries bypassing the Dollar in the trade. Saddam was about to start selling oil direct to Europe for Euros, just before Bush Senior kicked his arse using Kuwait as an excuse. It's a big deal Desu.

[KaiserJeep]

Read up on the "Bretton Woods" agreement of 1944, a postwar system that in effect made the US Dollar a world reserve currency pegged to the value of gold from 1945 to 1971, when Richard Nixon broke the fixed price for gold in US dollars. Ever since this relationship was broken, the dollar is a true fiat currency.

The "petrodollar" is a fiction. The price of petroleum is very volitile and unsuitable for a fixed exchange rate with a fiat currency.

[SeaGypsy]

If the petrodollar is a fiction KJ, where can an ordinary human buy oil without first having $USD? / they cannot, we cannot, you cannot nor I, so, the petrodollar is a fact.

[KaiserJeep]

The "NonStop" computers that my company produces run the trading floors of all 64 stock exchanges and all four dozen odd commodity exchanges including oil.

Two parties niether of which have any actual US dollars can make a deal in their own currencies. The transaction is recoded at the then-current currency exchange rate.

Only the record keeping is done in US dollars. It is rare for actual currencies to move between banks, and even rarer for gold to move.

All currencies are fiat currencies, variable in value. The US dollar is one of them, differing only in that it is also the currency of record, exchangeable for all others.

If no exchange rate is recorded for two currencies in a specific transaction, the computer will calculate one in an instant, using the US dollar as a reference.

[SeaGypsy]

Deja vu. Are you really that stupid? Actual $USD? Makes no difference. Virtually all international commodity exchange, most currency exchange, involves conversion to $USD. If this takes 37 milliseconds then changes to the primary exchange, it still happened, no need for cash to be printed, moved around etc. Quit arguing for the sake of it please.

[DesuMaiden]

So the USA currency is still backed by nothing, despite the fact that it is used for trading oil in most countries. So the USA currency is nothing more than a fiat currency even though it used in the trading of oil.

[SeaGypsy]

Being a fiat currency makes no difference until there is a serious threat to that currency. While things are hunky dory, like they have been since Bretton Woods (lol) it doesn't matter. It is impossible to back currency with gold again as there just ain't enough of it and any move in that direction by a big player would send the gold market into panic & sky high price growth, defeating the purpose- destabilising the currency in order to stabilise it. There is no going back. The petrodollar holds up the value of the real $ in your pocket, but it's not at a fixed exchange, it floats so you may need less or more of it day to day to purchase a commodity. Oil products just happen to be the closest exposure us ordinary mortals have to commodity markets, with relatively immediate fluctuations in price according to the global market. Currency is less volatile as long as central banks do their business properly, because communities tend to support stable values for the services market, wages etc.

[Quinny]

it's all about confidence 'trickery'!

[SeaGypsy]

Exactly Quinny. All currencies are worth whatever people think they are worth & will be worth tomorrow. The greatest confidence scam possible, especially these days, where anyone with a brain can see that perpetual growth which is the very backbone of the scam, is impossible.

[dolanbaker]

Money is just a proxy for the value of goods & services, without it we would all be using a system of barter. Throughout history the value of the proxy (money) was fixed to gold or some other precious commodity, this limited its quantity so was abandoned.

These days money is only worth something because people trust its value and know that the note is trusted by others so they can use it for transactions.

[Peak_Yeast]

All fiat currencies value are backed by the military and economic might of the issuer.

[diemos]

All currencies get their value from the same source; the willingness of people to exchange real goods and services for them.

My FRNs may just be pieces of paper with pretty pictures on them but I am surrounded by stores that will happily give me things of real value in exchange for them.

I am also willing to drag my ass out of bed every morning and go to work because my employer will give me a wad of FRNs every two weeks in exchange for my time and effort.

In the end currencies have no intrinsic value, not even gold coins. They're just a way of keeping score.

[DesuMaiden]

Money is just a proxy for the value of goods & services, without it we would all be using a system of barter. Throughout history the value of the proxy (money) was fixed to gold or some other precious commodity, this limited its quantity so was abandoned.

These days money is only worth something because people trust its value and know that the note is trusted by others so they can use it for transactions.

That was the answer I was looking for...

[wildbourgman]

Money is just a proxy for the value of goods & services, without it we would all be using a system of barter. Throughout history the value of the proxy (money) was fixed to gold or some other precious commodity, this limited its quantity so was abandoned.

These days money is only worth something because people trust its value and know that the note is trusted by others so they can use it for transactions.

That was the answer I was looking for...

I see it a little different. Money is a proxy for labor, it's a way to store the value of ones labor. The reason that limits on a currency was abandoned was because it's extremely difficult to have welfare/warfare state with a fixed currency. A fixed currency demands discipline which really hampers politicians ability to buy votes. In the United State we have a Fiat currency and we also have a legal Ponzi scheme.

Think about it this way if your a politician and you want to have profligate government spending in order to corral more votes and campaign donations, but you don't want to have your name associated with a yea vote on a tax increase you can't have a fixed currency that can't be easily inflated. It's a way to trick your citizens into thinking that it's lawmakers didn't raise taxes, but blame business for raising prices.

So by having a Fiat currency lawmakers can still tax the holdings of those that use the currency without ever going through Congress and raising taxes. You tax through inflation of the money supply. A Fiat currency is a tool for cowardly undisciplined politians and it's not bad for bankers caste from that same mold either.

[ralfy]

It's not so much backed by oil but based on an agreement between the U.S. and several oil-producing countries to price oil in dollars:

https://en.wikipedia.org/wiki/Petrodollar

[SeaGypsy]

And an unwritten agreement to attack & degrade anyone who sells oil other than for $USD. Recent examples include Russia & previously Iraq, others here can probably add to these.

[wildbourgman]

So does the United States see hyperinflation or at least rather high inflation if the petrodollar connection is broken? Can the United states still export it's inflation without the petrodollar?

[SeaGypsy]

In my nearly 6 years here I have seen a lot of discussion of the petrodollar. Never have I seen anyone really try to dissect what happens if/when the petrodollar & reserve currency position are lost. Probably because nobody has much of a clue, except that it won't be good for the dollar.