By Jeff Epstein, Editor-in-Chief of Citizens’ Media TV, who posts on Naked Capitalism as aliteralmind; copy edited by Ben Szioli. Originally published at Citizens’ Media TV
Does it matter whether the rest of the world prices oil in dollars, in order for the U.S. to have a fiscal capacity to maintain full employment domestically, to avoid austerity? The answer is no…. It doesn’t matter whether the U.S. dollar is the “reserve currency.”
— American economist Stephanie Kelton, speaking on Real Progressives in February, 2018.
“The petrodollar” or “petrocurrency” is a not a concrete thing. It is a shorthand name, a buzzword, for the system that has been in place since June, 1974, when an agreement was made between the Nixon Administration and Saudi Arabia. The terms of the agreement dictate that Saudi Arabia will accept only the United States dollar for oil (and ensure some price stability) in exchange for military protection of their oil fields. The agreement therefore pressures other oil producers to also use only the U.S. dollar.
(The phrase petrodollars more accurately refers to the revenue derived from petroleum exports under the petrocurrency system. The agreement also has some implications and applications related to international trade and commerce that are beyond the scope of this article.)
“The petrodollar,” the petrocurrency system, is just another tool for the U.S. government and its military (the Military-Industrial Complex) to use their outsized leverage against other countries. Oil and resources – not “the petrodollar” – are very likely a significant reason why the US has military bases around the world, why they attacked Libya and Iraq, and why they are currently threatening Iran. (There may be other reasons, some of which we may never know.)
Regardless of the situation, “the petrodollar” has no direct bearing on the ability of the United States, or any other country, to provide for its people. The only thing that affects this is a country’s supply of real resources, and the fact that the country’s currency is the only one accepted for extinguishing tax obligations.
Not much. It’s irrelevant
— Australian economist Bill Mitchell, speaking on Real Progressives in February, 2018, responding to, “What do you have on the petrodollar?”
The United States is the “reserve currency” (meaning its currency is required to purchase oil) and has more resources than most (raw materials, labor, technology, and time). But neither of these things have any bearing on how well – as opposed to how “much” – it can provide for its citizens. All sovereign fiat economies (the U.S., Canada, Australia, New Zealand, Japan, and England, among others) can fully employ all their citizens with the resources at its disposal as best they can.
If a conflict were to arise because of oil or resources, or “the petrodollar,” that conflict would of course have significant consequences. Ultimately, however, none of these things have any direct impact on any country’s supply of real resources, and therefore, no direct effect on any country’s domestic economy.
As far as what specifically would happen if the world stopped using the United States dollar for oil? The answer is, “Very little.”
[The petrodollar] is entirely inconsequential. It’s just a numeraire. They could set the price in paper clips…. What you transact in is of absolutely no consequence.
— Warren Mosler, speaking on RT in 2014. Mosler is the “father” of modern money, whose insights and ideas inspired the earliest Modern Monetary Theory (MMT) economists.
The United States spends more on its military than the next seven countries combined. The U.S. military is one of the largest users of fossil fuels in the world and by far the biggest consumer of energy in the United States. The real problem is that the fossil fuel industry has too much influence on the United States government. Instead of fulfilling its original and only purpose – to protect the American People – the United States Military has now been hijacked to further enrich the very few, and to impose their power and reach across the globe.
Finally, if oil is what the United States dollar is based on or pegged to, then our ability to continue living on a warming planet is in direct conflict with the wellbeing of the United States economy. The truth, however, is that fighting climate change does not jeopardize the United States as a whole; it jeopardizes the obscene wealth of the very few who choose to enrich themselves with fossil fuels.
The world is on fire. The United States has more than enough people and resources, ready and waiting to fight climate change (and address many other critical issues). Until our politicians, however, value the lives of all American citizens (and billions of people around the world) more than the hefty donations they receive from the fossil fuel industry, these resources will continue to sit idle.