Petrodollar
페트로달러
The surplus US dollars that oil exporters earn from oil sales beyond what their own economies can absorb. The word dates from the oil crisis of 1973. The return of this money to the world economy, through US Treasury securities, deposits in Western banks, imports of arms and consumer goods and loans to developing countries, is called "petrodollar recycling". Together with the 1974 US-Saudi agreement under which Saudi Arabia priced its oil in dollars only and invested its surplus in US Treasury notes, it is described as one of the arrangements that sustained demand for the dollar after the end of gold convertibility.
In depth
"Petrodollar" combines petroleum and dollar. The word is credited alternately to the Egyptian-American economist Ibrahim Oweiss and to the former US Commerce Secretary Peter G. Peterson, both in 1973. In the narrow sense it means the dollars that oil exporters earn in excess of their own development needs. Producers with small populations or at an early stage of industrialization could not invest their sudden earnings efficiently at home. The International Monetary Fund (IMF) held that the surplus should be invested elsewhere, above all in the United States, or spent on imports, so that it returned to the world economy; global growth would suffer if the money were withdrawn into the reserves of the producing countries.
The first great surplus came after oil prices quadrupled in 1973. From 1974 through 1981 the combined current account surplus of the OPEC members came to $450 billion, 90 percent of it accumulated by the Arab states of the Persian Gulf and Libya; Iran too built up large surpluses until 1978. Arab petrodollars went into US Treasury securities and the financial markets of the industrial economies, often through the government bodies now called sovereign wealth funds, and billions were deposited with the big commercial banks of the United States, Europe, Switzerland and Britain. In the process the Eurodollar market, a dollar market outside US regulation, grew rapidly.
The political axis was the arrangement between the United States and Saudi Arabia. Three months after the embargo was lifted in 1974, the two countries signed a wide-ranging agreement on expanded economic and military cooperation, and in fiscal 1975 alone $2 billion in military contracts followed, including 60 fighter jets. A key part of the agreement was that Saudi Arabia would price oil in dollars and invest billions of its dollars in US Treasury notes. A widely told account holds that Nixon and Kissinger feared that abandoning the gold standard would weaken global demand for the dollar, and that the United States offered military protection for the Saudi oil fields in return for Saudi Arabia accepting only dollars for its oil. The older security relationship between the two countries is covered under the oil-for-security deal.
Recycling softened the short-term recessionary impact of the 1973 oil shock, but it left debts with the oil importers that had to pay much higher prices. The IMF estimated that the foreign debts of 100 oil-importing developing countries rose by 150 percent between 1973 and 1977. As the recession made corporate investment less attractive, the banks lent their petrodollar deposits directly to governments in Latin America, such as Brazil and Argentina, and to Turkey. The journalist William Greider summed it up: banks collected the deposits of revenue-rich OPEC governments and lent the money to developing countries so that they could avoid bankruptcy. When US interest rates soared after 1979, these debts became unpayable, leading to the Third World debt crisis of the 1980s. The IMF itself ran an "Oil Facility" from 1974 to 1976, funded by oil exporters, to cover the payments deficits of oil importers.
Interpretations of petrodollars differ. The IMF and mainstream economics see recycling as a necessary process that restored balance to the world economy. Critics argue that an international monetary system reliant on recycling exploits developing nations and advances American imperialism. The theory of "petrodollar warfare" describes the dollar's role in settling oil transactions as an economic imperialism enforced by military intervention; its critics reply that oil settlement adds only a tiny fraction to demand for the dollar. The Marxist economist Ernest Mandel argued in 1974 that petrodollars placed short-term in American and European banks fed the inflation of credit and paper money, and that the rapid accumulation of capital in the hands of the oil-producing ruling classes was giving rise to a new, autonomous "Arab and Iranian finance capital".
High oil prices brought petrodollars to the socialist bloc as well. During the 1974 to 1981 surge the USSR used its oil earnings to support the struggling economies of the Soviet-led bloc, and the loss of that income in the oil glut of the 1980s contributed to the bloc's collapse in 1989. In the second great surge, from 2005 to 2014, OPEC revenues approached $1 trillion a year in 2008 and from 2011 to 2014, and the exporters invested directly in world markets through sovereign wealth funds rather than through the banks and the IMF.