Recently, there has been much focus on the “petrodollar” and whether it will continue as the currency of choice in the oil market. China and Saudi Arabia have discussed shifting away from it, a move that some worry will end the dollar’s dominance in world markets; others seem to think it would be the end of life as know it. Let me put your mind at ease.
Petrodollars are not a separate currency. Simply defined, they are crude oil export revenues denominated in US dollars. The universal use of petrodollars in oil sales began in the 1970s, when the United States and Saudi Arabia agreed to standardize oil prices in dollars as part of the overall transition away from gold. There were certainly political maneuverings, but the dollar was essentially chosen because it was (and remains) the most widely accepted currency for global transactions.
As to mechanics, oil-producing countries exchange crude for…
