WHAT IS FIAT MONEY?
Fiat money is government-issued currency that is not backed by a physical commodity, such as gold or silver, but rather by the government that issued it. The value of fiat money is derived from the relationship between supply and demand and the stability of the issuing government, rather than the worth of a commodity backing it as is the case for commodity money.
Most modern paper currencies are fiat currencies, including the U.S. dollar, the euro, and other major global currencies.
(CHEN, 2021)
@kieran.wicks #question from @kieran.wicks #GoldRushStories #Petrodollar #Fiat #Gold #Oil #BlackGold #Historian #AustralianHistory #HistoryofMoney #Money #Currency #Economy #socialengineering #WorldHistory ♬ original sound - Kieran.Wicks
The petrodollar system is tied to the history of the gold standard. After World War II, the United States held most of the world's supply of gold. It agreed to redeem any U.S. dollar for its value in gold if the other countries pegged their currencies to the dollar. Other countries signed onto this deal in the 1944 Bretton Woods conference. It established the U.S. dollar as the world's reserve currency.
On February 14, 1945, President Franklin D. Roosevelt initiated the alliance with Saudi Arabia.1 He met with Saudi King Abd al-Aziz. The United States built an airfield at Dhahran in return for military and business training.
This alliance was so critical that it survived subsequent years of differences of opinion over the Arab-Israeli conflict.
The shift from oil to other renewable energy sources could threaten the petrodollar.
(AMADEO, 2020)
After the collapse of the Bretton Woods gold standard in the early 1970s, the United States struck a deal with Saudi Arabia to standardize oil prices in dollar terms. Through this deal, the petrodollar system was born, along with a shift away from pegged exchanged rates and gold-backed currencies to non-backed, floating rate regimes.
(TUN, 2021)
For those of you wishing to dive deeper, I recommend Robert Newman’s History of Oil, for a comedic and entertaining exploration into the historical events surrounding the ascendance of the Petrodollar.
(Newman, n.d.)
