Petrodollar System

A petrodollar is the U.S. Dollar paid to a country for the purpose of buying oil. This system came about in the 70’s during the oil crisis leading to high prices. The petrodollar system helped make oil prices more stable. in a way, this pegs the value of oil to that of the U.S. Dollars. The spending power of this money which is received by oil producing nations will be affected by the core inflation and other economic factors affecting the USD. Petrodollar Recycling is a way in which these USD can be recycled back in to the US. This can be done by purchasing T-bills or by contracts in American companies leading to technology transfer. Most countries maintain a sovereign wealth fund mainly funded with petrodollars for local finances.

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