Petrodollar

A word doing two jobs. In its narrow sense it means the dollar earnings of an oil exporting state. In its wider sense it names the arrangement those earnings arise from: crude is conventionally priced and invoiced in dollars regardless of who is buying or selling, so importers need dollars to pay for it and exporters accumulate dollar balances, which are then recycled into dollar deposits, government debt and sovereign investment funds. The term entered general use in the nineteen seventies, when the earnings became large enough to be a category of their own.

Three consequences follow from the convention. It creates demand for dollars that has nothing to do with trade with the United States, because two other countries dealing with each other still settle in them. It ties an exporting government's budget to a dollar denominated price, so the fiscal position and the currency's anchor move together. And it is one of the reasons several exporting states hold their currencies at fixed rates against the dollar rather than letting them float, since revenue and the peg are then denominated in the same unit.

What is disputed is how much the dollar's international standing rests on the convention. One reading treats the invoicing practice as a pillar of that standing. The other treats it as a consequence of the depth of dollar funding, payment and debt markets, on the grounds that a seller wants the currency it can most easily invest and borrow in, and that invoicing follows rather than leads. Announcements of oil sold in other currencies recur and have so far shifted small volumes, which both readings claim as support. The distinction worth keeping is between the word as a description of revenue, which is uncontroversial, and the word as a claim about a monetary system, which is an argument.