The argument
The petrodollar was the convention that oil is priced and settled in US dollars, with the surplus revenues recycled into dollar assets and principally into US Treasuries. In return, the United States provided security guarantees for key producers and shipping routes. That architecture is under strain. The piece argues the direction of travel is from monetary hegemony to monetary optionality: a world in which the dollar remains central but less exclusive. The piece names three interlinked forces behind the adjustment. Geography. The centre of gravity of oil demand has moved to Asia, while the shale revolution took the United States close to self-sufficiency and then to net exports. Invoicing has not followed the trade east. The misalignment introduces friction for importers who must fund and settle in a currency their trade is drifting away from. The energy mix. As oil’s share of primary energy declines in favour of electrification, the monetary infrastructure built around energy trade becomes incrementally less central. The adjustment is gradual, and the piece argues that does not make it less consequential. Gold as a neutral reserve asset. The dollar’s falling share of global reserves has not been matched by a rise in rival fiat currencies. Gold absorbed the bulk of it, because gold is no one’s liability, cannot be frozen by a foreign authority, and sits outside payment systems. Behind all three sits security. The petrodollar was anchored by credible US guarantees. As those become more conditional, reserve managers read reliance on a single issuer and a single settlement system as concentration risk rather than efficiency. The conclusion is narrow. The erosion of the petrodollar is not the end of the dollar. It is the end of its monopoly.Related
- The rise of gold, the reserve asset absorbing the diversification described here.
- What Bordier publishes, the research series this piece belongs to.
- Our approach to investment, the philosophy behind the bank’s portfolio construction.
- Bordier in Singapore, the entity that publishes this series.
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