Every country in the world accepts dollars. Even countries that hate America.
By the end of this, you’ll understand exactly why — and it’s not because the dollar is trustworthy. It’s because of one deal made in the desert in 1974.
Here’s the setup. After 1971, the dollar was backed by nothing. No gold. No silver. Just trust.
And at the time, most economists thought the dollar was finished as the world’s reserve currency.
They were wrong.
Because America found something better than gold to back the dollar.
Oil.
Let’s back up. Every country needs energy.
And for most of the twentieth century, oil was the dominant energy source for everything — transportation, manufacturing, heating, electricity.
If you wanted to run a modern economy, you needed oil.
And oil had to be bought with something.
Here’s where it gets interesting.
Before 1971, oil was priced in dollars because dollars were backed by gold. That made sense. A dollar meant something fixed.
After 1971, that logic was gone. Dollars were just paper. Oil-producing countries could have demanded payment in any currency — or in gold directly.
Several of them wanted to.
So America had a problem. A big one.
If oil stopped being priced in dollars, the dollar’s role in global trade collapses overnight.
Every country holding dollars as reserves would have no reason to keep them. The whole system unravels.
The Nixon administration needed a solution. Fast.
In 1974, Secretary of State Henry Kissinger flew to Saudi Arabia. The details of what was agreed are still partially classified. But the outcome is clear.
Saudi Arabia — and through them, the rest of OPEC — agreed to price all oil sales exclusively in U.S. dollars.
In exchange, America offered two things. Military protection for the Saudi regime. And guaranteed purchase of American treasury bonds with the oil revenue.
That agreement created what’s now called the petrodollar system.
And it changed everything.
If this is making sense, hit like — it helps more people find this.
Here’s what the petrodollar system actually means in practice.
Japan needs oil. Japan buys oil from Saudi Arabia. Saudi Arabia only accepts dollars. So Japan first needs to acquire dollars before it can buy oil.
How does Japan get dollars? By selling goods to countries that have dollars. Or by holding dollar-denominated assets in reserve.
Same for Germany. Same for China. Same for every country that runs an industrial economy.
The entire global trading system became structured around the need to acquire and hold dollars.
Not because the dollar was inherently valuable. But because oil — something every country on earth needs — could only be purchased with dollars.
This is the mechanism nobody explains in school.
Gold used to force discipline on the dollar. Now oil did.
Not because oil is stored in American vaults. But because the agreement to price oil in dollars created a permanent global demand for the currency.
As long as that demand exists, America can issue more dollars without immediately destroying their value.
Because someone always needs them.
Okay. We’re almost at the part where this connects to your actual life. Stay with it.
This is why America can run deficits that would bankrupt any other country.
When the U.S. government spends more than it collects in taxes, it issues treasury bonds. It borrows.
In any normal country, too much borrowing causes investors to lose confidence, the currency weakens, and the cost of everything imported goes up fast.
That feedback loop is much slower for America. Because foreign governments and central banks are structurally incentivized to hold dollars and dollar-denominated assets.
They need dollars to buy oil. They park those dollars in U.S. treasuries. That demand keeps American borrowing costs low.
Which means America can print and borrow at a scale no other country can match.
Which means the cost of that — the slow erosion of purchasing power — gets exported to everyone holding dollars.
Including you.
Drop a comment if this explains something about the world that always felt off.
Let’s bring it together.
After 1971, the dollar had no gold backing. It needed a new anchor.
Kissinger’s 1974 deal tied oil to the dollar. Every country that needs oil needs dollars first.
That created permanent global demand for the currency.
Which lets America run larger deficits than any other country could survive.
Which means more dollars get created over time.
Which means each dollar buys slightly less than it did before.
The petrodollar system didn’t just save the dollar after 1971. It turned the entire global economy into a support structure for American monetary policy.
Every time you feel the gap between your salary and what it actually buys — that’s the system working exactly as designed.
Not against you specifically. Just not for you either.
If this kind of video changes how you see things — subscribe. More of this coming.
Watch on YouTube
