What are petrodollars and how do they influence the world economy?


The dollar is the official currency of United States of America since the year 1792. As it is most used in international transactions, it is the world’s primary reserve currency. Several countries use it as their official currency. However, the term petrodollar refers to the money received from the sale of petroleum or oil revenues denominated in U.S. dollar. Although petrodollars initially referred to money that Middle Eastern countries and members of OPEC received, now the definition has broadened. Petrodollars accumulate to oil-exporting countries which depend on the sale price of oil as well as the volume being sold abroad, which is in turn dependent on production of oil.

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OPEC is the organization of petroleum exporting countries. There are several countries in the OPEC organization such as Iran, Iraq, Kuwait, Saudi Arabia, Qatar, Indonesia, Libya, Algeria, Nigeria, Ecuador, Angola, and United Arab Emirates. OPEC members countries hold about 80 percent of crude oil reserves and 50 percent of natural gas reserves of the world. These members always try to keep oil prices as high as possible. However, the advantage of new technology had major effects on worldwide oil prices. In other words, petrodollars are revenue of oil exporting countries. The oil exporting countries earn more money from export of crude oil than the requirement in their own countries.

So they invest surplus money in other countries which affects world economy. If they do not invest in other countries, global economy would have suffered. Large volumes of Arab petrodollars are invested in U.S. Treasury Securities, that is Government Debt issued by U.S.A and in other financial markets of major industrial economies. The up and down of market prices of petrol effects the entire world economy. In this way the petrodollar influences the world economy.

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