01.20.17 – Trump And A New Gold-Backed Dollar
- On August 15, 1971, President Nixon killed the last remnants of the gold standard.
- Since then, the dollar has been a pure fiat currency, allowing the Fed to print as many dollars as it pleases.
- Removing the US dollar’s last link to gold eliminated the main motivation for foreign countries to store large dollar reserves and to use the dollar for international trade.
- At this point, demand for dollars was set to fall… along with the dollar’s purchasing power. So the US government concocted a new arrangement to give foreign countries another compelling reason to hold and use the dollar.
- The new arrangement, called the petrodollar system, preserved the dollar’s special status as the world’s reserve currency.
- In short, the US government made a series of agreements with Saudi Arabia between 1972 and 1974, which created the petrodollar.
- The Saudis would use their dominant position in OPEC to ensure that all oil transactions would only happen in US dollars. And the US would guarantee the House of Saud’s survival.
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