# The petrodollar order: the dollar without gold When Nixon cut the dollar from gold in 1971, American financial power was re-anchored on oil. Exchange rates floated, the oil shock handed OPEC pricing power, and because oil stayed priced in dollars the world still needed them. Saudi surpluses recycled into US Treasuries, and the dollar became a lever of sanctions. *This story part of: Anatomy of a superpower: the American state* *This story part of: World order: the transnational forums* *This story parallel: The military-industrial complex and Pax Americana* *This story parallel: The Cold War* *This story continues: The passing of the torch: how the American century replaced the British one* *This story part of: Money and finance* ## c. 1965 — France names the dollar's 'exorbitant privilege' French officials, with the phrase later tied to finance minister Valery Giscard d'Estaing, complain of the exorbitant privilege the United States enjoys by issuing the world's reserve currency. Because others need dollars, America can borrow cheaply and run deficits that would sink other countries. The phrase became the standard name for the advantage, and the title of Barry Eichengreen's history of it. ## August 1971 — Nixon shock ends dollar-gold convertibility In August 1971, after France demanded conversion of its dollars into gold, the United States suspended the convertibility of dollars into gold, collapsing the fixed exchange rate system and sending the dollar sharply lower. > "Consequently, in August 1971, in what is often called the “Nixon shock,” the United States had to suspend the convertibility of dollars into gold. The fixed exchange rate system collapsed and the U.S. dollar fell sharply on world markets." > — Princes of the Yen ## 18 December 1971 — The Smithsonian Agreement tries to hold fixed rates The major industrial nations meet at the Smithsonian Institution and agree to devalue the dollar and set new fixed exchange rates, hoping to save the Bretton Woods framework. Nixon called it the greatest monetary agreement in history, but it held for barely a year before markets forced currencies apart again. ## March 1973 — Major currencies move to floating exchange rates After renewed pressure on the dollar, the main industrial economies abandon fixed rates and let their currencies float against each other. The postwar system of pegged exchange rates was over, and the dollar's price would now be set day to day in currency markets. ## May 1973 — SWIFT builds the plumbing of global payments Banks from Europe and North America found SWIFT, a cooperative to carry standardized payment messages between institutions worldwide. Over time it became the backbone of cross-border transfers. Because so much of that traffic clears in dollars through US-linked banks, control over access to this network would later become a tool of American policy. ## 17 October 1973 — The 1973 oil shock and OPEC's price power Arab oil producers cut output and embargo states seen as backing Israel in the Yom Kippur War, and the price of crude roughly quadruples within months. The shock showed OPEC's power over the price of the world's most traded commodity and sent enormous sums flowing to oil exporters. Because oil was priced and paid for in dollars, every importing country needed dollars to buy it. ## 8 June 1974 — The US-Saudi Joint Commission on Economic Cooperation Henry Kissinger and Saudi leaders sign an agreement creating a joint commission to tie the two countries together through trade, technology, and military cooperation. It framed a lasting bargain in which the United States offered security and goods and Saudi Arabia became a stable, dollar-friendly oil supplier. ## July 1974 — Saudi Arabia agrees to buy US Treasuries Treasury Secretary William Simon negotiates an arrangement for Saudi Arabia to invest its oil surpluses in US government debt, with Saudi purchases handled outside normal Treasury auctions and kept confidential for decades. Records declassified in 2016 confirmed the deal to recycle petrodollars into Treasuries. The broader popular story of a single sweeping secret pact tying oil, arms, and the dollar into one document is contested; what is documented is dollar pricing, Treasury purchases, and a close security relationship. ## c. 1974 — Petrodollar recycling funds developing-world lending Western banks take in the flood of oil-producer deposits and lend them on to governments across Latin America, Africa, and Asia. This recycling of petrodollars fueled a lending boom through the 1970s. Much of that debt was priced in dollars at floating interest rates, setting up the crises that followed when rates rose. ## c. 1975 — OPEC keeps pricing oil in dollars As the dollar floated and lost value, OPEC members debated pricing oil in a basket of currencies to protect their revenue. They kept the dollar as the currency of oil, a choice Saudi Arabia favored. Dollar pricing of oil meant steady global demand for dollars regardless of whether the currency was backed by gold. ## c. 1975 — Saudi Arabia recycles oil surpluses into the dollar system Flush with oil revenue, Saudi Arabia prices its crude in dollars and channels its surpluses into US Treasuries, bank deposits, and American arms and construction contracts. This recycling gave Washington a large, reliable buyer of its debt and bound the kingdom's wealth to the value of the dollar. ## 8 January 1976 — The Jamaica Accords make floating rates the rule The IMF's members meet in Kingston and agree to amend the Fund's rules, formally accepting floating exchange rates and ending gold's official role in the monetary system. The changes confirmed a world of paper currencies with no metal anchor, in which the dollar remained the reference point by weight of use rather than by law. ## October 1981 — The AWACS sale deepens the US-Saudi security tie After a hard fight in Congress, the Reagan administration wins approval to sell advanced AWACS surveillance aircraft and other arms to Saudi Arabia. The deal, one of the largest US foreign arms sales to that point, showed the depth of the security side of the relationship that ran alongside oil and the dollar. ## August 1982 — Mexico's default opens the Latin American debt crisis Mexico tells its creditors it can no longer service its foreign debt, triggering a wave of defaults across Latin America. Much of the borrowing had come from recycled petrodollars at floating dollar interest rates, which spiked after the US Federal Reserve raised rates sharply. The crisis showed how exposure to dollar debt could break economies far from Washington. ## 1 January 1999 — The euro is launched Eleven European nations adopt the euro as a shared currency, managed by a new European Central Bank. It created the first serious rival to the dollar as a reserve and trade currency. The euro took a solid second place in global reserves but did not displace the dollar from the top. ## September 2008 — The 2008 crisis confirms Treasuries as the safe asset When the financial crisis hit, investors around the world rushed into US Treasury bonds and the dollar even though the crisis began in America. The flight to safety showed that in a panic the world still treats dollar assets as the ultimate refuge. That status lets the United States borrow at low cost precisely when others cannot. ## 16 June 2009 — The first BRICS summit raises de-dollarization Brazil, Russia, India, and China hold their first summit and call for a more diversified international monetary system less dependent on the dollar. The group, later joined by others, became a forum for discussing trade in national currencies and alternatives to Western-run finance. Progress has been slow, and the members disagree on how far to go. ## March 2012 — Iran is cut off from SWIFT Under pressure from US and European sanctions over its nuclear program, SWIFT disconnects Iranian banks from its network. Shut out of the main channel for international payments, Iran struggled to sell oil and move money. It was a clear demonstration of how access to dollar-based financial infrastructure can be used as a weapon. ## June 2014 — BNP Paribas fined for breaking US sanctions France's largest bank pleads guilty and pays about 8.9 billion dollars for processing transactions tied to sanctioned countries through the US financial system. The case showed the reach of American law over any bank that clears dollars, and how control of dollar payments gives Washington leverage far beyond its borders. ## c. 2014 — Russia and China expand trade outside the dollar Facing Western sanctions after Russia's annexation of Crimea, Moscow and Beijing sign currency-swap deals and steadily shift their bilateral trade into rubles and yuan. By the early 2020s much of their trade with each other settled outside the dollar. The shift showed that sanctioned economies can build workarounds, though these remain small next to the dollar's global role. ## 1 October 2016 — The yuan joins the IMF's reserve basket China's yuan enters the IMF's Special Drawing Rights basket alongside the dollar, euro, yen, and pound, a symbolic recognition of China's economic weight. The move marked China's ambition to give its currency a global role. In practice the yuan still makes up only a small share of reserves and cross-border payments. ## 26 February 2022 — Russia's reserves frozen after the invasion of Ukraine After Russia invades Ukraine, the United States and its allies freeze roughly 300 billion dollars of Russian central bank reserves held abroad and cut major Russian banks from SWIFT. Freezing another state's reserves was a striking use of financial power. It also pushed many governments to ask whether holding dollars was as safe as they had assumed. ## December 2022 — China and Gulf states discuss oil sales in yuan During a visit by Xi Jinping, China and Gulf oil producers discuss settling some energy sales in yuan rather than dollars, reviving talk of a petroyuan. The idea points at the heart of the petrodollar system, since dollar pricing of oil underpins much of the currency's demand. As of the mid-2020s such deals stayed limited, and Gulf currencies remained pegged to the dollar. ## c. 2022 — The dollar's reserve share slips but stays dominant IMF data show the dollar's share of disclosed global reserves drifting down from around 72 percent in 2000 to under 60 percent, spread across a wider set of currencies. Economists disagree sharply on what this means. Some read it as the slow start of dollar decline, while others, including Barry Eichengreen, argue the dollar's depth and safety keep it dominant with no ready replacement.