The Petrodollar Is In Decline. The Dollar Is Not.

And even the petrodollar is only in decline because the United States no longer needs to import oil. That just makes the dollar, and America, stronger.

by Jacob L. Shapiro
March 27, 2018

The petrodollar is in decline. This is not because it is now possible, as of March 26, to buy yuan-denominated oil futures on the Shanghai International Energy Exchange. It is because the United States does not buy as much oil as it used to.

Since 2012, U.S. crude oil production has been increasing thanks to technological advances in hydraulic fracturing and horizontal drilling. A byproduct of the United States’ reducing its reliance on oil imports and becoming an oil exporter is that countries dependent on oil sales need new customers. The most promising new customer is China, which last year surpassed the U.S. as the world’s largest oil importer. China, understandably, would like to pay for oil in yuan rather than dollars, and beggars like Saudi Arabia can’t afford to be choosers. It would be a mistake, however, to conclude that the decline of the petrodollar also portends the decline of the dollar’s status as the world’s reserve currency.

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