Nicole Lapin
👤 SpeakerAppearances Over Time
Podcast Appearances
Every country that needs oil needs dollars to buy it.
That created permanent, massive global demand for the dollar, and oil exporters recycled their dollar revenues back into U.S.
treasuries, letting the U.S.
borrow cheaply and maintain reserve currency status for 50 years.
So when oil goes up, the US dollar usually strengthens.
But the reason isn't as simple as oil up, dollar up.
There are a few steps in between.
When oil goes up, inflation pressure goes up.
Oil feeds into everything, right?
Gas, shipping, food, flights.
When oil rises, inflation expectations often rise with it.
And then when inflation goes up, interest rates go higher, right?
The Federal Reserve tends to keep rates elevated to fight inflation.
So then higher interest rates, that means stronger dollar.
Higher U.S.
rates attract global capital chasing yield.
More demand for dollars means the dollar strengthens.
That's why the petrodollar agreement is so valuable to the United States.
Countries need U.S.
dollars to buy oil.