Here we go again.  It is amazing how people keep touting the same stuff.  

With all that is going on, we hear about the US losing the "Petrodollar" status.  If Russia and Saudi Arabia (along with whomever else) decide to accept [payments](https://leofinance.io/@leoglossary/leoglossary-payment) in a [currency](https://leofinance.io/@leoglossary/leoglossary-currency) other than the US dollar, then the US could be in trouble.

Unfortunately, this is complete mythology as we will show by the end of this article.

The inspiration from this comes from out own @nealmcspadden who wrote this post, [Is the PetroDollar System Ending?](https://leofinance.io/@nealmcspadden/is-the-petrodollar-system-ending).

![image.png](https://images.hive.blog/DQmcsXydR1SaVa9juJWgAcWSkNGPKw7aKfUFR6DkW2pPUnN/image.png)
<center>[Source](https://static2.businessinsider.com/image/57a104d788e4a714088bc95c-2088/rtrf96g.jpg)</center>

### The Myth

So where did the myth of the Petrodollar come from?

This all stems from another myth that [gold](https://leofinance.io/@leoglossary/leoglossary-gold) bugs (and many [Bitcoin](https://leofinance.io/@leoglossary/leoglossary-bitcoin) maxis) hold dear, the gold standard.  After Nixon "took the US off the gold standard, which was fried a couple decades before (that is for another article), something had to be developed that fit their narrative.

After all, there is no way a currency can have value on its own.  Hence, the USD, once removed from gold, only had value since because of the Petrodollar.  Without that, the USD would be worthless.

Sadly, this is not the reality.  The USD has very little to do with oil.  In fact, as we will see, it is pretty much a laughable concept.

### The USD

Before getting to the math in this equation, let us take a look at the dollar.

Did you know that you can walk into a store and make a purchase, using a $10 bill from 2020 or 1910?  The latter might be worth more from a collector's standpoint but the basis still holds true.  Why is this?  

The simple answer is the US never nuked its currency.  Try doing the same thing with a British [pound](https://leofinance.io/@leoglossary/leoglossary-pound-sterling).  Or French franc.  Or Japanese yen.  If you think back to before the European Union, every decade saw at least one European country destroy its currency.  They believe the EU will save them, something I contest.  To me, it is only a matter of time (maybe by 2030) before the [EURO](https://leofinance.io/@leoglossary/leoglossary-euro) is crushed.

We also have the situation where [US Treasuries](https://leofinance.io/@leoglossary/leoglossary-us-treasuries) were never defaulted upon.  Again, look around the world and see how many countries blew up their [bond](https://leofinance.io/@leoglossary/leoglossary-bond) [market](https://leofinance.io/@leoglossary/leoglossary-market).  Most of them did a great deal of damage by going negative.  Do these people realize what it does to their [pension funds](https://leofinance.io/@leoglossary/leoglossary-pension-fund) which tend to hold a lot of [government](https://leofinance.io/@leoglossary/leoglossary-government) bonds?

Obviously, this doesn't directly tie into the Petrodollar idea but it does give you a backdrop against what the USD is bringing to the table.

### The Oil Landscape

There are roughly 100 million barrels of [oil](https://leofinance.io/@leoglossary/leoglossary-oil) consumed daily.  At the rough price of $80 per barrel, this is $8 billion in [trade](https://leofinance.io/@leoglossary/leoglossary-trade) each day being done in the USD.  A hefty sum to say the least.

However, we are going to see, this is really a minimal amount.

Here is a quote from the article:

>So Saudi Arabia and China just announced that basically they will be swapping oil for Chinese RMB. This is a huge nail in the petrodollar coffin.

Perhaps, if the Petrodollar existed.  

To start, can anyone guess who is the largest producer of oil?  

Here is [the top 10](https://www.worldometers.info/oil/oil-production-by-country/):

| | Country | Barrels\Day
| :-- | :--: | --:
1|	United States|	14,837,639,510
2|	Saudi Arabia|	12,402,761,040
3|	Russia|	11,262,746,200
4|	China|	4,905,070,874
5|	Canada|	4,596,724,820
6|	Iraq|	4,443,457,393
7|	Iran|	4,376,194,355
8|	UAE|	3,772,788,273
9|	Brazil|	3,242,957,836
10|	Kuwait|	2,990,544,137

Isn't this interesting?  

Looking at the list, if we put Russia, Saudi Arabia, Iraq, and China in together, we see that totals about 32 million barrels.  We can remove China's total since they are an importer so they likely do not sell much energy to the rest of the world.

This puts up at 27 mllion barrels or a litle more than 25% of the total.

So, of the $8 billion daily, we are looking at around $2 billion that potentially could be done outside the [USD](https://leofinance.io/@leoglossary/leoglossary-usd).

The question is whether this is a significant amount?

### Inside The Numbers

There is no doubt the [energy sector](https://leofinance.io/@leoglossary/leoglossary-energy-industry) is large.  Oil is the king of this so it is logical that a hit there is of major impact.

That said, $2 billion is nothing.  Here is where mythology gets blown out of the water.

This is just a sampling of the USD dominance and why it is light years ahead of any other currency.

* [Repo](https://leofinance.io/@leoglossary/leoglossary-repurchase-agreement-repo) Market - $4.5 trillion daily in tri-party repos (most USD denominated)
* Global Foreign Reserves - $6.4 trillion (or 55% of the total amount)
* US [Fixed Income](https://leofinance.io/@leoglossary/leoglossary-fixed-income-instruments) [Securities](https://leofinance.io/@leoglossary/leoglossary-security) - $8.5 trillion ($915 billion traded daily)
* [FOREX](https://leofinance.io/@leoglossary/leoglossary-forex) - $2.5 quadrillion ($7.5 trillion traded daily: 88% USD)
* Global [Debt](https://leofinance.io/@leoglossary/leoglossary-debt) - estimated $300 trillion, almost half USD denominated (need USD to make payments)
* [Bank](https://leofinance.io/@leoglossary/leoglossary-bank) Cross Border claims - $66 trillion in USD
* US Equities - $470 billion traded daily

Is the [CNY](https://leofinance.io/@leoglossary/leoglossary-cny-currency) even close to these numbers?  The [EUR](https://leofinance.io/@leoglossary/leoglossary-eur-currency)? [JPY](https://leofinance.io/@leoglossary/leoglossary-jpy-currency)?  The answer is no.

In short, the USD is integrated into every part of the [financial](https://leofinance.io/@leoglossary/leoglossary-finance) system. Even China is on board with this.

Total trade because the US and China is about $650 billion per year.  This is $500 billion in exports to the US with another $150 billion imported by the Chinese.  

What this means is that China and the US have about $1.78 billion *per day* in [transactions](https://leofinance.io/@leoglossary/leoglossary-transaction) between the two countries.  This is a similar to the potential of 25% of the oil sales taking place outside the USD.

### In Conclusion

A failure to understand these basics and how currency can derive value is a detriment within the [cryptocurrency](https://leofinance.io/@leoglossary/cryptocurrency) industry.  We see things repeated, often for decades, that fit a narrative but not how the situation really is.  Like the overpopulation nonsense, just because something was espoused for half a century doesn't make it true.

With currency, a lot of it is the economy behind it is crucial.  Finance, [money](https://leofinance.io/@leoglossary/leoglossary-money) and economics is a game of confidence.  To achieve this, certain factors have to be met.  If a currency does not have depth, [liquidity](https://leofinance.io/@leoglossary/leoglossary-liquidity), sophistication, and distribution, it is going to be limited in scope.  

We see the [US dollar](https://leofinance.io/@leoglossary/leoglossary-u-s-dollar) is the most hated currency in the history of humanity.  It is also the most powerful.  Never have we seen a currency with the global reach on the scale we have today.  When tens of trillions of dollars worth of transactions are occuring each day in the currency, that is unmatched.

To put it in context, the $2 billion in oil transactions that can get removed does not even come close to covering the increase in [interest](https://leofinance.io/@leoglossary/leoglossary-interest) payments on the USD denominated debt that is being refinanced.

The dollar's domination has little to do with the fact oil payments are made in them. 

One final comparison: 1 million oil [futures contracts](https://leofinance.io/@leoglossary/leoglossary-futures-contract) trade daily, 1,000 barrels per contract.

Guess what they are traded in.

It will take the Chinese, or anyone else, decades to get to the point the USD is at today.




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