In 1974, Richard Nixon’s Administration made a deal with the king of Saudi Arabia and said we will protect you and help you stay in power but here’s the deal, we want to create the petrodollar. Anytime anybody buys oil from you or any other OPEC member country, you tell them that you will only accept US dollars. Anytime oil is bought around the world, it has to be bought with US dollars.
This petrodollar meant that the US dollar was always in high demand, no matter how many dollars were printed out of thin air by the Treasury, there was always demand for US dollars. This enabled the US to print money and open military basis in nearly every country around the world. Indeed, the US was the only country that could print money out of thin-air and still have it in such high demand, because of the petrodollar oil trade, that it would not quickly devalue the currency to zero.
But then something happened with China that broke US dominance over oil and what ultimately led to the demise of the petrodollar. China was accepted into the WTO in 2001 and that was the beginning of the end for the petrodollar. China began a systematic process of transferring wealth to its own country. Using tariffs, quotas, and subsidies, China waged economic warfare against the U.S. and its allies that resulted in hundreds of billions of dollars in trade deficits every year, for more than a decade. Worse, China forced intellectual property and technology transfers on US corporations that wanted to do business inside the communist country, in some cases even forcing US companies to pay for educational facilities to train Chinese people on how to build and mass produce the technology and products on their own. China’s economy rapidly grew catching up to the US and surpassing most of its allies.
No other country has ever grown as fast as China in history. China is the world’s second largest economy by nominal GDP and the world’s largest economy by purchasing power.
China has established the petroyuan. Beginning Monday, March 26, 2018, China will have yuan-based oil contracts trading on the Shanghai Stock Exchange.