Since World War II the dollar has emerged as the reserve currency of global use backed by gold. This direct covertibility with gold lasted until 1971, when it was decided to suspend the direct relationship of the dollar with gold and the dollar began to fluctuate freely and depending on the confidence generated by its economy. It became a fiat currency.
In 1974 the U.S. government signed the trade agreement with Saudi Arabia in which the agreed terms were that the U.S. would buy most of its oil demand from the Middle Eastern country in exchange for the Saudis investing the dollar proceeds from these oil sales contracts (called petrodollars) in the purchase of U.S. debt (government bonds) and also ensuring the military protection of USA. Subsequently, in 1975, this agreement was extended to all members of OPEC (organization for the production of world oil) and boosted the demand for dollars worldwide, becoming the most traded currency in the world.
However, the steady printing of unbacked dollars is causing a slow decline in the confidence placed in the dollar by economic powers and emerging countries as well as oil-producing countries. Several countries have expressed their intention to use their own currencies in the oil business and de-dollarize their economy.
However, the steady printing of unbacked dollars is causing a slow decline in the confidence placed in the dollar by economic powers and emerging countries as well as oil-producing countries. Several countries have expressed their intention to use their own currencies in the oil business and de-dollarize their economy.
China is the country, turned into an economic power in a short time, that has the most advanced plans to use its own currency, the yuan, for contracts to buy oil and raw materials from producing countries, just as the United States did with Saudi Arabia in 1974. The yuan already obtained by producing countries that sell their products to China have given rise to the Petroyuan system.