Refusal to use the greenback for oil payments around the world could undermine the US economy, a former White House official has said
The US is facing serious economic risks as more countries around the globe move away from the dollar in energy trade, according to former White House official Paul Craig Roberts.
Roberts, who served as US Assistant Secretary of the Treasury for Economic Policy during the Reagan administration, cautioned in an article published on Monday that the end of the petrodollar would have severe adverse effects on the value of the dollar, as well as on US inflation and interest rates.
He pointed to Saudi Arabia's recent announcement that it was open to accepting payment for oil in currencies other than the dollar. According to Roberts, if that happens the demand for dollars and the currency's value will fall. By billing for oil in dollars, the Saudis guaranteed worldwide demand for the greenback, he explained. "This is a major threat to Washington's power and to the financial power of American banks," the economist added.
Roberts noted that for half a century the petrodollar has supported the value of the US dollar and ensured financing for America's large budget and trade deficits. "The petrodollar supported the continuing role of the dollar as world currency after President Nixon closed the gold window in 1971, in effect ending the Bretton Woods system following WWII that gave the US dollar the reserve currency role."
However, according to Roberts, in recent years Washington has so abused the dollar's reserve currency role with sanctions and asset seizes that many countries desire to settle trade imbalances in their own currencies, "in order to escape Washington's ability to threaten and punish them for serving their own interests rather than Washington's."
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The article stated if the Saudis do drop the petrodollar, Americans will face stiff inflation and high interest rates necessary to finance US budget deficits, unless the Federal Reserve itself finances the deficits by printing money. In that case, monetary inflation would be added to inflation caused by the drop in the dollar's foreign exchange value resulting from declining foreign demand for the greenback. "Should this come to pass the implication for the US is massive austerity," Roberts warned.
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