Petrodollar: UBS Clarifies What Happens To the US Dollar

Vinod Dsouza
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Petrodollar is the most used word in the financial sphere as the 50-year agreement with Saudi Arabia has ended. This gives the Kingdom of Saudi Arabia the license to accept local currencies from other countries for oil settlements. However, there is a critical flaw in this process as Saudi Arabia announced it is ready to accept local currencies two years ago. This is nothing new and several countries have already paid local currencies for oil with Saudi Arabia, not the US dollar, despite the petrodollar agreement being in place.

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So will Saudi Arabia stop accepting the US dollar for oil because the petrodollar agreement came to an end? The answer is no. The US dollar’s dominance in oil trade reigns supreme and Saudi Arabia will continue accepting it for the majority of the transactions, even though the petrodollar is out of the equation. Read here to know more details about the petrodollar and the deal with Saudi Arabia to use the US dollar.

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UBS Analyst Clarifies On the Petrodollar & US Dollar Oil Trade With Saudi Arabia

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Source: Reuters / AFP

Paul Donovan, Chief Economist at UBS Global Wealth Management said that talks about the US dollar’s demise after the petrodollar is mere speculation. “The story seems to have started in the crypto world. Many crypto speculators desperately want to believe in the US dollar’s demise,” said Donovan.

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Donovan explained that Saudi Arabia’s local currency, the riyal is still pegged to the US dollar. Therefore, it makes no difference if the petrodollar agreement is in place or not for global oil trade and the US dollar is still the de facto currency for settlements. “Saudi Arabia’s riyal remains pegged to the dollar, and its stock of financial assets are US dollar focused. The US dollar’s reserve status depends on how money is stored, not how transactions are denominated,” said Donovan.