|Table of Contents|

Basis of the U.S. dollar’s international monetary network effect:a review of the petrodollar system(PDF)

《长安大学学报（社科版）》[ISSN:1671-6248/CN:61-1391/C]

Issue:
2022年05期
Page:
23-37
Research Field:
国际经济与贸易
Publishing date:
2022-11-30

Info

Title:
Basis of the U.S. dollar’s international monetary network effect:a review of the petrodollar system
Author(s):
YU Ziliang1;  MANG Huiting1;  TONG Jiadong2
(1. School of Finance, Nankai University, Tianjin 300350, China; 2. School of Economics,Nankai University, Tianjin 300071, China)
Keywords:
international currency;  network effect;  petrodollar system;  international pricing power;  RMB internationalization
PACS:
F821
DOI:
-
Abstract:
The network effect of international currencies is the basis for a country’s currency to gain and sustain international monetary status. However, while the network effect is a good theoretical explanation of the current international monetary system, it does not explain the underlying causes of the formation of the current network effect. Taking the petrodollar as the specific case, this paper summarizes the historical background and process of the formation of the petrodollar system, and analyzes how the U.S. dollar, through the control of oil production and deeply developed domestic financial market, has thoroughly dominated oil price denomination, pricing, medium of exchange, settlement, risk management, investment of surplus funds and other fields of crude oil, thus forming the basis of the international monetary network effect of the U.S. dollar in the post-Bretton Woods system. The paper then further analyzes the potential vulnerability of the petrodollar system, the emergence of the phenomenon of de-dollarization of oil trade in recent years, and its inspiration and reference to the internationalization of the Chinese RMB. The analysis suggests that, the current international financial system dominated by the U.S. dollar will continue for a long time in the future, given the network effect developed on the basis of the petrodollar system at present. In the process of RMB internationalization, commodity derivatives markets such as crude oil futures denominated in RMB should be developed to promote the RMBization of commodity pricing, pricing and trade settlement, in order to foster the network effect of the use of RMB.

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Last Update: 2022-11-30