Thread by @dbaeza13

Everyone says the US dollar dominates because of the “petrodollar.”

This is wrong.

The petro-dollar didn’t create dollar dominance.
Dollar dominance created the petro-dollar.

A 🧵that debunks this petro-dollar myth

The US$ is not powerful because of oil priced in its currency

The US$ is powerful because banks all over the world create their own $, on their own balance sheets, with the tacit acceptance of Fed and US Treasury but beyond their regulatory reach.

Enter the EURO-dollar market

Petro$ story gets cause/effect backwards.

Oil producers priced barrels in $ in 1970s because an infrastructure of global $ banking was already in place.

Banks worldwide manufacture $ via lending. These are real, usable $ for trade and finance, even if they never touch US soil.

Any bank, anywhere, can expand its balance sheet and create a $ liability.
That liability becomes someone's $ asset.
That’s offshore money creation.

Scale matters:
- $14tn in offshore $ liabilities (euro$)
- vs $19tn in US banking system
= 40% of all $ are created outside the US

Oil wasn’t priced in $ to create demand for $.
Oil was priced in $ because a deep, liquid $ banking system already existed globally.

Infrastructure first, pricing second.
a) Banks create $ liquidity
b) Trade gets financed in $
c) Merchants invoice in $

And when this system cracks?
The FED steps in via Swap lines with other central banks. These are $ liquidity backstops to the eurodollar market.

Swap lines are USD loans. Loans need to be paid back. And as such create $ demand. Swap lines dollarize the world.
@SantiagoAuFund

In a credit-based system, the currency that private banks create the most of globally wins.
And that is the US dollar.

The dollar’s power isn’t about oil. It’s about a self-reinforcing global credit system where:
Banks create $ -> Trade uses $ -> Fed backstops $

Sorry $ doomers