Mint reports: Economists like to preach prudence, but they do not always practise it. Ibrahim Oweiss was a young economist in Egypt’s Ministry of Industry when he offered some frank advice to his bosses. He warned against a suffocating overconcentration of industry in Cairo and Alexandria.
And he later criticised General Nasser’s hollow boast that Egypt made everything “from the needle to the missile” (it made neither well). This incaution made it safer for him to leave the country in 1960, and hard to return.In 1974, as a professor at Georgetown University in Washington, Oweiss turned his attention to another troublesome concentration of assets: the dollars accruing to the Gulf’s oil exporters faster than they could make use of them. “I wish to introduce a new term: petrodollars,” he said at a speech in March that year.
Background
This ensured the word would always be associated with his name (although it had also appeared in an earlier testimony by Peter Peterson, a former American commerce secretary).Petrodollars, originally viewed as a threat to America and other oil importers, were later seen as the saviour of America’s currency and a cornerstone of its financial might. At the end of 1974 the Treasury Department agreed to let Saudi Arabia’s central bank buy Treasury bonds in secret, outside regular auctions, to shield the kingdom from criticism for financing a backer of Israel. At the same time, Saudi Aramco, the national oil company, decided to accept only dollars, and not pounds, in payment for its crude (a decision that awkwardly came to light during a visit to Saudi Arabia by Britain’s chancellor).
Key facts
- Economists like to preach prudence, but they do not always practise it.
- Ibrahim Oweiss was a young economist in Egypt’s Ministry of Industry when he offered some frank advice to his bosses.
- He warned against a suffocating overconcentration of industry in Cairo and Alexandria.
- And he later criticised General Nasser’s hollow boast that Egypt made everything “from the needle to the missile” (it made neither well).
- “I wish to introduce a new term: petrodollars,” he said at a speech in March that year.
What this means
The dollar pricing of oil created global demand for America’s currency. And the investment of oil earnings in dollar assets gave America an enviable amount of financial latitude. “This system has been a linchpin of US financial dominance for nearly half a century,” wrote Diana Choyleva of Enodo Economics, a research firm, last year.Now the Iran war has cast new doubt on the petrodollar “regime”.
The biggest customers for the Gulf’s oil now lie in Asia, not in the West. China has long paid for Iranian crude in yuan, not dollars. It has also begun to experiment with commodity purchases in digital yuan.
Originally reported by Mint. This story has been edited and re-presented by BRIC Team.
