PETRODOLLAR AND

HYPERINFLATION
HUSSAIN ALI 15006101078
WALEED RASHID 15006101000
ALI HAMZA IFTIKHAR
ALI SAIF 15006101042
 PETRODOLLAR:

• AT THE END OF WORLD WAR-II, USA EMERGES AS A

LEADER OF GLOBAL ECONOMY
• REASON: USA WAS HAVING 80% OF WORLD GOLD
RESERVES AT THAT TIME, GOLD WAS SUPPOSEDLY THE
MOST STABLE TRADING COMMODITY.
• EARLIER SUPERPOWER BRITAIN HAD BECOME DEBT-
RIDDEN AND WAR TORN BY THE END OF WW-II.
 GOLD FOR DOLLARS:

• IN 1944, AT UNITED NATIONS MONETARY & FINANCIAL CONFERENCE (BRETTON

WOODS CONFERENCE)- US DOLLAR WAS ACCEPTED UNANIMOUSLY AS A MEANS
TO TRADE AGAINST GOLD. WHY: TWO REASONS:
• 1) US DOLLAR WAS THE MOST STABLE CURRENCY AT THAT TIME, BECAUSE OF
HIGH GOLD RESERVES OF USA.
• 2) USA OFFERED FIXED TRADING RATE FOR GOLD: 35 $ PER OUNCE OF GOLD,
MANY COUNTRIES BECAME OVERWHELMED BY THIS KIND OF FINANCIALLY
STABLE OPPORTUNITY.
• GOLD FOR US DOLLARS”
ACCEPTED, AND USA American
SUCCESSFULLY CREATED A Consumers
STRONG DEMAND FOR ITS
CURRENCY IN GLOBAL MARKETS. Federal
Government
US Federal
Reserves
 PERIPETEIA : FALLING USD

• SUDDEN RISE OF DEMAND FOR USD RESULTED

INTO INFLATED ASSET PRICES IN ECOMONIES
WORLDWIDE.
• BY 1971, WEIGHTS OF ‘GOLD FOR USD’ SYSTEM
UPON US ECONOMY BECAME UNBEARABLE.
• NATIONS WERE DEMANDING MORE AND MORE
US DOLLARS TO TRADE AGAINST GOLD. THIS
LED TO SHORTAGE OF US DOLLAR LIQUIDITY IN
GLOBAL ECONOMY.
 OIL FOR DOLLARS:

• US GOVERNMENT HAD ONLY 4 WAYS TO TACKLE

WITH THIS ISSUE.. BUT THEY DID SOMETHING Raise
WHICH SHOCKED THE WORLD. Taxes
• BY 1971, US ECONOMY WAS SUFFERING FROM
HIGH TRADE DEFICITS AND HIGH SPENDING ON
VIETNAM WAR.
Way
• WHICH RESULTED INTO IMPROPER BALANCE IN US to Cut
GOLD RESERVES TO DEBT LEVELS. Borrow survive
• USA HAD LARGE DEBTS, THEY FINALLY GOT More for Spending
CAUGHT IN THEIR OWN TRAP. money USA
• THEY FELL SHORT OF THEIR OWN CURRENCY TO Print
PAY OFF THEIR DEBTS. more
• THINGS GOT REVERSED, OTHER NATIONS STARTED
TRADING AGAINST THEIR USD RESERVES FOR
Dollars