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Petrodollar Mercantilism Explained In One Chart

Over the past several months, with the price of crude plummeting to half where it was compared to a year ago, we have written much about the monetary reality of the Petrodollar (and more importantly, its recent disappearance), the socioeconomic implications for oil/commodity exporters, the liquidity considerations for the those who create the "recycled" currency in question, and the resultant demand for assets created by public and private entities sold by the currency creator, in the process boosting the "value" of both the commodity, the demand for the currency (usually the world's reserve at any given moment), and the assets of the currency host.

We have explained this cycle and more importantly, what happens when this cycle goes into reverse, in "How The Petrodollar Quietly Died, And Nobody Noticed" and "The Death Of The Petrodollar Was Finally Noticed" (not to mention "Russia Just Pulled Itself Out Of The Petrodollar").

Still, the underlying concept of how Petrodollar recycling, or as some call it, petrocurrency mercantilism works, leaves some confusion. So in order to alleviate that, here courtesy of Cult State, is a quick and simple primer that should hopefully answer all questions.

From CultState:

So what is petrocurrency mercantilism?

It’s when a national bank and an energy producer collude to generate artificial demand for a currency at the expense of the purchasing power of other currencies.

 

The flowchart below shows how it all works.