Petrodollar
John Jay College of Criminal Justice
Professor S.C.Nzeako
Jialing Gu
12/16/06
Petrodollar
Money, a medium for exchange of goods and services had existed for thousands of years. The earliest known use of money occurred in Mesopotamia around 2500 B.C. Money had shifted from shells and elephant tusks to metal coins, and to nowadays’ paper money, but all those different kinds of money can be divided basically into three types.[1]
Commodity money is the medium of exchange that has the value equal to the value of the material contained in it. This kind of money was found widely in ancient time, in primitive societies where shells, beads, furs, and skins served as mediums. However, commodity money was still in the market up to the modern time. The gold coins that circulated in the United States before 1933 were examples of commodity money.
The next type of money is credit money, a paper backed by promises by the issuer to pay an equivalent value in the standard monetary metal. The U.S. dollar before 1974 was, in some way, credit money, since it was always backed by either silver or gold or both (except for the greenback issued during the Civil War). Stated in the Gold Standard Act of 1900:
"...the dollar consisting of twenty-five and eight-tenths grains (1.67 g) of gold nine-tenths fine, as established by section thirty-five hundred and eleven of the Revised Statutes of the United States, shall be the standard unit of value, and all forms of money issued or coined by the United States shall be maintained at a parity of value with this standard..."
The value of the dollar was set to $20.67 per ounce (66.46 cents per gram) until President Franklin Delano Roosevelt revalued the dollars to $35 per troy ounce(112.53 cents per gram) during the Great Depression. This gold standard dollar kept its place and even became a standard value for other currencies after WWII until 1968 when private market price of gold was freed. Gold price...