What is Petro-Dollar Recycling?

U.S. citizens are increasingly interested in United States Foreign Policy in the Middle East due to the conflicts there. A little known component of United States foreign policy in the Middle East is the concept of Petro-Dollar recycling. The concept is little known because it is difficult to understand in the context of just U.S. dollars. Understanding Petro-Dollars and the system within which they are used and recycled is essential to understanding some United States foreign policy decisions in the Middle East.
Petro-Dollars is the name given to revenue that Middle Eastern governments accrue through the sale of oil in an open market. The reason that Petro-Dollars are called Petro-Dollars and not “Petro-Euros”, “Petro-Rubles”, or even “Petro-Dinars” is that oil is sold in market economies solely for U.S. Dollars. Because of the vast oil reserves held in the middle east, vast amounts of cash are also held in reserve by Middle Eastern governments. Major amounts of cash reserves cause inflation, and these governments need to put this money somewhere else besides within their economies. The West in general and the United States in particular had the most stable markets after WWII and for this reason many middle eastern governments put their money in Western and specifically U.S. hands.
Banks in the United States are not immune to economic pressures. The weight of cash would cause the same inflation here that Middle Eastern governments were trying to avoid there. The solution to this problem lies in the IMF (International Monetary Fund) and the World Bank. These two organizations provide lending to nations with the money that is stored in U.S. banks.
When these dollars are loaned to developing nations they are not loaned in the local currency but in U.S. dollars. These U.S. dollars (because they are the currency of the United States) eventually must be spent buying U.S. goods and services. These dollars are recycled back into the U.S. economy at a rate that is tied to the level of production that the United States can sustain at any given time. These loaned funds were loaned in order to buy infrastructure and through that infrastructure, create a demand for U.S. goods and services.