This week, certain members of OPEC strongly promoted unlinking the dollar from oil trading. Views ?

Question

Late last year, Kuwait unpegged her own currency from the dollar. Now both her currency and economy are doing well again. And you can bet that all the other pegged Mid-East countries have been watching this and may well follow suit. How will this effect the dollar ?

Iran has started an oil-trading bourse on Kish Island. Nothing unusual in this you say - well, except that they have been trading oil for Euros and not Dollars for the last year. Could this be the reason why the Dollar has been doing so badly and the Euro doing so well recently ?

Answer 1

What many don't realise is that the real issue is whether or not the dollar remians the currency to buy oil, if the OPEC countries decide to change that currnecy then the dollar may recover but the US will no longer be the world's economic powerhouse.
It will not come as news to anyone that the US dominates the world economically and militarily. But the exact mechanisms by which American hegemony has been established and maintained are perhaps less well understood than they might be. One tool used to great effect has been the dollar, but its efficacy has recently been under threat since Europe introduced the euro.

The dollar is the de facto world reserve currency: the US currency accounts for approximately two thirds of all official exchange reserves. More than four-fifths of all foreign exchange transactions and half of all world exports are denominated in dollars. In addition, all IMF loans are denominated in dollars.

But the more dollars there are circulating outside the US, or invested by foreign owners in American assets, the more the rest of the world has had to provide the US with goods and services in exchange for these dollars. The dollars cost the US next to nothing to produce, so the fact that the world uses the currency in this way means that the US is importing vast quantities of goods and services virtually for free.

Since so many foreign-owned dollars are not spent on American goods and services, the US is able to run a huge trade deficit year after year without apparently any major economic consequences. The most recently published figures, for example, show that in November of last year US imports were worth 48% more than US exports1. No other country can run such a large trade deficit with impunity. The financial media tell us the US is acting as the 'consumer of last resort' and the implication is that we should be thankful, but a more enlightening description of this state of affairs would be to say that it is getting a massive interest-free loan from the rest of the world.

While the US' position may seem inviolable, one should remember that the more you have, the more you have to lose. And recently there have been signs of how, for the first time in a long time, the US may be beginning to lose.

One of the stated economic objectives, and perhaps the primary objective, when setting up the euro was to turn it into a reserve currency to challenge the dollar so that Europe too could get something for nothing.

This however would be a disaster for the US. Not only would they lose a large part of their annual subsidy of effectively free goods and services, but countries switching to euro reserves from dollar reserves would bring down the value of the US currency. Imports would start to cost Americans a lot more and as increasing numbers of those holding dollars began to spend them, the US would have to start paying its debts by supplying in goods and services to foreign countries, thus reducing American living standards. As countries and businesses converted their dollar assets into euro assets, the US property and stock market bubbles would, without doubt, burst. The Federal Reserve would no longer be able to print more money to reflate the bubble, as it is currently openly considering doing, because, without lots of eager foreigners prepared to mop them up, a serious inflation would result which, in turn, would make foreigners even more reluctant to hold the US currency and thus heighten the crisis.

There is though one major obstacle to this happening: oil. Oil is not just by far the most important commodity traded internationally, it is the lifeblood of all modern industrialised economies. If you don't have oil, you have to buy it. And if you want to buy oil on the international markets, you usually have to have dollars. Until recently all OPEC countries agreed to sell their oil for dollars only. So long as this remained the case, the euro was unlikely to become the major reserve currency: there is not a lot of point in stockpiling euros if every time you need to buy oil you have to change them into dollars. This arrangement also meant that the US effectively part-controlled the entire world oil market: you could only buy oil if you had dollars, and only one country had the right to print dollars - the US.

If on the other hand OPEC were to decide to accept euros only for its oil (assuming for a moment it were allowed to make this decision), then American economic dominance would be over. Not only would Europe not need as many dollars anymore, but Japan which imports over 80% of its oil from the Middle East would think it wise to convert a large portion of its dollar assets to euro assets (Japan is the major subsidiser of the US because it holds so many dollar investments). The US on the other hand, being the world's largest oil importer would have to run a trade surplus to acquire euros. The conversion from trade deficit to trade surplus would have to be achieved at a time when its property and stock market prices were collapsing and its domestic supplies of oil and gas were contracting. It would be a very painful conversion.

The purely economic arguments for OPEC converting to the euro, at least for a while, seem very strong. The Euro-zone does not run a huge trade deficit nor is it heavily endebted to the rest of the world like the US and interest rates in the Euro-zone are also significantly higher. The Euro-zone has a larger share of world trade than the US and is the Middle East's main trading partner. And nearly everything you can buy for dollars you can also buy for euros - apart, of course, from oil. Furthermore, if OPEC were to convert their dollar assets to euro assets and then require payment for oil in Euros, their assets would immediately increase in value, since oil importing countries would be forced to also convert part of their assets, driving the prices up. For OPEC, backing the euro would be a self-fulfilling prophesy. They could then at some later date move to some other currency, perhaps back to the dollar, and again make huge profits.

Answer 2

OPEC nations unlinking the dollar from oil is not causing the Euro to do better than the dollar, its because the Euro is doing better than the dollar. The OPEC nations want to see their profits rise and they are having a difficult time with it due to the decline in the value of the dollar. If the dollar slides against other foreign currency (which it has been) all commidities that are based off that currency will devalue as well. Hence, they are trying to protect the price of oil by changing the currency it is backed by.

This helps their profits in two ways. First, by switching from the dollar, it will make gas more expensive for the US as oil will do better with a currency that is beating the dollar. So, that means more expensive gas for us, even if supply and demand remain constant. Second, it means that OPEC oil will have a higher value in non-U.S. dollar based economies, like the EU. Oil, as a commodity, will be more robust and will not devalue when the dollar goes down. Unfortunately for the US, this will mean competitors will get relatively cheaper prices while our prices will continue to increase unless the dollar can make a come-back.

Answer 3

It's just the rats leaving the sinking ship. Pay no attention.

Have you noticed though, that every time there's a Republican in the White House, the Mighty Dollar takes a nose-dive.

Don't tell me, right. Someone in the White House is working a scam. A clever plot to so reduce the value of the Dollar that it makes exports dirt cheap and imports expensive.

Least ways that's the sort of trick I'd be pulling if I were in charge of the Buck Stops Here Desk.

No worries all will come right in the end. It always does.

Keep the faith.

Answer 4

Since the US Dollar is Oil's currency, if other opec countries attemt to switch now to the Euro they would lose about 30% of their current profits.
The Dollar was $1 to E1.46 as of last Thursday.

Answer 5

It doesn't matter . . . moving to a basket currency is not the same as abandoning the dollar. It would actually help U.S. citizens by substantially lowering the amount we paid for gas . . . it would provided a financial buffer against currency spikes for the entire world. If done correctly, it could stabilize the per price substantially.

Answer 6

You can't succed in binary trading without a strategy, a good method to follow and some kind of software support. They program I use is called "Autobinary signals". It helps finding loopholes for guaranteed returns. It's very easy to use and I'm earning good money. You find all the details on this site: http://tradingsignal.toptips.org

Answer 7

The current dollar is a fiat currency coming to the end of it's lifespan. I don't blame them one bit.

Answer 8

OPEC is not using the dollar so that the price of oil will increase since the dollar is a strong currency.

Answer 9

any change in currency used will strengthen that currency and unfortunetly weaken the dollar.

Answer 10

We are Screwed
God Help USA

WND Exclusive BLACK-GOLD BLUES
Chavez, Ahmadinejad join bin Laden's jihad on dollar
Leaders urge OPEC members to declare economic war against U.S. 'imperialism'
Posted: November 19, 2007
3:10 p.m. Eastern

By Jerome R. Corsi
© 2007 WorldNetDaily.com


Venezuelan President Hugo Chavez and Iran President Mahmoud Ahmadinejad
Iran and Venezuela have declared war on the U.S dollar following al-Qaida leader Osama bin Laden's call for a jihad on the American currency.

At this past weekend's OPEC summit in Saudi Arabia, Venezuelan President Hugo Chavez and Iran President Mahmoud Ahmadinejad urged members to move away from the dollar as the currency of choice for foreign-exchange reserves resulting from oil sales.

Calling the dollar a "worthless piece of paper," Ahmadinejad told the OPEC summit that a "credible hard currency" other than the dollar should be found.

Chavez, in his concluding speech at the summit, called for OPEC to use oil to fight U.S. imperialism, arguing "the empire of the dollar has to end."


Ahmadinejad's call for a basket of currencies for trading oil first surfaced over the weekend, after a closed OPEC members-only meeting was inadvertently shown on a TV monitor in the media center.

The call for an oil jihad against the dollar was first issued by bin Laden in his "Letter to the American People," published by the London Guardian Nov. 24, 2002.

Bin Laden wrote, "You steal our wealth and oil at paltry prices because of your international influence and military threats. This theft is indeed the highest theft ever witnessed in the history of the world."

He declared, "Whoever has stolen our wealth, then we have the right to destroy their economy."

At the Riyadh summit, Chavez told the group the price of oil could reach $150, or as high as $200 a barrel, "if the United States is crazy enough to attack Iran."

Ahmadinejad argued that oil was under-priced at $100 a barrel, contending higher prices on world markets would be fair to oil-producing countries such as Iran.

Saudi Arabia, a strong U.S. ally, was reluctant to take political advantage of OPEC's oil-producing strength, arguing the cartel has always acted "moderately and wisely."

According to the Islamic Republic News Agency, or IRNA, Chavez stopped off in Tehran today for direct talks with Ahmadinejad before returning home from the summit.

During the meeting, Chavez reported the two nations have signed 186 agreements, including a proposal to form a joint bank and create a joint fund for industrial projects. Bilateral trade between Iran and Venezuela has reached $4.6 billion annually.

According to IRNA, Chavez said "the value of dollars on global markets is declining, and we will witness the fall of the dollar in the future."

IRNA also reported Ahmadinejad's statement that Venezuela and Iran are in full support of each other.

In February 2006, WND reported, Iran was on a course to declare a jihad on the dollar, calling for the creation of an Iranian oil bourse organized to quote oil in euros, instead of dollars.

To date, Iran has yet to follow through with the actual creation of an oil bourse.

In the same month, WND reported Venezuela declared a policy of moving the country's foreign-exchange holdings out of the dollar and into the euro.

At that time, Chavez called for the creation of a South American central bank designed to hold in euros all the foreign-exchange holdings of the participating countries.

In February, WND reported an announcement by Ehrabhim Sheibany, governor of Iran's central bank, that about 60 percent of Iran's oil income is collected in non-dollar currencies, affirming Iran's decision to end all oil sales in dollars.

According to the Associated Press, the dollar has lost 11 percent of its value against the euro since the start of this year.

In December 2006, WND first reported a warning of the possibility of a dollar collapse.

In January came warnings that the fall of the dollar in world currency markets that began in 2006 would accelerate this year.

WND reported last week that with oil at over $90 a barrel, the U.S. has begun spending $1 billion a day for foreign oil, an outflow of dollars that both deepens the country's negative balance of international trade and further weakens the dollar on world currency markets.