This is interesting. Given that the dollar is already so weak if this catches on with OPEC it could make life interesting to say the least.
I don't blame them. If I had a large number of US dollars I'd spend them or convert them pretty quick considering how little the currency is worth nowadays.
Well, this was going to happen anyway and eventually the euro will replace the dollar as the universal currency since the european market is now bigger than the American market. Oil companies will eventually price their barrels in euros and GDP will eventually be measured in euros. Nothing new tbh.
Saddam Hussein was planning to do the same. There were indeed fears that this would catch on with OPEC with disasterous results for the US currency. This was one (of about 12) reasons for invading Iraq. Given that the US cannot just walz into Iran, this is going to be interesting indeed...
Iraq is a non-player in the oil business at this point, and likley will continue for another decade at best. Saudi Arabia is firmly tied to the US, though theoretically this could change. Venezula? Could go either way. If it works for Iran and Bush contiues to act like a tin hat dictaor I could see it happening. Less likley though because so much Venezulan oil goes to the US. Kuwait, same as Saudi Arabia. Unlikley to go euro Russia, as more of their exports start going to Europe they could be an early adopter. Again, seems likley to watch what happens with Iran as they have close business ties That said, many of the gulf states are moving towards a common currency in the next few years and that could change the dynamics of the situation. changes in patterns of consumption could also affect the situation. If the US finally gets serious about reducing oil imports and China starts to become the major player that adds another dimention to it.
I'm not sure that Saudi Arabia is that chummy with the US --relationships are strained to say the least, with the ruling families having to do a delicate and reluctant balancing act between the heathen bull-in-a-china-shop US on the one hand, and their own fairly fundamentalistically inclined Muslim population and neighbours on the other. The US is not their friend --it is an unpleasant customer whose crap they put up with for now because it buys their goods. They can barely stand being in the same room. But if Asia turns out to be a better customer which culturally has more in common to boot, then tables may turn. , and as you said, there are plenty of other takers for Saudi oil.
Has anyone here ever thought about, what happend if there was one "global" currency e.g. something like "credits" (you know, what they have in most Si-Fi movies/books)? Wouldnt that have quite a few benifits?
A drop in the dollar would actually be good for the US economy... At the moment, the dollar is being held artificially high by countries like China, so their exports are at an advantage in the US. Hence, the monster US trade deficit. If the dollar drops down to where it should be, it would reduce the amount of imports, and make our exports able to compete in more markets. That would chop the trade deficit down, and make more jobs in the US, most likely leading to a stronger American economy. I could live with that.
The dollar's not been 'high' for years. The reason for the trade gap is you want high wages, low taxation, cheap goods (which means buying from third-world countries) and consume more than you can afford. Simple domestic economics. It's now 6.8% of GDP. Yes, a big drop in the dollar will help you pay your debts - but will anyone then want to lend real money to somebody who pays back in mickey-mouse money?
Just looking at that graph... How are you defining "high"? I see a drop from 130 to 110, which while it's a nice 15% (or so, too lazy to pull out a calculator) decrease, it's not exactly a huge fall. In fact, as it says right up at the top, we were at 100 in January of 1997. Unless things back then were seriously different from what I remember, we were pretty high back then too. 5% interest is 5% interest, no matter what the exchange rate. While interest-rate change could easily cut into that 5% if the dollar falls seriously, when it stabilizes at the bottom, it's still 5% interest. You're just counting in tens of thousands instead of thousands of dollars. Or were you just trying to make a somewhat-relevant insult?
Er, not the point. Money doesn't come in percentages, it comes in dollar bills that have a certain purchasing power, whether at home or abroad. To play in the global economy, it needs to be a Store of Value, or it's mickey-mouse money, worthless outside Disneyland. See Smoot-Hawley Tariff Act This is the thing. The rest of the world isn't going to play along and lose out to cheapened dollars, they'll move to the Euro standard.
I don't think you understand cpemma's argument. Let's do the maths. Say you borrow $100,-- at 5% interest. In 10 years you will pay back roughly a total + compound interest of $161,--. Seems easy, no? But let's say you borrow that $100,-- ammount from a European bank. Now you are in effect borrowing €76,--, and in 10 years are due to pay back €122,36, but since your currency is the Dollar, that is what you deal in. Now if ten years down the line, the Dollar has devalued from €0.76 to less than €0.47 (a not totally unlikely scenario) and you pay back in Dollars, the lender's interest has in fact been wiped out. And if it were to devalue to €0.25, the repayment will be the equivalent of €40.25, not €122,36 --€35.75 less than you initially borrowed. The only way the European lender can prevent a loss is by insisting that you pay back your debt in Euros. This is also the choice that OPEC faces. If you buy their oil on long-term credit, they may well decide that they want you to pay in a currency that is relatively resilient to inflation/devaluation. This is a simplified example and interest rates will try to calculate in inflation (on the side of the Euro as well as the Dollar). But you still get the idea. History shows us the same example over and over again. Hyperinflation/devaluation of a currency reduces the buying power of institutions holding debt in that currency: in effect they suffer a substantial financial loss. As a consequence, they try to rapidly sell off that currency which leads to further devaluation of the currency.
Operative word there is "may be". While the Dollar appears to be headed for the tank, the euro is still an untested currency that has been on the market for less than a decade. I think this may be a classic case of (falling like a) rock and a hard place. The winner here is likley to be the EU since they are at this time the only reasonable alternative to the dollar. There was a great piece in the Monitor or Bloomberg last night about how the US getting what it wants in China could set off the next global recession. I'll try to find it again.
@ Nexxo: I was missing his point, you're right. I thought he was discussing after a fall in the dollar, not during it. During the fall, you're entirely right, investing in the dollar is a bad move, and could easily steal your profits.
China owns a huge chunk of the US. I wonder how the Bush administration would like being at the receiving end of a hostile take-over?
"At a time when America is leading the world in the war on terrorism and spending billions of dollars to secure our homeland, we cannot cede control of strategic assets to foreign nations with spotty records on terrorism," Rep. Vito Fossella, R-N.Y, said. Oops.
I always believed the real reason behind the invasion of Iraq was the factthat they planned to switch to Euros instead of the Dollar! I guess now is as good a time as any to start a war in Iran!
