The American Dollar is just like the Emporer with No Clothes. Better short it as soon as you can. Looks like the United States has succeeded in Iraq, now they have to stop Iran from Switching to the Euro: http://www.vivelecanada.ca/article.php/20050916054129788 Even Canada is getting in on the act. Won't be long before they're using the Euro as well: http://www.fin.gc.ca/news97/97-033e.html http://ring.uvic.ca/99jan08/euro.html
Um...as far as I know everyone pays for oil in US$'s -- except for Iraq post 2000 and they got invaded. Coincidentally, their oil is now sold in US$'s again. The other exception is Venezuela and barter transactions. Funny, it seems to me that we supported a coup attempt there a few years back as well. The fact that everyone has to keep dollar reserves to pay for oil clearly inflates the value of the dollar -- although by how much is debated. I have seen estimates as high as 40% (which I don't believe but it gives an idea). Just to make my understanding of the matter clear, if you have to have dollars to buy oil then there is greater demand for dollars than there would be if you needed Euro's. This inflates the value of the dollar. The medium of the exchange does matter. I suppose you might argue that it is a one time effect and that once countries have their basic petro-dollar needs set then there are only incremental adjustments. However, if we have the option of petro-euro's than this pool of reserve capital may shift thereby creating dollar depreciation. By the same token as you point out, if you're China or Japan and have huge dollar surpluses -- they have Euro surpluses too by the way -- then you probably are happy to pay in US$. However, this doesn't address the basic contention that oil priced soley in dollars creates an inflated dollar. As mentioned, the Saudi's keep a trillion bucks in the US markets. So, there is plenty of money that could be pulled out -- assuming that other oil cartel countries are as flush. I'm happy to be educated. So, if I missed something please clarify it for me.
it's funny how people seem to think that in order for price to move, there has to be selling or buying. even if central banks exchange dollars for euros, wouldn't necessarily change the exchange rate/value. Let's say central bank sells dollars, inflation goes up, fed raises interest rates, demand for dollars goes up, price back to where it was.
Fed raises interest rates, growth slows, people sell dollar assets -- not to mention the increased cost of financing the deficit slows public sector spending as well -- and the exchange rate declines again. There is another side to the equation you propose.
That be great! Euro is going below parity to stay. Iran will wish one day that they never heard the word Euro. John
Both Saudia Arabia and Kuwait peg their currencies to the dollar. The riyal stays at about 3.75 to the $. So the Saudi's naturally prefer dollar denominated assets. None of the three biggest oil producers in Europe (U.K., Norway, Russia) are Euro currency. Clearly there's no outcry for change of the status quo.
Here in Canada they're starting to use the Euro. Could the US invade them as well?: http://archives.cnn.com/2001/WORLD/europe/12/25/euro.afar/