OPEC could ditch dollars for euros: chief

Discussion in 'Commodity Futures' started by bat1, Feb 10, 2008.

  1. bat1


    "It took two world wars and more than 50 years for the dollar to become the dominant currency. Now we are seeing another strong currency coming into the (frame), which is the euro."

    Some OPEC members, notably Iran and Venezuela, have been calling for the group to study the declining dollar's effect on their economies. Iran has already begun pricing most of its oil in euros.

    MEED recalled that the pricing of oil in dollars is a sensitive topic. Saudi Arabia's Foreign Minister Prince Saud al-Faisal warned OPEC late last year that the dollar could plunge if OPEC publicly discussed abandoning it.

    On Tuesday, Badri told reporters in London that several oil exporters were selling in dollars but buying other commodities in euros, calling the latter a strong currency.

    The comments served to underline the difficulties currently facing oil exporting countries.

  2. Selling oil in Dollars and in Euros is EXACTLY the same thing. (The Dollars could immediately be converted to Euros with effectively no loss.... unless of course, it's not "cash on the barrel head", but rather sellers are being paid like 90 days after sale.)

    HOLDING Dollars is another issue.
  3. balda


  4. jjk2


    this is why US attacked iraq. they were flipping.

    iran is next but its gonna be tough.
  5. ptunic


    Totally agree. The pricing by itself is largely meaningless. They could "price" oil in South African Rand for all it matters.

    The real implications here are if the oil producers shift their underlying cash and investment reserves from dollar-denominated assets to other assets; this is really almost the same situation that Reserve Banks are in in terms of how rapidly to diversify away from the Dollar.

    At this point, I see very little chance the Dollar will be able to maintain its historic status of premier reserve currency and keep the benefits (slightly lower interest rates etc) that come with that. We're rapidly trending towards a Dollar/Euro/Yuan roughly 3 way equal split in terms of "reserve" currencies imo. About the only thing that could change this, would be for one of the Reserve Banks out of these three to focus on true disinflationary policies (0-2% long term inflation). I don't see that as being very likely however.
  6. Hate to ask others to do my homework for me, but in trying to understand the impact of lower interest rates in the U.S., I have been trying to understand inflation better. Therefore, can you save me some time on Google and tell me, if 0-2% is considered 'disinflationary', what would a typical U.S. economic policy target as a 'neither inflationary nor disinflationary' number? Reason I ask is that I'm surprised that 2% inflation as a target would be considered 'disinflationary'.

    Clearly the U.S. government is not thinking in this way right now... and I am one of those who doesn't really believe the Fed is its own little fiefdom and that they act without having to answer to the government in power.

    I welcome dissent.

    Thanks for any comments.
  7. ptunic


    By disinflationary, the term usually just means neutral inflation (roughly around 0% price change give or take perhaps a few percent). An inflationary policy is more than that, deflationary is less than that. It is a subjective definition though.

    I personally tend to ignore the CPI headlines that the Central (Reserve) Banks and other political bodies publish, except for humor purposes or sentiment on occasion. They often claim they are objective, but really too much politics ends up entering the equation. By underestimating inflation, it makes everyone look better. The central banks look better at controlling inflation, and the politicians look better at steering the economy since Real GDP appears higher and thus recessions (at least according to how they officially announce it) appear less frequently.

    What I personally use for statistical analysis as a rough, but still more accurate (imo) method of measuring inflation is to just take the average of the change in the price of gold and average price per square foot of housing. Alternatively, you can also google "shadowstats" for another perspective. You can also google Economist's "big mac index", silly as it sounds in many countries it appears more accurate than the official published inflation rates.

    While we're on this subject, the main result of the Fed's actions (besides causing inflation) is due to the way they inject the liquidity, it tends to decrease interest rates lower than they would otherwise be. However, this is a distortion and is not a beneficial decrease, as opposed to the decrease due to reserve currency status which is a positive effect. When the Fed does it, it pushes interest rates down in a way that tends to reduce the incentives for saving and increase the incentives for consumption. Over the medium and long term, this behavior typically leads to reduced national savings rates, which leads to less investment and thus lower productivity growth, so real wages tend to stagnate. This is just my view; for an alternative view you can google "global savings glut".
  8. It matters a great deal whether or not oil (and gold) are quoted in USD. Right now, European countries are having a better time with inflation, since they have more buying power. It used to be an issue for Europeans to buy gold, since they would lose all their potential gains by converting Euros to USD. Right now it's different.

    The EU community has no interest in having oil be quoted in Euros.. for obvious reasons.
  9. ptunic, thanks for that response.
  10. Reuters obtained an advance copy of a magazine article set to be published next week quoting the OPEC Secretary saying "Maybe we can price the oil in the euro. It can be done, but it will take time."
    #10     Feb 10, 2008