why must oil exporting nations peg their currency to the dollar?

Discussion in 'Economics' started by nooty, Apr 27, 2011.

  1. nooty


    Why must oil exporting nations peg their currency to the dollar?
    What are the reasons they have to do this?
  2. Truff


    I believe its because oil is traded in USD.
  3. emg


    that went back during the cold war.
  4. nooty


    so what are the benefits from pegging exactly?
  5. It's just headology
  6. US promises Saudi Arabia their security in the region and spends billions for it. Also, Saudi Arabia's intelligence is trained and maintained by CIA.

    In return, Saudi arabia promises to use USD in selling oil.

    Everytime US dollar is in trouble, or people question the sustainability of dollar pricing of oil, Saudi Arabia oil minister comes to the stage and says "We give full support to US and USD"

    Everytime SA is in trouble, financial or political, white house spokesman says "we give full support to SA"

    Saudi King is the only person Obama bowed and he is also the only person to be greeted personally by Bush whenever he comes to US and they hold hands like no other.

    They need each other to survive.

    Also, George Bush has partnership in oil business with Saudi family.

    All these are in the media. Who knows what else is out there that we don't know?
  7. Gaddafi and Hussein did not accept $'s for their oil. Look what happened to them.
  8. +1
  9. nooty


    a very nice answer, but that was mostly explaining why Saudi sells oil in dollars. My question was why oil based economies like Saudi need to PEG to the dollar.
  10. sjfan


    Saudi can't allow their own currency to float - exporting oil is basically their only business; If it did, then fluctuations in its own currency, which would be highly correlated to the price of oil in the local currency of its buyers, would make any price fixing unmanageable in a hurry.

    If it's a question of which other currency to peg it to, then it goes back to the usual problem: if you don't want to hold trillions in dollar, what do you want to hold instead? The Euro? (with all the inherent problems of the Euro zone). SDRs? (IMF special drawing rights - once thought of as a solution of the problem of reserve currencies - except no one uses it).

    No conspiracy needed.

    #10     Apr 27, 2011