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Does it have anything to do with the fact that Russian, China and other BRICS are banding together to have Oil sold in Chinese currency? http://www.chinadaily.

Does it have anything to do with the fact that Russian, China and other BRICS are banding together to have Oil sold in Chinese currency? http://www.chinadaily.com.cn/business/2017-09/01/content_31408818.htm http://www.chinadaily.com.cn/business/2017-09/01/content_314...

JumpCrisscross 9y ago
> Does it have anything to do with the fact that Russian, China and other BRICS are banding together to have Oil sold in Chinese currency? No. If there's an industry S&P has a conflict of interest with, it's bankers. Derivatives, how Wall Street mostly trades commodities, don't care what their underlying asset is denominated in. I believe your question arises from what I refer to as the petrodollar fallacy. The U.S. dollar is used, globally, because Americans buy lots of stuff. Exporters who sell to Americans naturally end up with U.S. dollars. They could sell those dollars for their own currency, or they could invest them in U.S. dollar denominated assets. (Or they could hold them to further buy stuff from other people.) Our deep, liquid and largely politically indifferent financial markets, huge base of consumers and lack of capital controls underwrite the U.S. dollar's global popularity [1]. Given the United States is, again, a major oil producer, what other people trade their oil in is largely irrelevant to American financial interests. Would certain 3-letter agencies prefer Iran have to sell for dollars? Sure. Is that of even the most vanishing concern to Wall Street? No. [1] Historically, the U.S. dollar supplanted the pound sterling after World War II. The U.S. Treasury, through Harry Dexter White, hard coded the dollar into the Bretton Woods system [a]. He could do this because the United States was the only industrialized power untouched by the war. (We also had a nuclear monopoly.) Either way, nothing to do with oil. [a] https://en.wikipedia.org/wiki/Bretton_Woods_system https://en.wikipedia.org/wiki/Bretton_Woods_system
- coliveira 9y ago
  What you forget in your analysis is that oil producers are not necessarily happy to exchange oil for dollars. They do that out of necessity, for the lack of an alternative. After all, any holder of wealth would be more than happy to diversify their holdings instead of "trusting" on the miraculous power of the dollar. The petrodollar is just the canary in the coal mine. Once countries are able to create an alternative to the dollar in that very crucial market, other industries will follow, especially at a moment when China is becoming the number one market and offsetting the industrial production of the US.
  - ryandamm 9y ago
    Excellent, as an American I wish them all the luck in setting up an alternative currency standard. The US has been hurt by the 'exorbitant privilege' of having its currency be an international reserve standard. Dollars that pile up on balance sheets and central banks' books get recycled into US assets and debt. This is part of the dynamic that drives the trade imbalance, which (on net) imports unemployment into the US, via lack of competitiveness. Yes, the dollar would drop in value if the world's banks used a basket of currencies instead of large, dollar-denominated holdings (often T-bills). And that would be good for the US.
    - danmaz74 9y ago
      > And that would be good for the US. That would be good for debtors and producers exposed to international competition. It would be bad for creditors and people having fixed income.
  - JumpCrisscross 9y ago
    > oil producers are not necessarily happy to exchange oil for dollars. They do that out of necessity, for the lack of an alternative The U.S. dollar is not the world’s sole reserve currency [1]. At 65% it’s dominant, but Euros, pounds, yen and francs are also used and freely traded. Nobody has to accept dollars. It’s just the easiest [2]. (Because we consume a lot and have deep, reliable financial markets.) In any case, who do you think is pushing for more reserve currencies? Hint: the people who make money when people have to convert between reserve currencies. [1] https://en.m.wikipedia.org/wiki/Reserve_currency https://en.m.wikipedia.org/wiki/Reserve_currency [2] Anecdote: friend, former treasurer for a major European airline, found it easier to buy planes from Airbus in U.S. dollars than Euros. They would sign a contract denominated in euros and settle in dollars. Even if that meant swapping euros for dollars and then back again. Why? Because everyone had loads of dollars and is this familiar and comfortable with dollar mechanisms for moving large sums. Nobody forced anyone to do it this way. It was just, strangely, easier.
    - coliveira 9y ago
      This is not different at all from the situation of the pound sterling at the beginning of the 20th century. Of course it is easier to deal with US dollars, this doesn't mean anything for the health of this currency in the long term.

JumpCrisscross 9y ago

> Does it have anything to do with the fact that Russian, China and other BRICS are banding together to have Oil sold in Chinese currency? No. If there's an industry S&P has a conflict of interest with, it's bankers. Derivatives, how Wall Street mostly trades commodities, don't care what their underlying asset is denominated in. I believe your question arises from what I refer to as the petrodollar fallacy. The U.S. dollar is used, globally, because Americans buy lots of stuff. Exporters who sell to Americans naturally end up with U.S. dollars. They could sell those dollars for their own currency, or they could invest them in U.S. dollar denominated assets. (Or they could hold them to further buy stuff from other people.) Our deep, liquid and largely politically indifferent financial markets, huge base of consumers and lack of capital controls underwrite the U.S. dollar's global popularity [1]. Given the United States is, again, a major oil producer, what other people trade their oil in is largely irrelevant to American financial interests. Would certain 3-letter agencies prefer Iran have to sell for dollars? Sure. Is that of even the most vanishing concern to Wall Street? No. [1] Historically, the U.S. dollar supplanted the pound sterling after World War II. The U.S. Treasury, through Harry Dexter White, hard coded the dollar into the Bretton Woods system [a]. He could do this because the United States was the only industrialized power untouched by the war. (We also had a nuclear monopoly.) Either way, nothing to do with oil. [a] https://en.wikipedia.org/wiki/Bretton_Woods_system https://en.wikipedia.org/wiki/Bretton_Woods_system

coliveira 9y ago
What you forget in your analysis is that oil producers are not necessarily happy to exchange oil for dollars. They do that out of necessity, for the lack of an alternative. After all, any holder of wealth would be more than happy to diversify their holdings instead of "trusting" on the miraculous power of the dollar. The petrodollar is just the canary in the coal mine. Once countries are able to create an alternative to the dollar in that very crucial market, other industries will follow, especially at a moment when China is becoming the number one market and offsetting the industrial production of the US.
- ryandamm 9y ago
  Excellent, as an American I wish them all the luck in setting up an alternative currency standard. The US has been hurt by the 'exorbitant privilege' of having its currency be an international reserve standard. Dollars that pile up on balance sheets and central banks' books get recycled into US assets and debt. This is part of the dynamic that drives the trade imbalance, which (on net) imports unemployment into the US, via lack of competitiveness. Yes, the dollar would drop in value if the world's banks used a basket of currencies instead of large, dollar-denominated holdings (often T-bills). And that would be good for the US.
  - danmaz74 9y ago
    > And that would be good for the US. That would be good for debtors and producers exposed to international competition. It would be bad for creditors and people having fixed income.
- JumpCrisscross 9y ago
  > oil producers are not necessarily happy to exchange oil for dollars. They do that out of necessity, for the lack of an alternative The U.S. dollar is not the world’s sole reserve currency [1]. At 65% it’s dominant, but Euros, pounds, yen and francs are also used and freely traded. Nobody has to accept dollars. It’s just the easiest [2]. (Because we consume a lot and have deep, reliable financial markets.) In any case, who do you think is pushing for more reserve currencies? Hint: the people who make money when people have to convert between reserve currencies. [1] https://en.m.wikipedia.org/wiki/Reserve_currency https://en.m.wikipedia.org/wiki/Reserve_currency [2] Anecdote: friend, former treasurer for a major European airline, found it easier to buy planes from Airbus in U.S. dollars than Euros. They would sign a contract denominated in euros and settle in dollars. Even if that meant swapping euros for dollars and then back again. Why? Because everyone had loads of dollars and is this familiar and comfortable with dollar mechanisms for moving large sums. Nobody forced anyone to do it this way. It was just, strangely, easier.
  - coliveira 9y ago
    This is not different at all from the situation of the pound sterling at the beginning of the 20th century. Of course it is easier to deal with US dollars, this doesn't mean anything for the health of this currency in the long term.