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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

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
    > This is not different at all from the situation of the pound sterling at the beginning of the 20th century Nothing is permanent. My point is arguing (a) S&P cut China’s credit rating to defend dollar hegemony is absurd on multiple levels.
- zacurry 9y ago
  Doesn't the OPEC trade only in dollar ?
seanmcdirmid 9y ago
RMB is not even convertible. Why would oil producers be happy to hold a currency that can't even be freely traded? Dollars are easy to exchange once obtained, RMB is not.

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
  > This is not different at all from the situation of the pound sterling at the beginning of the 20th century Nothing is permanent. My point is arguing (a) S&P cut China’s credit rating to defend dollar hegemony is absurd on multiple levels.
zacurry 9y ago
Doesn't the OPEC trade only in dollar ?

seanmcdirmid 9y ago

RMB is not even convertible. Why would oil producers be happy to hold a currency that can't even be freely traded? Dollars are easy to exchange once obtained, RMB is not.