3 ms·
Why would they want riyal for their oil? That would cause massive price action and destabilize their currency causing wild swings in the value of the riyal depe
by selectodude 6y ago
Why would they want riyal for their oil? That would cause massive price action and destabilize their currency causing wild swings in the value of the riyal depending on the demand for oil. The last thing in the world an export economy wants is a currency that becomes stupidly expensive when people want it and worthless when people don’t. Settling in dollars allows for a stable riyal.
- pas 6y agoThe riyal is pegged to the dollar. But the point is that if you want the "maximum wealth" for your export stuff and you export a lot you obviously want to settle in your domestic currency, since that would lead to you being able to stock up on enormous amounts of foreign currency reserves. Just like China did. Because if there's demand your your currency you can just print it. Sure, this way they are stocking up on USD, but they can't print USD. The destabilization on the other hand is also "exported" to the US. Eg, when oil demand drops, US Treasury rates increase coupled with the economic downturn, less tax revenue, more volatility, but this increase in uncertainty leads to people flocking to stable investments, which pushes rates back down a bit, plus it seems central banking is inseparably coupled to near-zero rates going forward. (Of course the US economy is a lot bigger, they were the main buyers of oil anyway, so it made sense to just settle in USD, and initially the extra demand for USD was seen as a good thing, as it helped finance the US public spending via keeping bond yields - interest rates - low.) --- That said, I'm not fully sold on the linked article's arguments.