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Honest question: Can someone explain me why using gold instead of dollars to buy oil isn't the same as sell gold for dollars and use those dollars to buy oil?

Ekaros 4y ago
For two parties to transact in dollars they need either to physically hold large amounts of dollars. Or have access to some shared ledger that is accounting system where transactions can happen. Say A, B, C account. A sells gold and get dollars from account B to account A. And now they can buy oil from owner of account C. But who owns and runs these accounts or the transactions between them? One option is SWIFT system. Which Russia got excluded in some capacity from. As such it is clear that system cannot be trusted. Value of dollars there are very unlikely to be good for long term. And same applies to any accounts in banks in western influence sphere. Thus directly transacting is better option in long run. For any country that wants to keep their economy stable.
- lvl102 4y ago
  - Sargos 4y ago
    Putting your entire economy at risk of being turned off advisory due to unknown future political disputes is a risk to the sovereignty of nearly every country in the world. Many countries are now looking for alternatives after the neutrality of swift/the dollar was eliminated.
  - Ekaros 4y ago
    No. I'm not thanks for ad-hominem though.
- giaour 4y ago
  > One option is SWIFT system. Which Russia got excluded in some capacity from. As such it is clear that system cannot be trusted. That is quite a leap. Russia was also excluded from the NY stock exchange due to the ongoing sanctions; does that mean we can no longer trust stocks bought and sold there?
  - 988747 4y ago
    Yes, it does at least for those of us who are not US citizens. You can never be sure that one day the US won't sanction your home country in the same way, for some weird reason. Of course for some countries the risk is greater than for others, but still, it's a good reason to avoid US financial markets.
    - giaour 4y ago
      All financial markets participate in sanctions, so taking this absolute stance would limit the negotiable instruments available to you to briefcases full of gold or cryptocurrency.
      - pessimizer 4y ago
        > All financial markets participate in sanctions You're using the law of averages. Not all financial markets participate in the same sanctions to the same extent at the same time, which means that the decision about where to invest can be important. > taking this absolute stance You're the one characterizing this as an absolute stance, rather than a practical stance related to the current condition of the markets of the most powerful country that demands the most sanctions.
        giaour 4y ago
        > You're using the law of averages. No, GP claimed that enforcement of any sanctions in international transfers means that the whole system can’t be trusted. > You're the one characterizing this as an absolute stance, rather than a practical stance related to the current condition of the markets of the most powerful country that demands the most sanctions. The original argument I was responding to claimed that one could not use financial institutions that participate in SWIFT. If you want to claim that’s a moderate, reasoned position, then ¯\_(ツ)_/¯
- sbaiddn 4y ago
  "One option is SWIFT system. Which Russia got excluded in some capacity from. As such it is clear that system cannot be trusted. " Ya, kicking them off SWIFT was pretty stupid. The spooks and the economists were super pissed.
RedBeetDeadpool 4y ago
Because there are no dollars involved. If they do as you suggest, at the start: A holds gold. B holds dollars. C holds oil. A trades B, gold for dollars. A holds dollars, B holds gold. A trades C, dollars for oil. A holds oil, C holds dollars. After your suggested trade result: A holds oil. B holds gold. C holds dollars. If there is no "middle man", party A gets oil, party C gets gold. Party B keeps their dollars. End result: A holds oil. B holds dollars. C holds gold. Assuming "B" is USA, USA doesn't get to export its inflation/funding for stimulus checks/student debt/pension crisis/(or in trump era - a wall that does nothing) away to "C", whoever that ends up being, meanwhile, Ghana gets the oil it wants, and "C" gets currency without having to pay for the choices of politicians they have no control over.
- nickdothutton 4y ago
  The US export of inflation via engineered demand for petrodollars (and one could say enforcement via aircraft carrier groups) is an under appreciated effect.
  - luciusdomitius 4y ago
    It is literally the most controversial concept in today's geopolitics. Study politics science in Dover - it is a conspiracy theory. Study PS in Calais - it is the exorbitant privilege and a cornerstone of global injustice. And it is not like France and the empire are rivals. https://en.m.wikipedia.org/wiki/Exorbitant_privilege https://en.m.wikipedia.org/wiki/Exorbitant_privilege
    - rsync 4y ago
      ... charitably, I think your parent refers to underappreciation within the United States which I think is a fair assessment.
      - nickdothutton 4y ago
        Indeed I did mean in the US. The rest of us in the world are more acutely aware ;-).
elzbardico 4y ago
Decoupling from the western financial system and having a higher level of resilience from sanctions. You never know if the US will decide tomorrow you're not behaving as expected under the internal rules-based order.
- robertlagrant 4y ago
  Why would the US be able to stop them buying oil using their dollars?
  - twoclicksnorth 4y ago
    al transactions in usd are settled in US. even if trade happens in other places. hence they have the ability.
    - giaour 4y ago
      > al transactions in usd are settled in US. Do you mean this in some metaphysical sense? Because you can exchange USD for gods or services outside the US without the US government getting involved.
      - Ekaros 4y ago
        There is essentially loans of USD that happen on balance sheets that is paper between institutions outside of USA. So such trading and settlement is possible. But if there is block of actually getting this money in real dollars, that is rather pointless even more monopoly money.
        lottin 4y ago
        What do you mean real dollars? Dollar deposits in bank accounts outside the US are as real as dollars deposited in US banks.
        ilammy 4y ago
dismantlethesun 4y ago
Transactions in Ghana cannot directly be in dollars, so when a USD price is quoted for a foreign sale behind the scenes what happens is cedis are brought in, converted to dollars, then given to the foreign party. This creates a demand for dollars in Ghana, that puts downward pressure on the cedis. So this avoids that, hopefully reduces inflation.
simple-thoughts 4y ago
Only half of the story is quoted here. The other half is Ghana is forcing gold refiners to sell 20% to the Ghanan central bank in “cedis at spot prices with no discounts”[1]. So they are minting cedis to buy gold, then trade that gold for oil instead of dollars. If the trade was instead to sell for dollars, it’s more politically obvious that the policy is a tax on gold miners and refiners. [1] https://www.reuters.com/markets/commodities/ghana-orders-mining-firms-sell-20-refined-gold-cbank-vice-president-2022-11-25/ https://www.reuters.com/markets/commodities/ghana-orders-min...
gpsx 4y ago
I don't think it is different, apart from any issues with timing of the buying and selling and price changes in between. I think this is more a question that the government doesn't have the gold and buying it from the miners is how they will get it. I don't think they are giving the miners a bad deal, other than forcing them to accept Cedis. I believe the net effect is that fewer Cedis are put on the market for dollars and this prevents a price drop in Cedis.
- gpsx 4y ago
  I'm not sure why this was downvoted. I did leave out one thing - I think the Ghana government is making a statement that they don't want to transact in dollars. That is an important difference, but it is not related to the monetary dynamics.
yxhuvud 4y ago
Because of changes of the relative values between gold, dollars and oil over time has implications. If they have a more reliable source of gold than of dollars then it may make sense from their point of view. It is of course up to the oil producers if they want to be on the other side of that risk.
sbaiddn 4y ago
1. Because, realistically, you have to hold relatively large amounts of USD. Transactions take time, they cost money, they're volatile, US currency markets might be 12 time zones away -> Reserves aren't just economic insurance for bad weather, they're also buffers. The big difference: 2. Since you need large reserves (see 1), why hold USD and see it inflate away? No one holds USD. What they hold and trade are treasuries. The return is small, but if you have 10 billion in reserves, 100 million isn't spare change This is the real lynchpin: - the massive market for treasuries significantly lowers the cost of the US' deficit. The US can debt finance itself artificially lowering taxes or inflation. - To maintain this position, "dollars" have to available -> the US must run a deficit. If there were no more deficits, the debt would wither, there would be a global monetary contraction. - Effectively this is a way of exporting inflation: the treasury issues debt -to finance government -> the t-bills are treated as equal to USD -> the excess currency is soaked up by 8 billion people instead of 330 million - unlike cash, the treasury can wake up one day and wipe (I mean "freeze") your account if you've been naughty. Imagine PayPal writ large. In the short run it works great for the US, but in the long run it makes exports more expensive therefore eroding US industry. Short term gain for long term pain? Politicians love it!
ashwagary 4y ago
The first is a direct transaction, the other props up the US economy by creating demand for dollars and a taxable point for US companies. Ghana should only trade in gold...adding useless American middlemen to these transactions is idiotic.

Ekaros 4y ago

For two parties to transact in dollars they need either to physically hold large amounts of dollars. Or have access to some shared ledger that is accounting system where transactions can happen. Say A, B, C account. A sells gold and get dollars from account B to account A. And now they can buy oil from owner of account C. But who owns and runs these accounts or the transactions between them? One option is SWIFT system. Which Russia got excluded in some capacity from. As such it is clear that system cannot be trusted. Value of dollars there are very unlikely to be good for long term. And same applies to any accounts in banks in western influence sphere. Thus directly transacting is better option in long run. For any country that wants to keep their economy stable.

lvl102 4y ago
- Sargos 4y ago
  Putting your entire economy at risk of being turned off advisory due to unknown future political disputes is a risk to the sovereignty of nearly every country in the world. Many countries are now looking for alternatives after the neutrality of swift/the dollar was eliminated.
- Ekaros 4y ago
  No. I'm not thanks for ad-hominem though.
giaour 4y ago
> One option is SWIFT system. Which Russia got excluded in some capacity from. As such it is clear that system cannot be trusted. That is quite a leap. Russia was also excluded from the NY stock exchange due to the ongoing sanctions; does that mean we can no longer trust stocks bought and sold there?
- 988747 4y ago
  Yes, it does at least for those of us who are not US citizens. You can never be sure that one day the US won't sanction your home country in the same way, for some weird reason. Of course for some countries the risk is greater than for others, but still, it's a good reason to avoid US financial markets.
  - giaour 4y ago
    All financial markets participate in sanctions, so taking this absolute stance would limit the negotiable instruments available to you to briefcases full of gold or cryptocurrency.
    - pessimizer 4y ago
      > All financial markets participate in sanctions You're using the law of averages. Not all financial markets participate in the same sanctions to the same extent at the same time, which means that the decision about where to invest can be important. > taking this absolute stance You're the one characterizing this as an absolute stance, rather than a practical stance related to the current condition of the markets of the most powerful country that demands the most sanctions.
      - giaour 4y ago
        > You're using the law of averages. No, GP claimed that enforcement of any sanctions in international transfers means that the whole system can’t be trusted. > You're the one characterizing this as an absolute stance, rather than a practical stance related to the current condition of the markets of the most powerful country that demands the most sanctions. The original argument I was responding to claimed that one could not use financial institutions that participate in SWIFT. If you want to claim that’s a moderate, reasoned position, then ¯\_(ツ)_/¯
sbaiddn 4y ago
"One option is SWIFT system. Which Russia got excluded in some capacity from. As such it is clear that system cannot be trusted. " Ya, kicking them off SWIFT was pretty stupid. The spooks and the economists were super pissed.

RedBeetDeadpool 4y ago

Because there are no dollars involved. If they do as you suggest, at the start: A holds gold. B holds dollars. C holds oil. A trades B, gold for dollars. A holds dollars, B holds gold. A trades C, dollars for oil. A holds oil, C holds dollars. After your suggested trade result: A holds oil. B holds gold. C holds dollars. If there is no "middle man", party A gets oil, party C gets gold. Party B keeps their dollars. End result: A holds oil. B holds dollars. C holds gold. Assuming "B" is USA, USA doesn't get to export its inflation/funding for stimulus checks/student debt/pension crisis/(or in trump era - a wall that does nothing) away to "C", whoever that ends up being, meanwhile, Ghana gets the oil it wants, and "C" gets currency without having to pay for the choices of politicians they have no control over.

nickdothutton 4y ago
The US export of inflation via engineered demand for petrodollars (and one could say enforcement via aircraft carrier groups) is an under appreciated effect.
- luciusdomitius 4y ago
  It is literally the most controversial concept in today's geopolitics. Study politics science in Dover - it is a conspiracy theory. Study PS in Calais - it is the exorbitant privilege and a cornerstone of global injustice. And it is not like France and the empire are rivals. https://en.m.wikipedia.org/wiki/Exorbitant_privilege https://en.m.wikipedia.org/wiki/Exorbitant_privilege
  - rsync 4y ago
    ... charitably, I think your parent refers to underappreciation within the United States which I think is a fair assessment.
    - nickdothutton 4y ago
      Indeed I did mean in the US. The rest of us in the world are more acutely aware ;-).

elzbardico 4y ago

Decoupling from the western financial system and having a higher level of resilience from sanctions. You never know if the US will decide tomorrow you're not behaving as expected under the internal rules-based order.

robertlagrant 4y ago
Why would the US be able to stop them buying oil using their dollars?
- twoclicksnorth 4y ago
  al transactions in usd are settled in US. even if trade happens in other places. hence they have the ability.
  - giaour 4y ago
    > al transactions in usd are settled in US. Do you mean this in some metaphysical sense? Because you can exchange USD for gods or services outside the US without the US government getting involved.
    - Ekaros 4y ago
      There is essentially loans of USD that happen on balance sheets that is paper between institutions outside of USA. So such trading and settlement is possible. But if there is block of actually getting this money in real dollars, that is rather pointless even more monopoly money.
      - lottin 4y ago
        What do you mean real dollars? Dollar deposits in bank accounts outside the US are as real as dollars deposited in US banks.
        ilammy 4y ago

dismantlethesun 4y ago

Transactions in Ghana cannot directly be in dollars, so when a USD price is quoted for a foreign sale behind the scenes what happens is cedis are brought in, converted to dollars, then given to the foreign party. This creates a demand for dollars in Ghana, that puts downward pressure on the cedis. So this avoids that, hopefully reduces inflation.

simple-thoughts 4y ago

Only half of the story is quoted here. The other half is Ghana is forcing gold refiners to sell 20% to the Ghanan central bank in “cedis at spot prices with no discounts”[1]. So they are minting cedis to buy gold, then trade that gold for oil instead of dollars. If the trade was instead to sell for dollars, it’s more politically obvious that the policy is a tax on gold miners and refiners. [1] https://www.reuters.com/markets/commodities/ghana-orders-mining-firms-sell-20-refined-gold-cbank-vice-president-2022-11-25/ https://www.reuters.com/markets/commodities/ghana-orders-min...

gpsx 4y ago

I don't think it is different, apart from any issues with timing of the buying and selling and price changes in between. I think this is more a question that the government doesn't have the gold and buying it from the miners is how they will get it. I don't think they are giving the miners a bad deal, other than forcing them to accept Cedis. I believe the net effect is that fewer Cedis are put on the market for dollars and this prevents a price drop in Cedis.

gpsx 4y ago
I'm not sure why this was downvoted. I did leave out one thing - I think the Ghana government is making a statement that they don't want to transact in dollars. That is an important difference, but it is not related to the monetary dynamics.

yxhuvud 4y ago

Because of changes of the relative values between gold, dollars and oil over time has implications. If they have a more reliable source of gold than of dollars then it may make sense from their point of view. It is of course up to the oil producers if they want to be on the other side of that risk.

sbaiddn 4y ago

1. Because, realistically, you have to hold relatively large amounts of USD. Transactions take time, they cost money, they're volatile, US currency markets might be 12 time zones away -> Reserves aren't just economic insurance for bad weather, they're also buffers. The big difference: 2. Since you need large reserves (see 1), why hold USD and see it inflate away? No one holds USD. What they hold and trade are treasuries. The return is small, but if you have 10 billion in reserves, 100 million isn't spare change This is the real lynchpin: - the massive market for treasuries significantly lowers the cost of the US' deficit. The US can debt finance itself artificially lowering taxes or inflation. - To maintain this position, "dollars" have to available -> the US must run a deficit. If there were no more deficits, the debt would wither, there would be a global monetary contraction. - Effectively this is a way of exporting inflation: the treasury issues debt -to finance government -> the t-bills are treated as equal to USD -> the excess currency is soaked up by 8 billion people instead of 330 million - unlike cash, the treasury can wake up one day and wipe (I mean "freeze") your account if you've been naughty. Imagine PayPal writ large. In the short run it works great for the US, but in the long run it makes exports more expensive therefore eroding US industry. Short term gain for long term pain? Politicians love it!

ashwagary 4y ago

The first is a direct transaction, the other props up the US economy by creating demand for dollars and a taxable point for US companies. Ghana should only trade in gold...adding useless American middlemen to these transactions is idiotic.