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Oil trading may be done without dollar
An offshore oil platform
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TEXT OF INTERVIEW
Bill Radke The U.S. is already facing economic troubles and mounting debt. Now we're hearing about a challenge to America's global financial leadership. London's Independent newspaper reports this morning Arab countries are talking with China, Russia, Japan and France about no longer trading oil in U.S. dollars. I'm joined by the author of that story, the Independent's Middle East correspondent Robert Fisk. Robert, what's behind this secret push?
Robert Fisk: Well I think it's China's way of pushing its own currency forward along with a basket of other currencies, including gold, the euro, possibly a new currency in the gold. And the idea is to show independence rather than just a complaint against the dollar itself.
Radke: Why would de-linking the oil and the dollar stabilize prices?
Fisk: Because you'd have more currencies to bounce along beside each other. And you couldn't have huge dips and falls on the market for either the consumer or the producer.
Radke: You're right that the U.S. is sure to fight this move. How would this hurt the U.S.?
Fisk: Well I mean the dollar ultimately will go down. It did go down slightly when my story appeared this morning. But then recovered when the Saudis denied that they had any plans for a new currency.
Radke: How much is this happening because of the global meltdown and America's great debt?
Fisk: Well this started before the global meltdown. Although when I spoke to investment brokers and bankers in Hong Kong, they made the point that the meltdown was only proof that they were right to try and move away from the dollar because this -- in their view -- the contagion started in America, spread to Europe and then moved through the rest of the world.
Radke: Can America really fight this move or is this inevitable?
Fisk: I think it's inevitable. So many countries have been talking about it. So many countries have been complaining constantly, and sometimes with great frustration and irritation at the way in which the Americans control the financial system. And I think there's a good deal of frustration, which is mixed up with the political feeling that so many countries are tired of being dominated, now there's only one superpower.
Radke: Robert Fisk is Middle East correspondent for the Independent. Robert, thank you.
Fisk: You're very welcome. Thank you.
It is rumored the real reason for the invasion of Iraq, was that Saddam was going to sell oil in Euros...whether or not his fields rival or dwarf the Saudis, this could indeed have been a problem.
After Nixon took America off the Gold Standard, in order to pay for Vietnam without raising taxes, the Saudi's tying of oil prices to the dollar has been a benefit for both allies. It has retained loyalty, and of course kept the world's largest consumer market's currency strong.
But, with China becoming a large enough consumer market, better saving practices, and a thirst for oil...what strength does America have, besides holding onto the Iraqi oil fields and maybe the Persian Gulf that transfers oil from Iran et al? Libya has the sweeter crude, what Quaddaffi decides to trade in another currency?
The following answer makes little sense:
“Fisk: Because you'd have more currencies to bounce along beside each other. And you couldn't have huge dips and falls on the market for either the consumer or the producer.â€
As anyone versed in price theory, economics, and foreign exchange rates knows, whether a commodity is quoted in Dollars, Euros, Yen, etc., as long as the mediums of exchange are freely tradeable (as all the major are), there is no difference what you quote your price in. The foreign exchange market makes sure that there is no 'arbitrage' to be had. Quoting in more currencies has absolutely no effect on any ‘huge dips and falls’ in the market, that has purely to do with the economics of the oil market.
You should be more careful in making a big story out of something that is economically non-sensical.
Regards,
Pascal Stalder
