Over the past year there has been talk of replacing the U.S. dollar for oil transactions. On Tuesday, Britain's The Independent newspaper reported that secret talks were being held with Russia, China, Japan, and France to replace the dollar with a basket of currencies.
You are probably wondering: "When will this happen?" and "Which currencies will be included in the basket? In answer to first question the changeover would take place over nine years. The currencies to be included in the basket include the Japanese yen, the Chinese yuan, the euro, gold and a new unified currency planned for nations in the Gulf Cooperation Council, including Saudi Arabia, the United Arab Emirates, Kuwait, and Qatar.
What this means is that oil will no longer priced in dollars.The article in The Independent claimed the U.S. is aware of the talks and is "sure to fight this international cabal."
Commodity analysts don't see much change occurring in the near future. They point out that when the dollar is weak that oil prices tend to rise. Also, Bloomberg reports that the Saudi Central Bank Governor Muhammad al-Jasser has said The Independent report is completely incorrect.
The U.S. dollar weakened against the euro, with the euro trading at $1.4691 from $1.4662 and the dollar eased to 89.00 yen from 89.40.
Jonathan Cavenagh of Westpac in Sydney said: "Still this U.S. dollar negative news which is moving markets and shows that central banks not just in Asia are looking to diversify away from the U.S. dollar."
Finally, let's keep in mind that a country's currency tends to follow the strength of its economy. This move can be interpreted by other world countries who are looking at the weakness in the dollar as a sign that the U.S. economy is weak. The other key factor in the dynamics here is the huge debt burden that the U.S. is carrying. This also is a negative.
Should oil be priced by a basket of currencies or should the U.S. dollar remain the sole denominator for oil?
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Reader Comments (Page 1 of 1)
10-06-2009 @ 2:19PM
Dan Barnett said...
This rumor has already been knocked down.
10-07-2009 @ 6:31AM
Richard Ballard said...
IMO higher US imported petroleum costs would cause US imported petroleum reduced volume. How would US imported petroleum reduced volume affect the Gulf Cooperation Council nations' economies? Richard Ballard www.myspace.com/rjballard
11-10-2009 @ 7:13PM
Larry A. Murphy said...
Easy fix........sell them wheat for the oil