"The Federal Reserve’s greatest nightmare is that OPEC will switch its international transactions from a dollar standard to a euro standard. Iraq actually made this switch in Nov. 2000 (when the euro was worth around 80 cents), and has actually made off like a bandit considering the dollar’s steady depreciation against the euro. (Note: the dollar declined 17% against the euro in 2002.)
“The real reason the Bush administration wants a puppet government in Iraq – or more importantly, the reason why the corporate-military-industrial network conglomerate wants a puppet government in Iraq – is so that it will revert back to a dollar standard and stay that way.” (While also hoping to veto any wider OPEC momentum towards the euro, especially from Iran – the 2nd largest OPEC producer who is actively discussing a switch to euros for its oil exports)."
At the time of the switch many analysts were surprised that Saddam was willing to give up millions in oil revenue for what appeared to be a political statement. However, contrary to one of the main points of this November 2000 article, the steady depreciation of the dollar versus the euro since late 2001 means that Iraq has profited handsomely from the switch in their reserve and transaction currencies. The euro has gained roughly 17% against the dollar in that time, which also applies to the $10 billion in Iraq’s U.N. ‘oil for food’ reserve fund that was previously held in dollars has also gained that same percent value since the switch. What would happen if OPEC made a sudden switch to euros, as opposed to a gradual transition?
"Otherwise, the effect of an OPEC switch to the euro would be that oil-consuming nations would have to flush dollars out of their (central bank) reserve funds and replace these with euros. The dollar would crash anywhere from 20-40% in value and the consequences would be those one could expect from any currency collapse and massive inflation (think Argentina currency crisis, for example). You’d have foreign funds stream out of the U.S. stock markets and dollar denominated assets, there’d surely be a run on the banks much like the 1930s, the current account deficit would become unserviceable, the budget deficit would go into default, and so on. Your basic 3rd world economic crisis scenario.
What are the consequences of pricing oil in Euros rather than US dollars? None, in my professional opinion. The currency in which contracts are written is unimportant. It doesn’t mean that anyone holds more Euros or that any risks move from one economy to another (since these contracts are routinely hedged). It’s just a measuring stick. It doesn’t matter to anyone at all, except as a matter of national pride.
What are the consequences of the US losing its status as reserve currency? Well, that supposes it has that status. In fact, central banks hold a basket of currencies as reserves (as well as some gold). Their make up depends on the importance of various currencies for that country’s trade and government debts, and their liquidity in world markets (as well as certain swaps made for reasons of political stability). In countries with floating exchange rates, the reserves are in any case of less importance than they once were.
The benefit to the US of other countries holding the $US as a reserve is seignorage - a kind of tax revenue you get from getting people to pay resources for an asset that is essentially costless to produce and pays no return.
The Euro is an important currency and will result in fewer $US being held by foreign central banks (although a lot of it will be just a replacement of DM in the reserve basket). The US will lose a little seignorage due to this, but the sum would be trivial compared to the cost of an invasion.
The crucial thing here is to notice that **this has nothing whatsoever to do with what currency oil contracts happen to be denominated in. **
Minor point, but Venezuela is an OPEC country. Although they haven’t always followed the production quotas and other arrangements set up by OPEC, I believe president Chavez has stated that they will do so in future though.
On the other hand, the United States imports a lot of oil from Canada and Mexico. More so than from Russia and Norway.
Thank you Feynn for posting that link. You beat me to it.
My understanding was that last year, Canada and Mexico alone provided 31% of the USA’s oil imports.
That fact alone, considering the NAFTA agreement, renders the “conspiracy theorist” position of the Opening Post totally into the “ludicrous bucket”.
Most importantly, elfje? This isn’t the “Straight Dope” board for nothing you know - your foolish assertion earlier regarding the Middle East as effectively being the world’s ONLY oil supplier - (with some minor exceptions) - well, that statement really allowed you to take careful aim at your own feet with one hell of giant bazooka.
Yes, dammit!! This vital information has indeed been kept from the American public, and I thank you from the bottom of my heart for bringing it to our attention. It’s at times like this that the true worth of the Internet, which acknowledges no international boundaries, is made manifest. Those of us who live under the current repressive, information-starved regime of Jeffersonian Democracy are happy for any and all tidbits of actual information and news from the outside world that our Internet friends can provide, and we do thank you, and of course “W. Clark”, who provided this useful insight:
So tell us, is there any (real) news of Planet X? News of its May 2003 impact with Earth has been completely suppressed in the U.S. media…
thank you for taking this sincere. Irony wasn’t really what I was after.
I asked a sincere question: had you heard about this and how true do you think this is? You answered neither.
The fact that I posted this does not necessarily imply that it is also my opinion.
So far, there haven’t been any real answers, apart from the Australian guy/gal. (BTW thanks for your opinion).
If I wanted to get a slating, I’d have posted this in the BBQ Pit section.
However, as I thought that mature debate was possible on this board, I ventured to post this to open up a debate about this.
There have been numerous reasons quoted as the “real” reason for this war, and I hadn’t heard this particular one.
I just wondered…had anybody else?
that is the only, and I repeat ONLY reason why I posted this thread. I do not post threads merely to antagonise.
There are plenty of other subjects available to “abuse” if my sole aim was to piss you guys off.
Elf, you didn’t ask, “Have you heard about this theory and what do you think about it?”
You asked, “Is it true that this information has been kept from you?” I mean, geez. :rolleyes: “Is it true the American government and the American media are in a giant conspiracy to keep Americans from finding out about W. Clark’s It’s-All-About-The-Euro Theory?” The only rational response to a question like that is heavy sarcasm. “Yes, of course, and by the way, the American government and media are also in a conspiracy to keep us from finding out that Planet X is going to slam into the Earth in a couple of months…”
And BTW, if you expect Great Debates to be free of heavy sarcasm, or if you expect us to take every off-the-wall theory and every debate topic totally seriously, then you haven’t been paying attention to the overall composition of the SDMB.
And also BTW, if you expect Great Debates to be a totally genteel tea party, then you also haven’t been paying attention. The rule against name-calling doesn’t mean that we can’t tell you that in our opinion your debate topic is silly.
And you think what you’ve gotten so far was a “slating”? Mercy. :rolleyes:
To answer your questions:
No, I hadn’t heard about this.
No, I don’t take it seriously.
From a small economy course I took, I always remembered this “seignorage” effect (not by that name).
You observe the same phenomenom at the scale of a single country: the government of a country is the only one allowed to print money. When the government prints that money, it is actually lowering the value of the money in the citizens pocket. That value can be said to have been shifted to the government owned bills just produced.
As the US dollars are overwhelmingly used as an international common currency, there is a similar albeit worldwide effect, benefiting the US government.
My course textbook failed to indicate how important or significant this advantage is to the US. If I were forced to bet my life on it, I’d go with, …somewhere between pretty big, to huge.
So, if the US sees that this “seignorage” (sp) is threatened, it is absolutely natural that people in high places start to worry at least a bit, and that some decisions, which at first seem a bit lame (invading without provocation) start to look a bit better.
I do understand that all things involving economic theory are always vague, next to impossible to prove, and are akin to psychological theories ( a dime a dozen)
I think you guys have been to quick to jump at elfje’s throat.