The End of the Petrodollar

[Michael]

U.N. to let Iraq sell oil for euros, not dollars

October 30, 2000
Web posted at: 8:45 PM EST (0145 GMT)

UNITED NATIONS (Reuters) -- A U.N. panel on Monday approved Iraq's plan to receive oil-export payments in Europe's single currency after Baghdad decided to move the start date back a week.

Members of the Security Council's Iraqi sanctions committee said the panel's chairman, Dutch Ambassador Peter van Walsum, would inform U.N. officials on Tuesday of the decision to allow Iraq to receive payments in euros, rather than dollars.

U.N. Secretary-General Kofi Annan's office is to report in three months on the impact of the switch to euros, which a U.N. study said would cost Iraq at least $270 million.

Iraq's U.N. Ambassador Saeed Hasan reported earlier that Baghdad would delay the changeover until after Nov. 6, rather than put it into effect on November 1, as originally announced. Iraq has called the dollar the currency of an "enemy state."

Source (http://archives.cnn.com/2000/WORLD/meast/10/30/iraq.un.euro.reut/)

This is particularly interesting given that Iraq's desire to switch away from US dollar denominated oil sales was arguably one of the primary reasons that drove the US invasion of Iraq in the first place. I guess a few hundred billion dollars wasted and several thousand US troops died for nothing. :shrug:

[Americano]

Also interesting that Iraq followed Iran and Russia in accepting Euros for oil in the face of severe US resistance.

If other OPEC nations follow this trend it could escalate the demise of USD as the primary reserve currency.

[Michael]

If other OPEC nations follow this trend it could escalate the demise of USD as the primary reserve currency.

I think this deed is already done. It will likely take ten years for the full effects of this collective decision to filter through the world economy. The USD has already lost a huge amount of relative value already over the last half-dozen years (it was really obvious during during last year's oil-spike when oil-prices in USD rose twice as fast as oil-prices in Euros or Yen).

The USD will always be used, but now it will only be part of a 'basket' of currencies serving as reserve currency or for international denomination purposes. The days of one currency controling are long gone.

The longterm fundamentals on the USD make longterm holding of USD a high risk proposition. That is the real reason the USD has lost its reserve status. The Fed's printing press approach to bubble-building has not gone un-noticed.

[The Drunk Guy]

I think this deed is already done. It will likely take ten years for the full effects of this collective decision to filter through the world economy. The USD has already lost a huge amount of relative value already over the last half-dozen years (it was really obvious during during last year's oil-spike when oil-prices in USD rose twice as fast as oil-prices in Euros or Yen).

The USD will always be used, but now it will only be part of a 'basket' of currencies serving as reserve currency or for international denomination purposes. The days of one currency controling are long gone.

The longterm fundamentals on the USD make longterm holding of USD a high risk proposition. That is the real reason the USD has lost its reserve status. The Fed's printing press approach to bubble-building has not gone un-noticed.Who knows when the Euro will stop growing compared to the dollar? Sure, the USD may hang around for a while, but I think it will eventually drop out of holding use altogether.

Think I could get my employer to pay me in Euros? :ummm:

[Americano]

I think this deed is already done. It will likely take ten years for the full effects of this collective decision to filter through the world economy. The USD has already lost a huge amount of relative value already over the last half-dozen years (it was really obvious during during last year's oil-spike when oil-prices in USD rose twice as fast as oil-prices in Euros or Yen).

The USD will always be used, but now it will only be part of a 'basket' of currencies serving as reserve currency or for international denomination purposes. The days of one currency controling are long gone.

The longterm fundamentals on the USD make longterm holding of USD a high risk proposition. That is the real reason the USD has lost its reserve status. The Fed's printing press approach to bubble-building has not gone un-noticed.

Oddly enough our 'staunch ally' S. Korea was the first developed country to go from USD to a basket of currencies for their reserves.

[Greendruid]

How soon before we see a North American unified currency? What kind of implications would this have on the Mexican economy? Would we see the monarch's head represented? That last one would probably be an even tougher problem to solve given the history of our three nations.

[Michael]

How soon before we see a North American unified currency? What kind of implications would this have on the Mexican economy? Would we see the monarch's head represented? That last one would probably be an even tougher problem to solve given the history of our three nations.
There is no reason or logic for doing so. Canadian currency has always been well managed and we trade with US using USD - and Canada always runs trade surpluses so we never drain currency.

Ergo, there is very little direct financial benefit for Canada to use a common currency with USA (and several good reasons not to).

I can't see that happening at all. It would also be politically explosive in Canada.

Mexico would have problems with the USD as well - given the big difference in living standards between Mexico and USA.

[Americano]

How soon before we see a North American unified currency? What kind of implications would this have on the Mexican economy? Would we see the monarch's head represented? That last one would probably be an even tougher problem to solve given the history of our three nations.

The strong Canadian Dollar has led to record Canadian trade deficits for the past two months, declining US consumption and a weak USD being the major factors. Canada faces the same problems with a strong currency Japan is currently experiencing.

I don't think anyone, including Mexico, wants to have a unified currency exposed to US spending deficits.

[Lily]

I don't think anyone, including Mexico, wants to have a unified currency exposed to US spending deficits.

I wouldn't appear so, but of what benefit would it be to the U.S. and what pressure could the U.S. bring to bear on Canada and Mexico to make it happen should they deem it beneficial?

[Americano]

I wouldn't appear so, but of what benefit would it be to the U.S. and what pressure could the U.S. bring to bear on Canada and Mexico to make it happen should they deem it beneficial?

First, Canada and Mexico would have their finite natural resource assets (primarily oil/gas) revenue exposed to the fortunes of a declining, consumer empire. Their currencies are currently somewhat stable and even though reduction of US exports have damaged their economies their PPP has endured due to decline of USD.

The US has never been shy about using its military to make things happen that benefit only special interests but, hopefully, we're currently out of that mindset for now.

[Michael]

The strong Canadian Dollar has led to record Canadian trade deficits for the past two months, declining US consumption and a weak USD being the major factors. Canada faces the same problems with a strong currency Japan is currently experiencing.
Yes, I've always considered it a perversity that having good economic fundamentals in Canada while US has weak economic fundamentals tends to harm the Canadian economy by negatively affecting Canadian trade with the US. :ummm:

Btw, when the commodity price index rises, that makes things doubly difficult for Canadian manufacturers exporting to the US. Again, this is perverse because Canada just happens to have LOTS of natural resource wealth so any substantial rise in the value of raw material resources (includes oil) automatically harms Canadian trade with the US (we may get more dollars for natural resource exports, but we get less dollars for manufactured goods and high value services where all the best value-added jobs are - which is a net loss to the Canadian economy). :shrug:

Economics is a nasty business... no doubt about that!

I don't think anyone, including Mexico, wants to have a unified currency exposed to US spending deficits.
The Saudis and Emirates have sufferred systemic and structurally high inflation rates for years because of their "fixed peg" to the US dollar for their currencies. That's a price they pay for close US alliance.

[Americano]

Yes, I've always considered it a perversity that having good economic fundamentals in Canada while US has weak economic fundamentals tends to harm the Canadian economy by negatively affecting Canadian trade with the US. :ummm:

I can't remember the specifics but numerous pleas have been made by various Canadians (and other outside economic advisers) for Canada to expand trade to a larger base of countries, reducing concentration on US markets. Concentrating sales with one customer is a basic business no-no
in any industry.

Btw, when the commodity price index rises, that makes things doubly difficult for Canadian manufacturers exporting to the US. Again, this is perverse because Canada just happens to have LOTS of natural resource wealth so any substantial rise in the value of raw material resources (includes oil) automatically harms Canadian trade with the US (we may get more dollars for natural resource exports, but we get less dollars for manufactured goods and high value services where all the best value-added jobs are - which is a net loss to the Canadian economy). :shrug:

Economics is a nasty business... no doubt about that!


The Saudis and Emirates have sufferred systemic and structurally high inflation rates for years because of their "fixed peg" to the US dollar for their currencies. That's a price they pay for close US alliance.

The US world tax. Not all nations have the economic capability to afford it.

[Michael]

I can't remember the specifics but numerous pleas have been made by various Canadians (and other outside economic advisers) for Canada to expand trade to a larger base of countries, reducing concentration on US markets. Concentrating sales with one customer is a basic business no-no in any industry.
Yes, this is true. Any intelligent analysis of the Canadian economy recommends trade diversification.

The problem with this is twofold.

1) Canadian economy is private enterprise, not government controlled - and private enterprise always seeks the easy path - trade with US is the easy path since it is culturally similar, common language and the biggest fattest market on the planet. How do you encourage private enterprise to seek lesser or riskier profits from more distant shores with such large opportunities so conveniently located next-door?

2) Canadian economy is extremely diversified and so is Canadian trade with the US. Its not like Canada is dependent upon exporting just energy and raw materials to the US - Canada exports larger amounts of cars, electronic goods, software and financial services and these are the more important trade sectors because they have higher value-added and cleaner environment jobs. Canadian trade with US is in itself, highly diversified. Likewise with Canadian imports from US - it is dominated by traditional US exports (consumer goods, entertainment products and financial services). Indeed, US is the largest import supplier for Canada as well so there's good currency trade balance here too.

In other words, it is an excellent solution in search of a problem that doesn't really exist in real terms.

The US world tax. Not all nations have the economic capability to afford it.
Notably, both Britain and Canada run their own free-standing currencies relatively successfully despite sitting next door to economic entities many times their own size (EU and USA).

Indeed, it is to be noted that when studying Canadian fiscal and currency policies it is easy to see that there are times when one part of the country might prefer one policy while another part of the country might prefer the opposite policy - strictly based on their economic self-interests. This is within Canada's 30 million population (and admittedly vast geography). I can easily see similar issues in the much larger common currency unions in the USA and EU. Universal currency is not an ideal in my opinion. It tends to play favorites by political region (it can't help but to do so).

[Americano]

An interesting article on the migration from USD to the Euro for oil/gas purchases:

http://www.independent.co.uk/news/business/news/the-demise-of-the-dollar-1798175.html