Should OPEC change from the US dollar

[Topaz]

Some of the members of the 13 members, want to convert their cash reserves from the US $$ into currency to another. Oil prices are in US $$ and with its currency depreciating has concerned oil producers of risng oil prices and has eroded the value of their dollar reserves. So... are they saying if they had another currency instead the US $$ oil prices would be lower??? Sounds good to me. I wonder how China feel with trillions of cash reserves in US $$. Maybe we could talk them into our "canadian tire" money!!!

[geoffrey]

The value of oil would be unchanged, so no, the cost of it would not be actually any different. Switching the currency it's marketed in makes no difference.

[old_bold&cold]

If Opec was to change the currency that oil is based on, it would probably be then in euros. The prices would not change for most of us, but the hit of this action on the USD would proably make the price of oil climb quite a bit in the USA. Canada would proably follow the Currency change in pricing but allow the USa to pay in USD after adjustments were made.

If the other countries then started a run on the USD, it would not be a pretty sight, but it would have its limits as well, as to move too much too fast and you are just making your loses more severe. I am sure it is going on big time already, but you will only hear much about it after the big players have already dumped what they want to.

I think that even now in the USA the people have accepted that things are going to go up in price and I think you will see more of the USA prices growing to meet the CDN prices instead of the other way around. I think even food will be taking a hit upwards very soon.

[August1991]

If Opec was to change the currency that oil is based on, it would probably be then in euros. The prices would not change for most of us, but the hit of this action on the USD would proably make the price of oil climb quite a bit in the USA. Canada would proably follow the Currency change in pricing but allow the USa to pay in USD after adjustments were made.

It's irrelevant how the price is denominated.

They can quote the price in euros, dollars, yen, bongo-bongos or litres of orange juice. Once quoted, it can be translated into anything else.

The more relevant question is what financial instruments foreigners hold. For the most part, these are privately issued paper assets denominated in US dollars. Once again, this has no bearing on the US since mere denomination is a choice of measure. You can quote your height in metres or in inches but your height doesn't change.

The final truly relevant question concerns US dollars held by foreigners and by foreign banks. This is what is meant by a "reserve currency". The euro has taken the place once occupied by the DM and the Franc. It is possible that the euro has also, to a degree, supplanted the US dollar.

I suspect however that these effects are minor when compared with the technological changes in banking over the past 20 years and the smaller requirements for high-powered reserves.

[old_bold&cold]

It's irrelevant how the price is denominated.

No it is not irrelavant, as the phsycological affect alone would hurt the value of the USD against all currencies. This is why for now any currency changes by the large holders of USD, will slowly do the changing, as if it is public they will lose a large chunk due to the drop in USD value.

They can quote the price in euros, dollars, yen, bongo-bongos or litres of orange juice. Once quoted, it can be translated into anything else.

Of course they can quote oil prices in any currency, but for the longest time it was thought that the USD was the best currency to use and it worked out well for the people of the USA. For a long time they never worried about costs of currency exchange as the USD was pretty much accepted world wide. Now the world is not so sure and if things like Oil start to be quoted in Euros, it will send a message that the favoured USD is not all encompassing. That can and will have many things going up and down, but the most part it would be down.

The more relevant question is what financial instruments foreigners hold. For the most part, these are privately issued paper assets denominated in US dollars. Once again, this has no bearing on the US since mere denomination is a choice of measure. You can quote your height in metres or in inches but your height doesn't change.

Yes you can us any of any number of accepted methods to measure my height, and it will not make me bigger or smaller. But when you hold trillions of USD and you see the value dropping say 20% and maybe more, you start to try and divest your holdings in that currency to one more stable and possibly even climbing. That is what is going on behind the scenes now and will for quite some time. Once these once large USD holders have gotten rid of their USD holdings they will make their choice public and then yes the fall on the dollar will be greater, and this will cause other holders to also want to divest.

The final truly relevant question concerns US dollars held by foreigners and by foreign banks. This is what is meant by a "reserve currency". The euro has taken the place once occupied by the DM and the Franc. It is possible that the euro has also, to a degree, supplanted the US dollar.

The amount of USD held by foreign banks is small compared to China, japan and Saudi holdings. These 3 countries hold about 75% of all usd curency, held outside of the USA.

I suspect however that these effects are minor when compared with the technological changes in banking over the past 20 years and the smaller requirements for high-powered reserves.

The affects will not be minor to the USD currency, it will be minor to the banks who hold that currency so as to be able to trade in currecy demands from a world wide aspect. The changes where the USD can be had quickly and easily in todays banking world has meant that the USD holdings by these places has been lessened amny times over the years.