OPEC could ditch dollars for euros

They would have except for Saudi Arabia. But that won't hold forever. At a certain point, the money you lose is more important than friendship with the US. And the Saudi's influence within OPEC is not as strong now that they don't have the power to send prices down anymore (except by bluffing).

 

Maybe an Asian Currency will come alone in near future (5-10 years time frame). EURO is strong and nice, but EU economy is not really where the hot cakes are.

If OPEC dumps $$, China and Japan will reduce 1/3 of their holding. That will plunge $$ off probably 40% of its value.

 

1. this is going to happen sooner than later.
2. when it does we are ********ed.

 

Oh really? Can you explain why would they take an action that would make them lose 40% of the value of their remaining holdings?

In this whole discussion, we need to keep in mind what is political posturing vs what is really practical. To convert world oil markets to dealing in something other than dollars is both painful and unnecessary.

 

Both Japan and China buy a lot of oil with $$. If OPEC switched to EURO, they have to switch to EURO to able buy it. Venezuela and Iran already take Euro. Since we know that FED overprints $$ a big time, and it has to mob excess up.

I am not sure that is only posturing. Saudi Arabia wants to get away with it long time ago, but fears of US troops. Now they may not as fearful as before. They have a goal in 2010 to unlink their currency with $$, and create a new Gulf Currency that unifies 6 countries. The Gulf Currency will either peg EURO or a bracket that has EURO as main component.

 

SWITCHING is not the same as DUMPING. You said dumping before.

"fears US troops"? Give me one shred of evidence that this was ever the case.
They might have feared Iraqi troops or Iranian troops, and wanted US troops to be there to protect them, but that is a long way from fearing US troops.

 

I didn't say China and Japan "dumping". I said OPEC "dumping". China is doing $1B per day out of dollar. With their exports to USA keep dropping--first "Made in China" media frenzy, then US recession, they may go a little faster. Japan, though, may need to hold to save its ally.

The original deal at 1971 was that US gave the protection and Saudi took the dollar. The current Saudi King is a little different from his dead father. Back in probably 2005, when he took the power, Rice went to meet him and the discussion went bad. Then Rice called democracy in Saudi in Cario University, Saudi retaliated by pulling all assets out of US. Congress had to pass HIA (Home Investment Act) that reduced the tax from 35% to 7% on American company's foreign profit. Those profit brought back to home to cover those money Saudi pulled out.

Only recently, US-Saudi relationship got a little warm out due to Iran.

 

Depends on what China wants in the future. Do they want American land and companies, or do they want oil more? We can counter China if they attempt the first - just block it legally like we did with the port sales. The only way we can counter the second it to, like, go to some OPEC nation and occupy it.

For whom? Us, certainly.

 

What is it with Yanks and the impulses of a sulky four-year old?

 

Why not offer both if you're OPEC, petroeuro and petrodollar?

 

I think (hope) he was joking and I thought that was pretty funny actually.

 

Yes you did. Here is the quote.

Do you read your own posts?

This is a LONG WAY from the Saudis being afraid of US troops, which is what you said.

 

What I objected to was the use of the term "dump". IMO this is an unlikely scenario because it would actually hurt the Chinese.

It is not a trivial issue for a market to switch from one currency to another.

 

Hmmm. That's a benefit of the doubt one has to earn, I reckon.

 

It's one I've heard too. Shortly before the invasion in late 2002/early 2003, Saddam said all oil had to bought in euros. Although to be honest, the invasion was in too late a stage of planning at that time for it to be entirely in reaction to Saddam's policy change.

 

Well let's be honest here, we'd been at a high state of preparedness for an invasion of Iraq ever since the end of the first Gulf War. That was the most likely war scenario for the US for those 12 years or so (other than the immediate aftermath of 9/11). After 9/11, things ramped up even more. So a lot of the planning was already done. I certainly don't think that maintaining petrodollar supremacy was the primary factor motivating the invasion (IMO the end game was and always has been to free ourselves from Saudi oil dependency) but it didn't hurt.

 

The dollar has been gaining a bubble over the last few decades for un-economic reasons. The forces that have pushed the demand for the US Dollar upward are diminishing and therefore the demand will start to slow down. The major demand for US dollar has been for purchsing oil&gas which is about 85 millinon BPD just for oil. Multiply that by 100 (rough figure for today's oil prices per barrel) and you have a daily demand of 8.5 billion dollar, as a commodity itself (notice, that annual figure trumps the US GDP by itself). Once the trading partners agree to hedge that then the demand will start to decrease and therefore the value of that commodity, the US dollar, will also decline. The real problem starts when the US government has to retrive the excess dollar.

 

Just want to add that during the aformentioned process demand for other currencies go up, mainly Euro, so will its value.

The question still stands: Is Euro the Antichrist?

 

Chinese government got attacked pretty hard at home for substituting US debt and the investment in Blackstone is garbage. After put more money in both Bear Stern and Morgan Stanley, it has to pull out last minute in Citigroup.

The expectation in China is that anti-China sentiment is going to run pretty high in US and Congress is very likely will put a 37% tariff on all products made in China. Even before US recession, the overplayed Made in China already concerned the exporters. There are few factors at work:

1. China waved all taxes for farmers, and started massive universal health care and free school which combine with food price raising increased the income in countryside.

2. The coast area is starting moving up in food chains and want to get rid of all labor-intense and polluting low profit margin factories which mainly owned by Chinese from Hong Kong and Taiwan.

3. Normally those factories should move to inland, but due to the "green" trend, most of inland areas are rejecting to receive those unwelcome business. And most of them are ending up on China-friendly Southeast and South Asian countries, like Lao, Cambodia, Vietnam and Bangladesh.

4. China will depends on its high saving rate of over 40% to develop the domestic demands. It will make a faster currency valuation for the change.

5. There is a clear expectation that US market will drop very fast for Chinese export and anti-China sentiment will make invest in America near impossible. So Chinese investment and exports will aim to gain in emerging markets and especially in Africa.

Put all those factor together, China will reduce its holding in US dollar very quick. Like it just signed a deal in Congo for $12B. You will see China goes a shopping spree for all commodities before the dollar crash.

 

What do you do? I always see you on here everytime China comes up giving a very China-friendly line and it's the only thing I ever see you talk about, but I look at your avatar and it says you live in the San Fran area. Are you a Chinese national living in San Fran temporarily or permanently or a U.S. citizen?