Maybe Libya\’s all about the central banks?

Sent in by a reader:

What do these seven countries have in common? In the context of banking, one that sticks out is that none of them is listed among the 56 member banks of the Bank for International Settlements (BIS). That evidently puts them outside the long regulatory arm of the central bankers’ central bank in Switzerland.

The most renegade of the lot could be Libya and Iraq, the two that have actually been attacked. Kenneth Schortgen Jr., writing on Examiner.com, noted that “[s]ix months before the US moved into Iraq to take down Saddam Hussein, the oil nation had made the move to accept Euros instead of dollars for oil, and this became a threat to the global dominance of the dollar as the reserve currency, and its dominion as the petrodollar.”

According to a Russian article titled “Bombing of Lybia – Punishment for Ghaddafi for His Attempt to Refuse US Dollar,” Gadaffi made a similarly bold move: he initiated a movement to refuse the dollar and the euro, and called on Arab and African nations to use a new currency instead, the gold dinar. Gadaffi suggested establishing a united African continent, with its 200 million people using this single currency. During the past year, the idea was approved by many Arab countries and most African countries. The only opponents were the Republic of South Africa and the head of the League of Arab States. The initiative was viewed negatively by the USA and the European Union, with French president Nicolas Sarkozy calling Libya a threat to the financial security of mankind; but Gaddafi was not swayed and continued his push for the creation of a united Africa.

Well, no.

Strangely, I\’ve actually been on a TV talk show with one of the gold dinar advocates and he, at least, was a loon. Tehre\’s a fairly good reason we gave up commodity based currencies: it makes the money supply dependent upon how fast people can produce the currency. Which really isn\’t what we want at all, as the Spanish inflation of the 16th century showed us and to a lesser extent as the opening up of the Witwatersrand did in the 1880s.

True, governments can be worse with fiat currencies, but that doesn\’t make gold (or any other such commodity) good money either.

But the bit that proves that this is looney tunes time is that bit about euros for oil.  That the US $ is the world\’s reserve currency is true. But it\’s not actually all that important to the US that this is so. The profit they make out of it is \”seignorage\”, the differrence between the costs of barrels of ink and reams of paper and what they can sell the newly printed hundred $ bills for. This is usually estimated at some $20 billion a year.

Nice cash to have, sure, but in the context of a $14 trillion economy it\’s a rounding error.

Even if the world did start trading oil exclusively in euros, that $20 billion\’s the maximum they could lose as a result of the loss of \”petrodollar\” status. And no, the reserve status of the dollar is not linked in any but the most tenuous of ways to the fact that oil is traded in it anyway.

Any conspiracy theory you see with this in it can safely be dismissed as Woo.

7 comments on “Maybe Libya\’s all about the central banks?

  1. Ghadaffi was trying for years to form a united states of Africa, or somesuch, with him, naturally, at the head of it. The Economist used to report on his efforts regularly, and they had been going nowwhere for about a decade mainly because Africans are not, surprise surprise, united and certainly don’t have much in common with Libyans. No surprise this comes from a Russian source though, they are masters at stumbling upon common knowledge, thinking it secret, and assigning it as the cause of various events.

  2. I understand that seineurage benefits also include the demand for financial instruments denominated in the reserve currency, which tends to support the exchange rate and allowlower interest rates. What the cash magnitude of this amounts to I have no idea.

  3. Seignorage has to be pretty irrelevant in most commodity transactions. The best it can get these days is that at 09:30 the buyer exchanges his currency for virtual dollars. At 10:00 the virtual dollars land in the seller’s account, and at 10:30 they have already been sold for whatever currency the seller really wants (Kuwaiti thingies, Saudi whatsits and so on).

    Actually, the dollar probably gets a certain (if small) amount of propping up by physical demand for tied currencies in stable countries – such as Hong Kong and Saudi Arabia.

    In fact, as the USD and CNY are in de facto currency union, the dollar is doubtless held up big time by China. In demanding China decouple the Americans should tread carefully because they might get what they wish for.

  4. Here’s a conspiracy theory I’ve just invented.
    Sarko is fighting on two fronts, Libya and Ivory Coast. And what’s the beef in this sandwich? That’s right, Niger, 4th biggest uranium producer and home to mines operated by Areva et al for the French.
    You read this nonsense here first.

  5. Thanks, Tim. The United States of Africa bit seemed a warning bell (all the same, I recall Ghaddafi’s absurd attempt to unite with Egypt).

    However, unusually for the wilder shores of speculation, the piece and the comments were reasonably written so it seemed worth bothering you with.

    So no conspiracy, just the usual confused stupidity. Reassuring.

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