Why?

The value of the US of A dollar is going to zero.
In the meantime, the US of A can print as many dollars as it wants to buy oil.

If oil is priced in another currency
and the value of the dollar is zero,
how will the US of A be able to buy any oil?

Ivo Cerckel
http://blogs.siliconindia.com/goldrupee/

Er, unless the dollar is no longer a floated currency, which I’m sure I would have noticed, I do believe you are talking bollocks, Ivo.

Dump dollar? Talks leak out
By Maher Chmaytelliand Ayesha Daya
BLOOMBERG NEWS
11/17/2007
http://www.stltoday.com/stltoday/business/stories.nsf/0/7EF8B661148F04E086257396000BCF83?OpenDocument

==

In an article “The relationship dollar/oil at the centre of the OPEC Summit”,
AFP quoted two hours ago
Yasser Elguindi, chief oil broker at SIG,
as saying that
the publicity given to the discussions concerning the currency in which oil will be traded on Monday
is a fundamental blunder by OPEC.
Nobody likes to wash her dirty linen in public, Elguindi explained.

I don’t find the press-release English.
Here’s the French text:
La relation dollar/pétrole en ligne de mire au sommet de l’Opep
Il y a 2 heures
RYAD (AFP) —
http://afp.google.com/article/ALeqM5jUGTNkTBMLGXwARbtrQapU4ezEpA
C’est une gaffe monumentale. Personne n’aime laver son linge sale en public”, a commenté Yasser Elguindi, responsable du courtage pétrole chez SIG.

Did OPEC do this on purpose?

Dollars no good for the Taj Mahal
Friday, 16 November 2007, 16:15 GMT
http://news.bbc.co.uk/2/hi/south_asia/7098370.stm
SNIP
Foreign tourists to many of India’s most famous landmarks will no longer be able to pay the entrance fee in dollars, the government says.
The ruling is aimed at safeguarding tourism revenues following the recent falls in the dollar.

This gets debated endlessly.

I think the most likely major effect would come from the likelihood that the oil exporters would shift the majority of their forex reserves into the currency in which they invoiced (say euros), and out of dollars. It might – although this is less likely – see a similar occurrence in the major oil importers who don’t have a major reserve currency, which are Japan and China.

I don’t hold to the view that the dollar gains nothing from being the major currency of international trade, but I think given the size of the forex markets the impact will be relatively small.

Total oil traded per year is around the $3 trillion mark. Activity on the FOREX markets is aroud half a quadrillion dollars per year. At the size of the transactions that occur on the FOREX markets, currency conversion is essentially frictionless. After all, the oil purchased in a given country is paid for with that country’s currency in the end.

The real danger comes from the fact that the majority of holders of dollars are not American. Switching savings into another currency would have serious effects on the US.

Ivo, Who in the real world might want American wdollars? It may be true that people who sell them things may not want so many dollars in the future. However, people who want to buy things from America have to pay in dollars. And people want to buy a lot of things from America. America is still a vast source of new products, ideas, services and companies. Look at the computer you are using. Look at the iPod. It is a $12 trillion economy. Those nice Arabs need America, especially American weapons manufacturers now Iran is flexing its muscles.

Above all Americans will still need dollars. As they sit on a $12 trillion economy, that’s a hell of a lot of demand. Much greater than total oil sales.

So suppose that the Arabs shifting to the Euro lifted the Euro and dropped the dollar. It would not fall to zero because there will still be people who want to buy Coca Cola and iPods – even outside the US. But the rising Euro would make Europe’s weak economy weaker as their exports suffered – and suffered in both directions. The Indians and Chinese are killing their cheap low-tech exports, and now the Americans would steal their high-tech exports as well. As all those cans of Coke and iPods become cheaper, people will buy more of them. Demand for the dollar will rise. And of course a larger earner for Europe is tourism which would be hit very hard by a cheap dollar.

So this is a blip. It will pass. The Chinese still do not generate demand at home and will have to export. So they will still try to depress their own currency by buying dollars. The more protectionist Europe becomes the more they will rely on America and have to buy even more dollars. Europe will continue to fail to produce new ideas or products and so will have to import technology from America. Indeed the more they harrass pharmacutical research, for instance, the more it will move to the US.

The world is not going to end. The sky is not going to fall. Sorry to disappoint.

Besides, the cheap American dollar may well push the Euro over the edge. It is not rational or stable in that it depends on so many countries all co-ordinating their fiscal policies. Honestly. It will break in the end. Wait for the Italians to scream blue murder over this. I’d sell the Euro short if I had any money. In fact I’d love to sell Italian, Spanish, French, Belgian and Greek bonds short and buy German ones. Anyone got a few billions to spare? It is as close as you can get to a no-risk transaction.